Huawei Faces $670M CAT Fight

A potentially costly spat with Thailand's CAT Telecom Public Co. Ltd. is revealing the downside to the aggressive tactics Huawei Technologies Co. Ltd. is using in emerging markets.

CAT, formerly the Communications Authority of Thailand, recently decided to fine Huawei 90 million baht (US$2.79 million) per day for what CAT claims is the late delivery of the second phase of its CDMA network, which was due by January 26 this year. The alternative is for Huawei to end the project and transfer all assets back to CAT, although it's unclear how CAT would manage the network without continued support and upgrades from the vendor.

The agreement, signed in January 2005, called for the delivery of 800 CDMA switching and base stations in 51 provinces, and also included complimentary high-speed data chipsets that CAT says were a key factor in Huawei bagging the deal.

"In the last few years Huawei have secured business for themselves in a number of emerging markets at very high risks and at substantially below-margin rates," says Heavy Reading senior analyst Patrick Donegan. "This is an example of them suffering the consequences of committing to such aggressive contractual terms."

The 90 million baht figure is the maximum daily fine CAT has been contemplating, based on what it projects are "lost business opportunities" and revenues from the delay in getting the network up and running. CAT had previously complained that Huawei was 42 days late in delivering on the first phase of the project, but accepted the vendor's explanation that it was hindered by unusually severe weather conditions in northern Thailand.

With the second phase now nearly 250 days late, Huawei could be facing a whopping $670 million-plus fine for a 7.1 billion baht ($220 million) contract -- and the clock is still ticking. Huawei has sought to negotiate a compromise, saying it's not prepared to accept such a huge penalty.

It's not the first time an operator has taken Huawei to task over CDMA. In 2005, India's Bharat Sanchar Nigam Ltd. (BSNL) considered banning the vendor from bidding on future contracts after it defaulted on a CDMA contract. (See BSNL Threatens to Ban Huawei and BSNL Shuns Huawei.)

CAT, which offers fixed-line and international communications services, has been moving into wireless and also has a CDMA-based joint venture with Hutchison Telecommunications International Ltd. (NYSE: HTX). The craftily named Hutchison CAT Wireless Multimedia Ltd. covers 25 provinces.

CAT claims its inspectors found Huawei's base stations had product defects that prevented some sites from connecting to the network properly for seven months. CAT also says late delivery of the promised chipsets has affected its ability to offer mobile TV services. Huawei has disputed those claims and told the Bangkok Post that the chip delivery was delayed by an overseas supplier.

A CAT board spokesman told the Post this week that under the terms of the agreement, the carrier can cancel the contract immediately if Huawei failed to meet any of its conditions.

— Nicole Willing, Reporter, Light Reading

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