Interview: Wei Zaisheng, CFO of ZTE

ZTE believes it still has work to do to promote its message as a reliable, efficient vendor to western operators. The message has been accepted by customers in emerging markets, says the Chinese company s CFO, Wei Zaisheng, but operators in developed markets are slower.

And using ZTE would give tier one carriers in western markets access to loans from Chinese banks, he points out. Banks in China are keen on such deals because they believe that telecoms carriers are some of the best customers they can have overseas , he says.

Wei, executive vice president as well as CFO of ZTE, points to the company s success, even under the global financial crisis , when in the first nine months of the current financial year gross turnover and profit grow more than 40% compared to last year .

The main reason behind that high growth rate is that the three Chinese operators have been building their 3G networks, and this gives us a lot of growth potential .

Wei quotes third-party statistics for the China 3G market which suggest that ZTE has about 36%, ranking number one in the Chinese 3G business, he says.

This shows that Chinese carriers recognise our accomplishment , and our success with the three major Chinese carriers will help us achieve success worldwide .

The Chinese operators China Mobile, the world s largest operator, plus China Unicom and China Telecom give us the opportunity to test our technology, demonstrate its operation to our big customers, and promote our technology and applications worldwide in the future , says Wei.

The emerging market carriers already accept this point of view, he says, but laments the fact that there is still a challenge in communicating the message to the high-end market like western Europe and North America , he says.

The major reason is we still don t have the opportunity to show our capabilities and to promote further cooperation with developed country carriers, says Wei. The second reason is we still need to invest more local construction and service capacity in developed countries.

What progress has ZTE made with operators in the developed world? There are a lot of negotiations in process, says Wei, but the western carriers still lack a full understanding of our abilities.

Human capital

But what does ZTE have to offer? As a China-based vendor we can leverage the human capital resources in China to the maximum amount, he says.

The company already has research and development centres in the highly industrial coastal region, including Nanjing and Shanghai, but right now we are expanding our R&D centre in Xi an .

The ancient city of Xi an is in the middle of China, 1,200 kilometres to the west of Shanghai.

In the next few years, the R&D personnel in Xi an will increase from 3,000 at present to 30,000, says Wei.

Labour cost in Xi an is 25% less than on the coast. Our average cost is 29% lower than other vendors. By moving to inland China and leveraging the low-cost, highly intelligent human capital resources, we are able to provide solutions for customised applications and services and that will be the future model carriers want to have, says Wei. By doing that we can expand our market share globally with controllable costs and maintain our margins.

The Xi an centre will focus on infrastructure and terminals and on customised business applications and services. This will be very important for carriers because if you only compete on price you cannot make any difference , notes Wei. We can provide carriers with customised services. Therefore they can differentiate much better and can provide better services.

But price is still important, he notes. If we get on a carrier s shortlist they can buy the best-priced product. Those carriers that haven t invited us onto the shortlist have a dilemma right now such vendors are wanting to increase prices.

He notes that some vendors win their first business with a carrier by providing a very low-priced product to get on the shortlist , but that later on to cover their previous costs and get back their investment they want to increase their price . ZTE, he says, will not do that.

If ZTE becomes the vendor, this can bring balance to this competition and also can protect the carrier s interest in the long run.

Some vendors enter the developed counties market with a super-low price. Their business model is to expand without considering the cost, then to recover the cost by increasing the price step by step.

Carriers need to counter that by using new suppliers to balance the pressure of increasing price , he warns. ZTE will not have the motivation to increase price to cover the cost. Because ZTE usually follows a common strategy for business, and ZTE does not want to use a very aggressive strategy, and offer a very low price at first, and to mark up the price and compensate later.

Competitive landscape

ZTE is still a very modest participant in the market , he admits. We want a competitive landscape and in the long run that is good for the market. We agree with the idea that our competitors should work together with carriers to innovate more and develop new applications to expand the total demand.

We turn back to the issue of Chinese banks. How keen are Chinese banks on investing in the rest of the world? We know that China capital wants to invest overseas and a lot of China banks want to establish relationships, says Wei. They are willing to cooperate with us to provide loans to carriers. The case is built on the financial capabilities that we can bring to them.

The financial crisis has tightened financial markets and loan conditions and terms, he accepts, but we still believe that Chinese capital has certain advantages for carriers , says Wei. Capital from Chinese banks can be an important choice for carriers to build up the network.

ZTE will introduce banks to a carrier in the early stage of a project , he says. If a bank wants to work with the carrier, they will give us the terms and provide funding.

But there s still some way to go. Many tier one carriers have not used Chinese capital yet, says Wei. I believe that may be related to the size and scale of ZTE with the carriers. If we can participate more in the tenders and win more business, carriers can more easily get access to Chinese capital.

The company has worked with banks on many successful deals in emerging markets: In markets such as India and Indonesia, carriers are used to using Chinese capital, but I believe there will be many opportunities in the western European and North American markets , says Wei. They are not used to looking for Chinese funding. But with time and our cooperation they can become used to it.

Attractive rates

What are the advantages for in Chinese funding? The worst part of the financial crisis has already passed. Chinese banks have a lot of liquidity and banks want to have international customers. They can provide attractive interest rates and commission charge rates to attract customers.

ZTE normally arranges the introductions to banks. We have a very close relationship with the Chinese bankers and we manage to serve our customers and have meetings every day. Our local financing teams get information about a project and then pass this immediately to our supporting team who pass it to the customer manager with the banks. The banks can then participate in the project. Sometimes we negotiate terms with the banks and our teams negotiate terms with our customers together.

One of the hottest areas for operators in the developed world at the moment is LTE so where is ZTE in that market. Wei points to CSL, the Hong Kong mobile operator that is owned by Telstra, which has an LTE-capable network using ZTE s software-defined base stations.

Within mainland China, ZTE is working with all three operators. China Unicom s WCDMA network is built by ZTE, says Wei.

China Telecom has a CDMA 2000 network, the Qualcomm-family 3G system but how much opportunity is there in other parts of the world? This will depend on how well China Telecom can do, says Wei. India and other countries are still using CDMA 2G technologies, and if China Telecom is successful with 3G other countries can convert to 3G. China s CDMA network has a huge customer base. By providing new handsets this will increase the number of models in the market. And consumers do not worry about which technology they use they only care about the terminals and handsets.

Will Africa be a good market for 3G in time? The 3G market is not available right now in Africa but there will be growth potential in the future, he says. In this industry it is not necessary to move ahead or get most advantages. For early movers, if we develop most applications and services and lower the cost, you can have advantages in developing the technologies. GTB

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