ZTE Pushes into Europe

ZTE's march into Europe continues unabated. Last month the company signed a deal with UK incumbent operator BT to supply dual-mode handsets for a mobile TV service. Fang Rong, the senior vice president of ZTE's European strategy, sees enormous possibilities in collaborating with such a high- profile player.

"BT is such a prestigious company that working with it will create a lot of value for ZTE," she says. "And the deal is good business."

That final opportunistic sentiment reveals more about the company's long-term strategy than one might expect. The BT phone is based on the DAB-IP broadcasting standard, which has seen little interest from operators outside the UK. While other vendors have shirked involvement with it - viewing DVB-H as a better bet - ZTE is determined not to put all of its eggs in one basket, seeing revenue-generating potential in all the various options. The attitude mirrors its practice in the Chinese market, where it continues to back all three standards being considered for 3G. The product portfolio, it seems, is not just 'end to end' but 'across the board'.

Such commitment to all eventualities requires a heavy dose of R&D and ZTE sees the magnitude of its investment in this area as one of its core strengths. The company has regularly injected 10 percent of its annual revenue into R&D activities. This year, says Tian Wenguo, senior vice president of company strategy, that figure rose to 12 percent. In addition, ZTE has set up 14 R&D institutes worldwide, including two in France and Sweden, and more than 10,000 of its 30,000 employees are engineers engaged in R&D.

A local presence was clearly critical to its winning a long-term R&D agreement with France Telecom in July 2005, but Wenguo feels other factors played their part in the selection, including ZTE's track record and, importantly, its ability to respond quickly to customer needs.

"When operators place new demands on vendors, it might take Western vendors a year to meet that demand while ZTE would take only three months," he says.

At the time of writing, ZTE is busy helping France Telecom to 'reconstruct' its ATM-based DSL system, which Wenguo describes as 'unsuitable' in today's IP-driven environment.

Perhaps surprisingly, price was not on Wenguo's list of selection criteria, and he is almost dismissive of vendors that attempt to compete solely on cost.

"In China, the vendor with the lowest price would be kicked out," he says. "There is a lot of risk involved in competing on price with other competitors in the market because there is no end to price-based competition. We believe companies should provide their customers with the best value, not the best price."

Simply remaining competitive with so much industry consolidation must represent a challenge, but Wenguo says there is no plan to merge with a competitor at the current time. He cites BenQ's financial misfortune following its acquisition of Siemens Mobile Devices Division as a warning against consolidation for its own sake.

But would not such a tie-up also help to raise awareness of ZTE's brand in the European handset market, where names like Nokia-Siemens and Ericsson are almost synonymous with the devices themselves?

"The European distribution channel is a problem," admits He Shiyou, the president of ZTE's handset division. "But our business model overseas is based on a co-branding strategy because the awareness of operators' brands is much greater."

In the future, ZTE hints that it intends to strengthen its hand in the software industry, with a view to serving widespread demand for BSS and OSS in the European marketplace.

"European operators attach great importance to BOSS systems, and ZTE believes it can serve this market," says Wenguo.