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ZTE Scores Euro 3G Deal With KPN

Ray Le Maistre
LR Mobile News Analysis
Ray Le Maistre, Editor-in-Chief
12/23/2009

A combination of dogged persistence and low prices has netted ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) a 3G mobile infrastructure deal with European operator KPN Telecom NV (NYSE: KPN).

KPN is to expand and upgrade its networks in Belgium and Germany -- at KPN Group Belgium and E-Plus Mobilfunk GmbH -- with the Chinese vendor's HSPA (high-speed packet access) gear.

The deal is significant for ZTE, as the company has been striving to emulate rival Huawei Technologies Co. Ltd. by securing business with major European carriers in key markets. The company noted in October that it was seeking "to increase our presence in key markets such as Western Europe and North America while reinforcing our position in the 3G market at home," following the creation of a dedicated division to further its international ambitions. (See ZTE Rides High on Chinese 3G, ZTE Readies Fresh Assault on Europe, US, and ZTE Unveils New 'Western' Division.)

To date, ZTE has had limited success in Western Europe. Now it seems its strategy is starting to pay off -- but at what price? Financial details have not been revealed by either party.

What is known, though, is that KPN believes it has secured a good deal. The carrier noted in a short announcement Wednesday that the engagement with ZTE will "significantly accelerate the roll-out of KPN’s 3G networks in Germany and Belgium at significantly lower costs," and that the choice of ZTE is in line with the carrier's strategy of "focusing on Return On Capital Employed (ROCE)."

Put another way, KPN is looking for the cheapest deal it can find.

That operators are looking for the most cost-effective rollouts isn't new or surprising, but it is increasingly leading to decisions that might have been unthinkable only a few years ago. KPN's announcement comes only days after Ericsson AB (Nasdaq: ERIC) saw a home-turf LTE deal slip through its hands when Huawei was chosen for a nationwide, next-generation, mobile network rollout in Sweden. Ericsson noted on that occasion that it couldn't match the Chinese vendor's low prices. (See Huawei Beats Ericsson to Swedish LTE Deal.)

Ericsson is one of the companies that would have hoped to pick up this latest KPN business, as it's an existing 3G infrastructure supplier to KPN in the Netherlands as well as to E-Plus, having landed a contract with the German operator in March 2008. (See KPN Picks Ericsson for HSDPA.) Nokia Networks is also an E-Plus 3G network supplier. (See E-Plus Upgrades With NSN.)

And while it's not so unusual these days for the likes of Ericsson, NSN, and Alcatel-Lucent (NYSE: ALU) to lose out to their Chinese rivals for infrastructure deals, it's unusual for ZTE to be trumping Chinese rival Huawei for European business.

KPN had not responded to requests for further details about its 3G expansion as this article was published.

— Ray Le Maistre, International News Editor, Light Reading

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