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PCCW Reads Riot Act to Huawei, ZTE

Robert Clark
News Analysis
Robert Clark

Hong Kong telecom, IT, and media giant PCCW has read the riot act to staff at Huawei and ZTE as the process of merging PCCW's telecom network with that of former rival CSL gets underway.

PCCW Ltd. (NYSE: PCW; Hong Kong: 0008), which owns a majority stake in HKT Ltd. , won approval for the acquisition of Hong Kong CSL Ltd. from Telstra Corp. Ltd. (ASX: TLS; NZK: TLS) in May, after agreeing to surrender 29.6MHz of 2100MHz 3G spectrum and promising not to take part in any UMTS spectrum auction for the next five years. (See CSL Sale Sparks Hong Kong Speculation.)

People close to the situation say the integration of the HKT and CSL networks is relatively straightforward, but they are concerned about how well the two Chinese vendors can work together.

Huawei Technologies Co. Ltd. supplies the PCCW-HKT core and radio networks, while ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) is the sole supplier for CSL. "We called Huawei and ZTE together and told them they had to cooperate," one source said. "We won't tolerate any funny stuff."

The Shenzhen-based rivals have sometimes been joint suppliers, but they have never before been asked to collaborate on a project as delicate as this, where each will have to agree to rip out some of its own gear in favor of the other.

PCCW, which is expecting to shave a fifth of its network costs through the integration, is considering a geographic split between the two vendors.

The M&A deal brings CSL back into the fold of Hong Kong's biggest telco. It was one of a number of assets spun off by PCCW major shareholder Richard Li after his acquisition of the former Hongkong Telecom from Cable & Wireless.

PCCW acquired its way back into the mobile business with the purchase of small cellco Sunday in 2006. At that time, Huawei was an 8% shareholder and major supplier to Sunday. The operator bought out Huawei's stake and paid off the vendor loan to Sunday.

ZTE supplanted NSN (now Nokia Networks) as CSL's prime supplier for 3.5G and 4G, and helped CSL launch one of the world's first 4G networks in 2011. (See 1O1O Launches First 4G LTE D-C Mobile Network.)

The acquisition also adds CSL's two well-known mobile brands -- 1O1O and one2free -- to the PCCW product set. A spokesperson said the company would continue with the brands but would make further announcements at a later date.

— Robert Clark, contributing editor, special to Light Reading

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User Rank: Light Sabre
6/30/2014 | 11:03:41 AM
RE: Could have seen that one coming
@EE: Why do you say that Splitting the network geographically is tough call? To me it seems simpler and more straightforward than any other method of splitting the network. This blog deserves a followup blog. It will be interesting to see how PCCW handled ZTE and Huawei.
User Rank: Light Sabre
6/28/2014 | 5:25:33 AM
RE: Could have seen that one coming
Splitting the network geographically is tough call for PCCW. However, as it seems, they have no other option because their major goal is to satisfy their suppliers. As it is, Huawei supplies PCCW-HKT core and radio networks and on the other hand ZTE is the sole supplier for CSL. Huawei and ZTE for sure must be going through a tough time. Who on earth would find it easy to rip out some of their own share in favor of their rival? Of course no one, but do they have an option?
User Rank: Light Sabre
6/28/2014 | 1:06:39 AM
Re: Could have seen that one coming
As the two rivals gain more and more market share on the expense of Alcatel, NSN, situations like this would not come rarely. Both companies need to exhibit some maturity. This will be a good test case of the maturity at each side.
User Rank: Light Sabre
6/26/2014 | 11:32:51 AM
Re: Could have seen that one coming
This sounds like vendor lock-in, writ very large. Splitting the network geographically to keep suppliers happy?
User Rank: Light Sabre
6/26/2014 | 7:54:49 AM
Could have seen that one coming
Forget Cisco vs Juniper, Apple vs Google, Nokia vs Ericsson. The rivalry between ZTE and Huawei is about as ferocious and uncompromising as it gets. Think no holds barred, and then some.

You really don't want to be the account guy in one of those companies that loses out to the other vendor. On the other hand, if an opportunity arises to land the other lot in it with the customer you absolutely want to be that guy.

Good luck with that, PCCW.
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