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ZTE India: Gaining ground in India despite challenges

June 01, 2012
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The advent of data and broadband services has created a huge opportunity for telecom vendors. Operators worldwide are deploying next-generation technologies and upgrading their networks to cater to the growing mobile data traffic. China-based telecom equipment manufacturer ZTE Corporation has also benefited significantly from the surge in demand for high speed networks. The company is committed to the rapid development of long term evolution-time division duplex (LTE-TDD) technology and has signed agreements with over 30 chipset, device and test equipment manufacturers worldwide. It has also deployed test networks in cooperation with more than 100 operators across the globe.

 

ZTE was the first company to release 1.9 GHz equipment and solutions, in 2011. In May 2012, it launched a large-scale LTE-TDD network in Guangzhou, China. This network can provide wireless data coverage to the transportation and safety surveillance sectors, high speed media streaming, videoconferencing and real-time news delivery at speeds of up to 100 Mbps. The company has released the world’s first range of 1.4 GHz LTE-TDD terminals, including modules, USB cards, and indoor and outdoor customer premises equipment devices.

ZTE is viewed as a leader in developing LTE technologies. Till date, it has applied for 381 essential patents (EPs) for LTE standards. These account for approximately 7 per cent of the total number of EP applications globally. The organisation offers a full range of LTE base stations, including widely distributed macro stations. ZTE received a contract from Bharti Airtel to deploy its LTE network in the Kolkata circle, making Airtel the first operator to offer 4G services in the country.

New focus areas

ZTE is best known for its wide portfolio of carrier equipment, ranging from optical transport to network infrastructure equipment. However, over the past few years, the company has diversified its portfolio by introducing smartphones and tablets in the global telecom market. It extended its low price point strategy, used to acquire an initial market share in the telecom equipment market, to the device and terminal space as well.

In a bid to boost profit margins, ZTE has now made a shift from low-end feature phones to high-end smartphones. It sees the Chinese and US markets as the key drivers for its fast growing smartphone segment and is relying on top models such as the Blade and Skate to build up its market share. ZTE’s Blade is gaining worldwide popularity, especially in emerging markets from Africa to India, mainly due to its competitive pricing. ZTE expects that its partnerships with operators will help in achieving the sale of 30 million smartphones by-end 2012.

Meanwhile, ZTE’s revenue from its  cloud computing business, which it ventured into in 2010, has been growing. Its portfolio includes data communication products, enterprise networks, servers and storage products for government networks.

In India, ZTE is eyeing revenue opportunities from the enterprise market as well. By end-2012, the company aims to earn around $200 million from the segment. To this end, it is planning to secure a considerable share of contracts from private enterprises and government sectors such as utilities, banking and health. The company, in fact, secured its first enterprise contract in India from Power Grid Corporation of India (PGCIL) in September 2011.

ZTE is looking at offering server solutions, storage facilities, and an entire range of enterprise products such as routers, optical equipment, devices for videoconferencing and surveillance, data centres, e-governance and e-health solutions, and intelligent traffic control systems to the Indian enterprise market, which is estimated to reach $8 billion by 2014. The company’s other plans include retailing its own handsets and selling LTE dongles in the country.

Opportunities in the Indian market

Despite its late entry, ZTE has taken rapid strides in the Indian telecom market. Since establishing full-fledged operations in the country in 2003, the telecom vendor has come a long way. Today, India is a crucial market for ZTE.

The 3G and broadband wireless access spectrum auctions have given a further boost to the company’s operations in the country. It has won large orders from Aircel, Sistema Shyam TeleServices Limited (SSTL) and Reliance Communications.

Recently, ZTE Corporation has declared ZTE India as the company’s global experts resource hub. ZTE India will serve as a key technical resource provider for ZTE’s operations and subsidiaries in other countries as the company continues to scale up its global growth. Currently, over 200 ZTE India employees are deployed in Africa, Europe, Hungary, Turkey and the UAE. Within two years the company aims to have 2,000 employees at the centre.

ZTE’s India hub also addresses the unique requirements of the Indian market and will assist ZTE employees in building knowledge of new technologies as they are adopted worldwide. The centre is staffed with technical experts in the fields of LTE, broadband, next-generation networks, managed services and IT application solutions for enterprise and telecom service providers to meet the global demand for ZTE products.

Most of the employees of ZTE India (about 90 per cent of the 3,500 staff) are Indians. Going forward, ZTE will hire around 100 people in the enterprise and handset segments. In end-2011, ZTE restructured its senior management team and placed Indians in key leadership positions both to address trust-deficit issues as well as to comply with the telecom security norms laid down by the Indian government.

However, business for the company in India has not been free from challenges. The period between end-2009 and mid-2010 witnessed slow growth. This was largely on account of network security concerns raised by the government against Chinese vendors. Citing national security reasons, the Department of Telecommunications (DoT) had asked all operators to obtain security clearance before importing equipment, especially from China. As a result, no telecom equipment orders were placed during this period. The issue was settled in late 2010 when the government laid down guidelines allowing telecom operators to import equipment from foreign vendors after meeting certain security criteria. However, in an internal report, the security unit of DoT recently raised fresh concerns about Chinese equipment vendors Huawei and ZTE.

Further, the government’s drive to promote indigenous manufacturing is likely to significantly impact the international vendors’ business. The government plans to give preference, including tax cuts, to indigenously manufactured telecom equipment. DoT has cleared the Telecom Regulatory Authority of India’s  proposal mandating domestic operators to source 65 per cent of their annual hardware and network-related equipment from Indian companies by 2020. The reservations for domestically manufactured equipment are a part of the National Telecom Policy (NTP) 2012 that has recently received approval from the union cabinet.

ZTE has also been exploring the possibility of setting up multiple manufacturing units in India. It makes good business sense as the company would be able to leverage the benefits assigned to local manufacturers under the NTP 2012. The company is also looking to invest $100 million to ramp up its manufacturing facility at Manesar in Haryana, as well as the national operating centre and research and development centre in Bengaluru over the next two years.

Key contracts in India

Some of the contracts won by ZTE in India over the past year are:

•  A contract with Bharat Sanchar Nigam Limited (BSNL) for supply and installation of broadband equipment across the country

•  A contract with PGCIL for supply and installation of transmission equipment across India

•  Developed an advanced value-added service platform for Vodafone India

•  Partnered with SSTL for upgradation of operators’ CDMA and EVDO networks in 10 circles, including the CDMA EVDO Rev. B Phase 2 roll-out

•  Completed the deployment of a 3G network for Aircel in Uttar Pradesh East

•  Is part of a three-vendor consortium that won BSNL’s network expansion (Phase 7) project for adding 14.37 million lines in the north, south and east telecom zones

•  Partnered with Bharti Airtel to provide telecom equipment and network solutions to plan, design, supply and deploy its 4G network roll-out in Kolkata.

The way ahead

The existing level of investments in the telecom manufacturing segment in India is not enough to cater to the ever growing demand for handsets (Rs 12-15 million a month) in the country. Besides, increasing spend of Indian operators on the wireless equipments, will provide significant opportunities to ZTE in India. While ZTE has made significant headway in the market, it will be important for the company to sustain the growth momentum. Its ability to do so will go a long way in enabling it to establish a strong presence in the telecom equipment sector over the next five years.

 
 
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