Arelatively late entrant into Indian elecom, Shenzhen-based telecom equipment manufacturer ZTE Telecom India launched full-fledged operations only in 2003. By then, it was up against stiff competition from well-established European vendors such as Nokia and Alcatel.

The initial years were tough. The company struggled to build up its brand image. While it is still too early to declare the venture a success, the company seems to be gaining traction.

Its multi-pronged strategy, encompassing all its business divisions including handsets, network equipment, broadband and next-generation networks (NGNs) has started paying off.

Despite the initial hiccups, it has managed to propel its growth in each segment, further fuelling the stiff competition. In 2006, ZTE India generated $600 million worth of revenues, a figure expected to rise to $800 million in 2007.

Handsets

The handset segment in India is currently dominated by Nokia, Samsung, Motorola, Sony Ericsson, and a few others. In 2006, while ZTE shipped 6 million handsets to India, Nokia sold significantly more.

Nevertheless, ZTE is aggressively targeting this division because India is its second largest handset market after home.India accounts for one-third of the company’s handset sales by volume.

In order to gain market share, the company has decided to focus exclusively on the low-cost handset segment. ZTE has tie-ups with several prominent telecom service providers including Tata Teleservices Limited (TTSL), Reliance Communications Limited (RCL), Bharat Sanchar Nigam Limited (BSNL), Bharti Airtel and Spice to supply them with lowcost handsets. ZTE will also provide Vodafone Essar’s much-awaited bundled low-cost handsets.

When asked whether targeting only entry-level phones impacts revenues adversely, He Shiyou, executive director, ZTE Corporation and president, Mobile Handset Division, explained: “India is a fast growing market. Users need basic functions. We have high-end products as well but we ship them to European and North American countries.”

Low-cost handsets are gaining popularity in India. In 2007, the company is targeting to produce 30 million handsets, of which 10 million will be shipped to India.

Equipment

With respect to network equipment, the company already has a solid presence in the CDMA segment. In 2006, ZTE had the highest number of shipments of CDMA base transceiver station equipment worldwide. However, it is aiming to replicate this success in the GSM segment.

According to company executives, India is one of the company’s three key GSM markets. In fiscal year 2007-08, the company aims to double its Indian revenues from GSM network equipment from $170 million to $350 million. To this end, it is in talks with several GSM operators to supply equipment.

On the GSM front, the company has lost out on many key contracts to its competitors, Nokia Siemens and Ericsson.For instance, Vodafone recently awarded a GSM network expansion contract worth $1.8 billion to Nokia Siemens, Ericsson and Motorola, while Bharti Airtel awarded a contract worth $900 million to Nokia Siemens.

Last year, the Chinese vendor was disqualified from BSNL’s 45.5 million GSM line tender. However, Richard Like Ye, ZTE president, GSM Product Lines,explains that ZTE had come a long way since then. “ZTE has bagged around 65 per cent of all GSM tenders in emerging markets,” he said.

Globally, the company is targeting GSM revenues of $1,000 million for 2007, despite clocking in only $400 million in 2006. Though seemingly improbable, the fact remains that the company has already managed to garner $600 million.

Broadband

ZTE is confident that this will be a future growth area in India as well as the rest of the world. According to Xu Ming, ZTE president, broadband product line, as the economy develops, consumers will increasingly demand broadband services. The Indian government is also focusing strongly on increasing broadband penetration.

So far, the company’s prediction has been accurate. While it earned $40 million from broadband consumer premises equipment sales last year, it has already made over $60 million this year from the sale of broadband office equipment, IP DSLAMs, etc.

It has also won two major contracts from BSNL to provide hardware for its micro Ethernet network and rural broadband project.

With the impending launch of the rural broadband tender financed by the Universal Service Obligation Fund, the company can expect much more business to come its way. It has already been shortlisted for BSNL’s rural broadband tender, along with Siemens and Ericsson.

However, it still faces tough competition from vendors such as UTStarcom and Siemens. For instance, while UTStarcom will provide 50 per cent of the access equipment for BSNL’s three-year 9 million DSL line expansion, Siemens and ZTE will provide 30 per cent and 20 per cent respectively

To fend off such competition, the company is looking to enhance its research and development (R&D) capabilities further.According to Ming, ZTE is in talks with an Indian telecom equipment manufacturing company’s R&D division for introducing a new ADSL product.Such initiatives have propelled the company’s broadband segment to become the fastest growing in the world. In terms of absolute global market share, the company, with a 7.9 per cent market share, is currently number three. It is aiming to increase this to 14 per cent over 2007.

Concerns

Several hurdles remain, especially aggressive competition from larger consolidated players like Nokia Siemens, Ericsson, Motorola and Alcatel-Lucent. Nokia Siemens and Ericsson dominate the GSM space while Alcatel-Lucent has a lead in the CDMA space. In the broadband segment, ZTE is up against market leader UTStarcom.

Moreover, the company has had to fight off several stereotypes about Chinese vendors. One is that Chinese vendors are low on quality. The perception is that Chinese vendors compete on the basis of price alone and compromise on product quality while undercutting prices.

ZTE has often faced difficulties receiving approval for its projects due to security concerns. For instance, the government put the brakes on ZTE’s plan to enter wholesale trading in telecom equipment in India. The company withdrew its application and applied directly to the Reserve Bank of India for permission.The fact that ZTE won several major orders from PSUs as well as distinguished private sector players such as Tata and Reliance helped its case.

Future plans

With the Indian telecom sector’s accelerating growth rates, ZTE is looking at expanding operations. The company may be planning to set up a second manufacturing facility in the country although officials are non-committal. They say they are still finalising plans which depend on the current market scenario. It also intends to increase its manpower in the market.

In the handset segment, ZTE intends to increase its market share by launching its dual-mode handsets in India. IPTV solutions will be another future thrust area for the company. ZTE is currently in talks with operators such as BSNL to supply IPTV solutions.

The company is also focusing on its NGN division, in which it has a 100 per cent market share in India. It is currently carrying out trials for BSNL, MTNL and Bharti while having implemented commercial operations for Videsh Sanchar Nigam Limited.

All in all, ZTE is facing buoyant prospects. With solid and sustained growth rates and increasing revenues, the company is set to become a force to reckon with.