ZTE Bankrolls Canadian Mobile Network

The rollout of a new CDMA mobile network in Canada is to be bankrolled by a $350 million loan from the Export-Import Bank of China, a deal brokered by network equipment vendor ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763).

Public Mobile Inc. , which aims to offer unlimited voice and text services in Ontario and Quebec, secured the loan by striking a vendor financing deal with the Chinese vendor.

The loan is just one of a number arranged by ZTE since the vendor announced a $10 billion credit line with the Export-Import Bank of China in May 2009 and a $15 billion credit line with the China Development Bank in March of the same year. (See Sistema Shyam Secures $70M Loan, ZTE Bags Another $10B in Credit, and ZTE Secures $15B, Highlights R&D.)

Privately, rival equipment suppliers are unhappy with the arrangements between Chinese vendors and Chinese banks, as they claim such loans are offered at a rate (0 percent, some say) that enable ZTE and other Chinese firms such as Huawei Technologies Co. Ltd. to offer cut-throat vendor financing deals with which they cannot compete. (See Huawei's Lucky Number: 30B and Huawei, ZTE Strike New Funding Deals.)

Public Mobile's loan will be used to source network infrastructure, professional services, and handsets from ZTE. (See Public Mobile Builds CDMA Net With ZTE.)

Public Mobile, which launched its services in Toronto on May 26, already has financing arrangements in place from a number of shareholders, including Columbia Capital and M/C Venture Partners . It has also received funding from the Ontario Municipal Employees Retirement Systems (OMERS).

And the services startup is already planning for the future, as it has sourced equipment from ZTE that should enable a relatively painless upgrade to Long Term Evolution (LTE) in the future. (See LTE Watch: More Verizon Speed Tidbits.)

The operator, though, faces a tough challenge to build a profitable business in an increasingly fierce competitive environment. It's the third new mobile operator this year to challenge the established carriers, BCE Inc. (Bell Canada) (NYSE/Toronto: BCE), Rogers Wireless Communications Inc. (NYSE: RCN; Toronto: RCM), and Telus Mobility .

The other new entrants are Globalive Communications Corp. , which offers its services under the Wind Mobile brand, and Mobilicity, which has handed over its network to Ericsson AB (Nasdaq: ERIC). (See Ericsson Wins Managed Network Operations Contract, Intec Wins Wind Deal, AlcaLu Wins in Canada, and NSN Wins 3G Deal.)

— Ray Le Maistre, International Managing Editor, Light Reading

digits 12/5/2012 | 4:31:30 PM
re: ZTE Bankrolls Canadian Mobile Network

The financing is "backed by export credit insurance from the China Export & Credit Insurance Corporation (SINOSURE)" so I think ZTE is safe.

I think all the big vendors are playing in the vendor finance space again, though, as noted in the article, they can't all compete with the sort of resources and interest rates that ZTE and Huawei can access (allegedly).

shygye75 12/5/2012 | 4:31:30 PM
re: ZTE Bankrolls Canadian Mobile Network

It's good to see another brilliant idea from the 1990s resurface, with an interesting twist -- vendor financing, but in this case with an "independent" intermediary. As before, it guarantees some big sales numbers up front for the supplier. And if the buyer defaults in this case, it looks as though the shortfall won't hit ZTE, although of course we don't know all the details.

waverunner 12/5/2012 | 4:31:21 PM
re: ZTE Bankrolls Canadian Mobile Network

Another turn from the past is the exit to the big three Fido to Rogers, Clearnet to Telus, Virgin to Bell. In a twist of wag the dog ZTE's light financing terms allows Public Mobile to wreak havoc on big 3's pricing forcing one of them to acquire PM, ZTE forever locked out of the big 3 is now a supplier and PM makes out big from the acquisition.

Of course, Bell and Telus have abandoned CDMA but ZTE may be thinking LTE. In any case if all else fails, say big 3 prefers co-existence (an unlikely scenario), PM will likely fold or exit cheap under the leverage (a la 2002) from continous price erosion, ZTE will still make out in a classic "I am long gone before the shit hits the fan" (a la 2007). Brilliant.

Hint: whoever is backhauling the majority of PM's bandwidth will be the acquirer.






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