Huawei, ZTE Strike New Funding Deals
ZTE announced today it has signed a memorandum of understanding (MoU) with Sistema and China Development Bank that will see the trio cooperate on international expansion opportunities. (See ZTE, Sistema Team Up.)
ZTE's financing team has certainly been busy lately: It followed up that initial $15 billion arrangement with an additional $10 billion credit line from China Exim Bank. (See ZTE Bags Another $10B in Credit.)
And ZTE isn't the only Chinese vendor striking new financial relationships: Key local rival Huawei Technologies Co. Ltd. has further cemented its relationship with the increasingly influential Arab carrier Etisalat by providing the ambitious operator with an "optimal financing solution." (See Huawei to Finance Etisalat.)
Sistema of the down
ZTE's arrangement with Sistema and the China Development Bank will result in the new partners jointly identifying and pursuing "potential opportunities in relevant and targeted geographical areas." As part of the deal, the Chinese bank will provide long-term credit facilities to Sistema's subsidiaries, in addition to funding ZTE equipment and services deals.
While Sistema is involved in a number of industry sectors (oil, pharmaceuticals, travel, health care, retail, and more), it has a number of telecom-related subsidiaries, including Russian mobile operator Mobile TeleSystems OJSC (MTS) (NYSE: MBT) and Russian fixed-line carrier Comstar United Telesystems JSC (London: CMST).
Crucially, though, in terms of today's announcement, it is also the majority stakeholder in Sistema Shyam TeleServices Ltd. , an emerging CDMA operator in India that is still in the early stages of an extensive, and expensive, network and services rollout. (See Shyam Launches CDMA Service, Sistema Adds to Shyam Stake, and A Guide to India's Telecom Market.)
Sistema Shyam TeleServices, which is offering its services under the MTS India brand, is still in its first year of operations and building up its customer base: It ended April of this year with nearly 770,000 customers, a fraction of the total current market of more than 400 million, but announced in the past few days that it has reached the 1 million subscriber mark. (See India Tops 400M Mobile Subs.)
But it still has a long way to go in building out its planned national network, a mammoth project that Sistema believes will cost $5.5 billion in total. So far about $1.2 billion has been invested on the spectrum, network, IT, and outsourced customer services support, some of which has gone ZTE's way -- it was one of the three CDMA infrastructure vendors to land access and core network deals from the carrier last year. (See Sistema Shyam Awards Deals and Vendors Queue Up for Indian Deals .)
With the majority of India's vast land mass still to cover with its service, and with Sistema currently suffering financially from the weakness of the Russian rouble and a weak domestic market (it just reported a first-quarter loss of $396 million), the new financial arrangement is likely to shore up Sistema's expansion plans in India, which in turn should benefit ZTE as further network expansion purchase orders are signed.
The Chinese bank's financial backing should also spell good news for Sistema's telecom systems offshoot JSC Sitronics (London: SITR), a telecom hardware and software vendor and systems integrator. As you'd expect for a sister company, it's already supplying Sistema Shyam TeleServices with CRM and billing systems as part of a $64 million deal announced in April.
In addition (and closing the tidy loop between the new partners), Intracom Holdings S.A. , which is part of Sitronics, recently landed a $85 million wireless transport equipment deal with Sistema Shyam TeleServices -- a deal that Intracom won in partnership with ZTE. How cozy! (See Intracom Wins in India.)
Huawei's Middle Eastern overtures
Meanwhile, ZTE rival Huawei has embedded itself deeper with influential United Arab Emirates operator Etisalat, which, like Sistema, is also a player in the Indian telecom services market: It holds a 45 percent stake in newcomer Swan Telecom (just renamed Etisalat DB Telecom India Pvt), which has yet to launch its services. (See Etisalat Buys Into India.)
Huawei and Etisalat have struck a "Global Framework Agreement (GFA) and Financing Memorandum of Understanding (MoU)" to support the carrier's ongoing international expansion. And it's already a significant international player, boasting operations in 17 markets in Asia/Pacific, the Middle East, and Africa, and more than 80 million customers. (See Etisalat Reports Q1.)
The new relationship goes further, though, as the two companies have established an Application Innovation Center (AIC) to develop "customized solutions and applications."
Etisalat is keen on applications-development relationships: In the past it has brokered relationships with BT Group plc (NYSE: BT; London: BTA) and Orange (NYSE: FTE), while it is also a stakeholder in SoftAtHome, a joint venture that is developing "software solutions for triple-play services in the Digital Home." (See Etisalat Buys Into SoftAtHome, Etisalat, FT Team Up, and BT, Etisalat Do R&D.)
Huawei and Etisalat have been working closely for some time: In addition to announcing a number of network equipment deals, in April 2008 they forged a "strategic agreement" that involved the Chinese vendor developing an "all-IP evolution strategy" for the carrier. (See Etisalat Turns to Huawei, Huawei Wins FTTH Deal, Huawei Bites at the IP Core, and Mobily Builds Huawei Core.)
— Ray Le Maistre, International News Editor, Light Reading