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Vodafone Puts ZTE in the Frame

ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) scored an infrastructure win with Vodafone Group plc (NYSE: VOD) as the Chinese vendor signed a global framework agreement for network equipment that spans its entire product portfolio. (See Vodafone Puts ZTE in the Frame.)

The agreement lays the foundation for ZTE to supply Vodafone with network infrastructure if the operator chooses to contract gear from ZTE in the future.

ZTE has an existing relationship with Vodafone and manufactures low-cost GSM handsets for the operator. Today's framework agreement marks the first time that the Chinese vendor will have a chance to sell network infrastructure to the world's biggest operator by revenue.

ZTE's presence in Vodafone's equipment selection process will increase the price pressure on incumbent suppliers, according to Jason Chapman, research analyst at Gartner Inc.

"The inclusion of ZTE is going to increase competition for every single deal that's going on," says Chapman.

For potential infrastructure deals, Vodafone may be sizing up ZTE as a supplier in emerging markets and in particular India, where Vodafone India is expanding rapidly. Vodafone's CTO Steve Pusey said at a recent analyst conference that "In India, we're building a Germany in one year," to give an idea of the scale and massive growth that market is undergoing.

India is ZTE's second biggest market after China. The vendor delivered 10 million handsets to the country as of November 2007 and said it expects revenues of $1 billion from India in 2008. (See ZTE Touts India Share and ZTE Sets Indian Target.)

Vodafone approved ZTE as a global supplier back in April 2006. In February 2007, the operator inked a framework agreement with the Chinese vendor to make Vodafone-branded, low-cost GSM handsets for its emerging market operations. (See Vodafone Picks ZTE Handets and V'fone Intros Low Cost Handsets .)

Vodafone debuted two models of the ZTE-made handsets in May last year in Egypt, Romania, and South Africa. Since then, ZTE says it has shipped more than 8 million Vodafone-branded devices to more than 30 Vodafone operating companies and partners.

— Michelle Donegan, European Editor, Unstrung

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