ZTE Ousts NSN in Hong Kong

Mobile operator Hong Kong CSL Ltd. , a long-time Nokia Networks (NSN) customer, is set to award a cellular network upgrade contract to ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) instead of its incumbent supplier, Unstrung has learned.

The award looks set to be a double blow to NSN because, according to industry sources, the European joint venture has not only lost the upgrade deal but will also see its installed 2G and 3G gear ripped out and replaced by ZTE equipment.

"We haven't announced anything yet," a CSL spokeswoman told Unstrung before following up with an email stating: "Please note that we have a continuing relationship with NSN."

NSN declined to comment.

CSL's decision is yet another reminder for incumbent cellular network suppliers such as NSN and Ericsson AB (Nasdaq: ERIC) that market conditions are getting tougher as the likes of ZTE and its Chinese rival Huawei Technologies Co. Ltd. continue to grow their market share and contribute to the downward pressure on prices and margins.

NSN's relationship with Hong Kong's CSL goes back to 1991 when the operator awarded a GSM core and radio access network contract to Nokia's networks division. Then in September 2001, CSL awarded Nokia a 3G network contract. (See CSL Uses Nokia's HSDPA and CSL Uses Nokia IMS.)

Now, though, it seems NSN has been ousted, and it's possible that the vendor's reluctance to engage in unprofitable customer relationships might be behind the decision.

NSN recently indicated that it's not prepared to do business when the price is so low its margins could be compromised. Last year, the vendor walked away from a GSM contract with Bharat Sanchar Nigam Ltd. (BSNL) in India that was worth about $875 million because of the unfavorable financial terms of the deal. (See Upheaval in India's Mobile Market, Nokia-Siemens Balks at BSNL Contract, BSNL to Award $4.5B Mobile Contracts, and BSNL Lines Up GSM Options.)

Asia/Pacific is proving a tough region for NSN at the moment. In the fourth quarter of 2007, NSN's Asia/Pacific revenues (excluding China) were down 29 percent to below €840 million ($1.24 billion) from a much healthier €1.2 billion ($1.77 billion) in the second quarter of the year. (See Nokia Siemens Ramps in Q4.)

And earlier in the year, NSN lost out to Huawei at Singapore's StarHub , which, having been a Nokia mobile infrastructure customer since 2003, switched to the Chinese vendor for a 3G upgrade. (See Huawei Partners StarHub, StarHub Picks Huawei for HUSPA, and StarHub Picks Nokia WCDMA.)

— Michelle Donegan, European Editor, Unstrung

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