5G and Beyond

ZTE, Samsung Battle for Wireless Market Share

"We are the only remaining top-quality challenger in this industry," said Ming Xiao, the president of sales for China's ZTE, during a conference in Italy last week. Samsung would probably take issue with that claim. After landing some important network deals in the last couple of years, the South Korean manufacturer is reportedly aiming to capture a fifth of the global 5G market by 2020. With ZTE on a similar land grab, the big guns of Ericsson, Huawei and Nokia may have to be on their guard. (See Amid the rubble of L'Aquila, ZTE tries to rebuild.)

Despite the doubts about its long-term prospects, ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) is sounding a bullish tone as operators gear up for investment in next-generation 5G networks. Ming Xiao tells Light Reading a long-term objective is to increase ZTE's share of the overall equipment market to around a quarter, from roughly a tenth today.

Given ZTE's problems, industry observers may scoff at such an ambitious target. Whatever seems reasonable, the perception that ZTE prices its equipment and services at extremely competitive rates should help it to land deals. But the company insists that its technological prowess and the support it offers customers are what really count. It is boosting investments in research and development at the expense of profit margins. In massive MIMO, a sophisticated antenna technology used in 5G networks, it is several years ahead of Western rivals, boasts Ming Xiao.

The quality of ZTE's products is not in doubt, according to analysts and operators. The uncertainty lies on the regulatory front. A US ban on component sales to ZTE caused major disruption for its customers earlier this year, after the Chinese vendor was penalized for breaching sanctions against Iran and North Korea. Another such ban would probably be a death sentence for ZTE, prompting customers to use less risky suppliers instead. In the meantime, Western governments seem increasingly worried that products from ZTE and bigger Chinese rival Huawei Technologies Co. Ltd. could be a "backdoor" for Chinese spies. Australia and the US have shut the Chinese vendors out. (See Huawei, ZTE Charm Offensive Just Got Harder.)

In the markets where it already did business, ZTE seems to have bounced back impressively from the US equipment ban. Overall company revenues were down just 14% for the recent third quarter, to around $2.8 billion, and the decline appears to have been even shallower in the radio access networks (RAN) business. "Shipment levels have returned to pre-ban levels and revenues declined at a single-digit rate in the quarter, reflecting more so the state of the market than any supply or production constraints," says Stefan Pongratz, an analyst at market research firm Dell'Oro.

Indeed, according to Dell'Oro's research, ZTE's third-quarter revenue share of the RAN market was about five percentage points higher than in the second quarter, accounting for about 8-9% of the overall market. That allowed ZTE to reclaim the number-four spot it lost to Samsung Electronics Co. Ltd. (Korea: SEC) in the second quarter (Dell'Oro does not provide a breakdown of RAN market share figures, but the vendor rankings for the second and third quarters are shown below).

Trading Places: Ranking of RAN Vendors by Revenues
Source: Dell'Oro.
Source: Dell'Oro.

Is the recovery sustainable? One expert who preferred to remain anonymous thinks customers swiftly resumed business with ZTE to address a back-up in demand after the second-quarter hiatus. The risk is that some customers use the transition to 5G as an opportunity to phase out the Chinese vendor. If that happens, Samsung might leapfrog ZTE once again.

But Samsung's goal of serving one fifth of the global 5G market by 2020 could seem just as optimistic as ZTE's target. While Samsung has been able to carve out a 5G role in the US market -- where the absence of Huawei and ZTE has left a vacuum to fill -- its presence in Europe is marginal. It has previously made some 4G headway with disruptive new entrants like Three UK and India's Reliance Jio. But when Three came to choose a 5G vendor, it picked Huawei instead. "They have had a hard time getting into Western Europe," said Light Reading's anonymous source. (See How RJio Built India's Most Automated Network, Three UK to Go Big on 5G for Home Broadband and Nokia, Samsung Miss Out as Three UK Gives 5G Job to Huawei.)

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Light Reading.

Where Samsung has an edge, it appears to be in the market for equipment based on very high frequency spectrum, and specifically the 28GHz band. Typically, that is seen as a way of providing high-speed broadband services for properties beyond the reach of fixed-line networks. It is in precisely this area that Samsung is helping US telco giant Verizon. Its trials with France's Orange are similarly based on the use of 5G as a residential broadband technology in Romania, where fixed-line services remain widely unavailable. Interestingly, while Three UK sees huge potential in using 5G to support residential broadband services, it currently lacks any high frequency spectrum and is building its investment case around mid-band frequencies in the 3.4-3.8GHz range. (See Verizon CFO Reiterates Plans to Pass 30 Million Homes With 5G and Orange Ups 5G Broadband Stakes in Romania.)

Regardless of how Samsung and ZTE get on, their aggressive instincts will delight operators concerned about the current shortage of equipment vendors following years of industry consolidation. If the two upstarts can exert pricing and technological pressure on the market leaders, and fill important niches with the products they develop, then so much the better. Just not for Ericsson AB (Nasdaq: ERIC), Huawei and Nokia Corp. (NYSE: NOK), that is.

— Iain Morris, International Editor, Light Reading

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