Optical/IP Networks

ZTE Gives Indian Carrier Some Credit

Chinese equipment vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) has brought vendor financing back to the telecom industry on a massive scale, as it becomes the first vendor since Huawei Technologies Co. Ltd. to use credit lines to bankroll a major carrier network purchase (see ZTE Provides Gear, Finance to Atlas, Give Them Credit: Huawei's Growing ).

ZTE has signed a memo of understanding with Indian operator Atlas Interactive that it will provide a $1 billion credit line to the carrier.

By doing so, ZTE becomes Atlas's primary equipment and solutions provider. Atlas has already ordered $208 million worth of DSLAM and IPTV equipment for 500,000 lines from ZTE as it continues to build out the broadband access network that will support its triple-play services (see IPTV Tidbits: MS, China & More).

That deal follows a previous $22.8 million DSLAM and video system contract with ZTE announced last December for 50,000 DSL lines and IPTV systems (see ZTE Wins Triple-Play Deal in India). It also follows ZTE's recent opening of an extensive 4,000-square-meter R&D center in India (see ZTE Moves Into India).

Atlas Interactive is building out a triple-play access network in partnership with incumbent carrier Bharat Sanchar Nigam Ltd. (BSNL). It also plans to build GSM and CDMA mobile access networks.

Meanwhile, ZTE's CFO, Wei Zaisheng, said this week that ZTE is raising 30 billion renminbi (US$3.6 billion) in bank loans and debt bonds to fund its international expansion and R&D plans, according to a report from Hong Kong newspaper The Standard. ZTE raised $450 million with its Hong Kong IPO last December and had pledged about 60 percent of that to overseas growth projects (see ZTE Zooms on HK Debut).

ZTE couldn't be reached for comment on those plans, or to discuss whether any of its other major overseas developments, such as the nationwide infrastructure deal just announced in Bangladesh, are also backed by vendor financing arrangements (see ZTE Networks Bangladesh and ZTE Wins Bangladesh Phone Project).

The vendor just announced its financial results for 2004, during which its international revenues more than doubled (see ZTE Doubles Overseas Sales).

The $1 billion facility will be used to fund Atlas's network rollout plans, which include GSM and CDMA mobile networks in 12 regions that will cover more than half of India's 1 billion-plus population, in addition to the fixed broadband IP service project.

Amyn Chagan, CEO of Atlas Interactive India, says the facility will be used for ongoing capital and operational expenditures during the coming years. He says the operator's dependency on that facility will "be lessened once we have raised money from our IPO" (see IPTV Operator Plans London IPO).

But he says the latest $208 million equipment deal with ZTE is not funded by the vendor financing initiative.

Chagan says this isn't his company's first vendor finance deal. He says Atlas's initial IPTV middleware license deal with up-and-coming vendor Orca Interactive Ltd. was also provided on a vendor-financed basis, but that the relationship may proceed further under more standard contract terms (see Orca Wins IP TV Deal in India).

"Orca has two options from here," says Chagan, who adds that he's sure BitBand would have been happy to engage in the same sort of arrangement, but that its video systems are being supplied as part of the signed equipment contracts with ZTE (see BitBand Lands Indian IPTV Deal).

Orca disputes Chagan's version of events. "That's not the case. We don't do vendor financing -- it's not our business model," says Orca's director of international sales, Raz Barnoach. But he adds, "We may be open to discussions" if a very large deal were on the table.

Chagan, though, is adamant about the nature of the initial contract. "I don't think it's something they usually do, but we persuaded them to engage in that way. It has given them a good footprint into the Indian market."

Whatever the details, the relationship is set to be groundbreaking for Orca, which just posted an annual loss on revenues of $5.2 million (see Orca Interactive Reports 2004). Barnoach, who says he is very focused on India because of the massive growth potential for IPTV there, says the company's revenues will grow as its customers' subscriber numbers grow.

"Atlas has plans for between 5 million and 8 million subscribers in the next five years," Barnoach says. "We are working hand-in-hand with Atlas, and its deal with ZTE makes it sure the rollout plans will materialize."

Vendor financing was rife in the late 1990s as vendors fought for involvement in various grand network construction plans, particularly in Europe and North America. Then the bottom dropped out of the market and the vendors were left with a lot of equipment deployed and not as much cash in the bank as they had envisaged.

Large vendors, such as Alcatel (NYSE: ALA; Paris: CGEP:PA), that were particularly affected have vowed not to engage in such deals again, and in fact are still carrying some of the burdens on their balance sheets.

As German historian and philosopher Georg Wilhelm Friedrich Hegel reportedly said: "The only thing we learn from history is that we never learn from history."

— Ray Le Maistre, International News Editor, Light Reading

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