Vendor Price Gaps: A Thing of the Past?

HONG KONG -- Mobile Asia Congress 2010 -- The telecom infrastructure price chasm that existed between the traditional equipment vendors (from Europe and North America) and their new challengers from China has narrowed considerably, according to Huawei Technologies Co. Ltd. , one of the combative players from the Far East.

It's maybe not surprising that Huawei would claim that, but the statement is backed up by a senior executive from one of those traditional vendors, Alcatel-Lucent (NYSE: ALU).

Here in Hong Kong, Huawei's VP of wireless marketing, Lars Bondelind, noted during an interview with Light Reading Asia that carriers (as ever) are always looking for ways to cut their costs, but aiming to do that just by sourcing cut-price systems isn't so easy anymore now that the major vendors "are on quite an equal footing" in terms of pricing.

Instead, mobile operators are looking at strategies involving RAN (radio access network) sharing and figuring out ways to better utilize their spectrum in order to cut their capital and operating expenditures.

So after years of complaints from traditional (Western) vendors large and small that Huawei and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) have distorted the market with loss-leading undercutting, have we now reached a position of near price parity?

Apart from the odd market niche, that's pretty much the case, confirms AlcaLu Asia-Pacific president Rajeev Singh-Molares, talking with Light Reading Asia on the sidelines of the conference here. "To a greater extent, yes, the gap has closed," he says. "This is a very, very competitive market."

Singh-Molares adds, though, that AlcaLu's proposition is not based on price, but on producing quality products that deliver real value to operator customers.

While it may be true that in general terms there is greater price parity these days, that doesn't mean there aren't still exceptions that lead to accusations of "dumping" against the Chinese vendors.

Such claims arose late last year in India, where transport vendor Tejas Networks India Ltd. complained about Huawei's marketing tactics, while both main Chinese vendors came under fire more recently in Europe regarding the price of mobile broadband dongles. (See Will EC Probe Huawei, ZTE?)

The European issue was resolved in a somewhat unusual fashion… (See Option Drops Complaints Against Huawei and Huawei, Option Sign Agreement.)

In addition, Light Reading Asia has also heard of GPON ONT prices set at below US$30 in China by local producers, effectively pricing imports out of the market.

Such instances, though, seem to be more the exception than the rule these days, though only because the traditional vendors have had to cut their prices quite drastically in the past few years, a move that has squeezed their top and bottom lines, and led to painful cost-cutting measures made worse by the recent global economic downturn.

The market adjustments and new competitive environment have also led to some "crazy" prices. Singh-Molares points to the recent scramble to win initial 3G equipment deals in India as an example of a highly charged competitive environment where prices in some instances sunk to very low levels. (See India's 3G Equipment Market a 'Bloodbath' and India's 3G Auction Ends, Raises $14.6B.)

Notably, AlcaLu didn't land any 3G deals in the recent round of awards, but Singh-Molares says there's more 3G action to come in India, citing potential expansion awards from state-owned operator Bharat Sanchar Nigam Ltd. (BSNL) as a potential opening for his company. (See Ericsson's India Crown Under Threat.)

— Ray Le Maistre, International Managing Editor, Light Reading

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spc_markl 12/5/2012 | 4:18:11 PM
re: Vendor Price Gaps: A Thing of the Past?

Of course, in China itself, Huawei does not have to be nearly as competitive on price.

Mark Lutkowitz, Telecom Pragmatics

spc_markl 12/5/2012 | 4:18:10 PM
re: Vendor Price Gaps: A Thing of the Past?


Although the carriers may not buy from Huawei in the US, the supplier will be used by the service providers to drive down prices in the States. In addition, the country does not have a "captive" vendor as is the case in other nations.


spc_markl 12/5/2012 | 4:18:10 PM
re: Vendor Price Gaps: A Thing of the Past?

Really AlcaLu in France


runnyme 12/5/2012 | 4:18:10 PM
re: Vendor Price Gaps: A Thing of the Past?

also true for AlcaLu in the US...

neyo 12/5/2012 | 4:18:09 PM
re: Vendor Price Gaps: A Thing of the Past?

I don't believe there is any question of price gap with Chinese vendors.

I ever heard a executive boast "We never lose on price". I guess what he meant was that, given a chance, they can always go lower than their competitor.

They do make money by upselling though, sometimes in the same project itself, once they have "trapped" the customer.

paolo.franzoi 12/5/2012 | 4:18:07 PM
re: Vendor Price Gaps: A Thing of the Past?


Basically, the comments are based around projections I made about 7 years ago.  I don't know if Phil can locate or remember the Powerpoint I sent to him talking about the change in the market and the future but if he can it might be interesting.  Given my change in employer, I no longer have access to it.

Basically my premise goes something like this....

1 - The change in the cost of new silicon in small geometries is so high that few ASICs and a smaller number of ASSPs will get done.

2 - The reduction in hardware diversity means that there is little architectural differentiation possible in the cost realm compared to past generations of hardware.

--- AKA everybody ends up using the same chips to basically build the same product thus the amount of cost delta between platforms decreases radically.

3 - The consolidation of the customer space means that fewer RFPs get issues.  This is compounded by the increasing rate of technology change - which means there are no second bites at a network component.  Technologies are replaced not vendors for a technology.

----- AKA fewer big RFPs that end up being close to winner takes all.  This leads to vendor consolidation into a few big vendors and some niche players (see the Airplane Manufacturing business for a parallel).

4 - The end result is that vendors need to change their investment models to compete in the new world.  Those that don't (Lucent) die.  Those that do (Cisco) thrive.  

5 - People will say that Software is the new competitive edge.  The issue with this is interoperability and OSS integration.  As much as you hated paying Telcordia, at least you could write a check and be integrated.  Try to get on AT&Ts OSS calendar.

--- This means that customer/vendor relations will change over time.  They might be able to use Huawei as a stalking horse for a short period of time.  But Alcatel could just tell AT&T to pound sand and AT&T would have to give them the business.  If they don't Alcatel could just not take their calls.



spc_markl 12/5/2012 | 4:18:07 PM
re: Vendor Price Gaps: A Thing of the Past?

It would be hard to disagree with any of your points.  I am having trouble with the conclusion.   It is just hard for me to imagine that “Alcatel could just tell AT&T to pound sand” in the foreseeable future.  The buying power of these service providers is just too large.  There are pretty much alternative vendors to everything that Alcatel offers.  It is also likely just a matter of several years before the Chinese vendors are allowed in these networks.


spc_markl 12/5/2012 | 4:18:03 PM
re: Vendor Price Gaps: A Thing of the Past?

I am not sure of the exact timing, but I know that AT&T not too long ago was planning to just go with AlcaLu for just about everything.  However, the supplier's overall performance was subpar and the carrier gave up on that idea.  I am wondering whether the much bigger RBOC (compared to SBC) could be swayed by such a threat now.  After Tellabs bought AFC, I doubt that AlcaLu would have had the leverage (with a much bigger competitor) to do likewise.  At least historically, I do not believe that Verizon would have even come close to giving into such a demand.


paolo.franzoi 12/5/2012 | 4:18:03 PM
re: Vendor Price Gaps: A Thing of the Past?


Little piece of history....AFC won the BPON RFP at SBC.  We were actually further along with them than we were with Verizon, since we were a Pronto vendor.  Alcatel walked in and said, "If you give that business to AFC, we are exiting North America."  End of AFC winning that RFP at SBC.  Imagine what they can do now.  The time to replace vendors is much worse than you think it is.  The OSS thing is a deal breaker for so many replacements.  Now what can happen is what happened to Alcatel at Verizon in that same RFP.  They were disqualified for poor (okay horrific) delivery performance on DSLAMs.  I am just saying that it is a double edged sword.  The carriers are locking themselves into a few huge vendors (see Boeing and Airbus).

Basically the high tech airplane making business becomes a commodity business and innovation stops.  That is where we are today or pretty close to it.  The carriers want long term roadmaps for products and yet want prices driven to a level down.  Since they are going out with these massive RFPs, vendors have to have strategies to recover the R&D costs.  Think about the Boeing product line and how long those airframes have been around.  

There is little United Airlines can do to make Boeing do anything that is highly differentiated.



paolo.franzoi 12/5/2012 | 4:18:02 PM
re: Vendor Price Gaps: A Thing of the Past?

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All I can tell you is that the supplier has as much control in these massive relationships where $B are handed across. &nbsp;Basically, they have knives at each other's throats. &nbsp;As the supplier base continues to shrink (and for example how much longer will NSN be around before it has to be sold or broken up), the leverage of the suppliers goes up. &nbsp;You are thinking statically. &nbsp;Imagine 10 years from now Alcatel, Cisco and Huawei are the only large equipment providers outside of Japan. &nbsp;That is basically what happened in the airplane business. &nbsp;There will be the Embrairs and Bombadier's of the space, but there used to be lots of large airliner vendors. &nbsp;

Right now we are still suffering from the too many vendors syndrome. &nbsp;80%+ of the vendor base has to die. &nbsp;If you are not making money, you should just go away. &nbsp;Smaller players either need to get their niches clear or get bought. &nbsp;Infinera is my&nbsp;classic of a company that has to go away. &nbsp;Their R&amp;D model is massive and any potential slip up is fatal. &nbsp;That slip up will happen. &nbsp;When it does, they die an ugly death and all their stockholders will wonder what the heck happened. &nbsp;

Other companies that need to go away (already mentioned) NSN, Infinera, Ciena, Tellabs, Juniper, Motorola, Zhone, Genband, Sonus,....I have to board a plane but you get the idea.




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