Chinese infrastructure players set sights on Canada

Chinese infrastructure companies have been making major inroads around the world. However, most of the big stories from the likes of ZTE (from “Zhong Xing Telecommunication Equipment Company Limited”), Huawei Technologies and UTStarcom Inco. have been from deals in emerging markets.

Nonetheless, these are large companies, and they’re trying to break into North America. UTStarcom has essentially reinvented itself as a U.S. company (its headquarters are in Texas), and Huawei and ZTE are working diligently to build brand.

Charlie Martin, wireless chief technology officer for Huawei in the U.S., says it’s hard to build awareness in North America.

“It’s important that we not be painted with a large brush as the Chinese low-cost vendor,” he says. “We want to build brand by showing fast time-to-market and our ability to build customized solutions. We will work with customers; this is not plain vanilla.”

And as a customer, Huawei exhibits the same principals. A recent Canadian example was the announcement that Huawei had chosen Ottawa’s Tundra Semiconductor Corp. to provide Serial RapidIO(R) Switches for Huawei’s next generation production systems.

Tracy Richardson, vice-president of marketing for Tundra, emphasizes the long-term requirements of these kinds of highly specialized relationships.

“When you sell a component, you have to work closely and provide significant resources and technical competency. In China we have four people in sales and field engineering support.”

For his part, Huawei’s Martin knows the Canadian market. He was Nortel’s director of WiMAX network and systems product line management. Previous to that he was the company’s director of wireless technology and product strategy.

“We see wireless as providing significant opportunity in Canada. There is a lot of change, with operators looking for new ways to make their businesses more successful by containing costs and finding new revenue.”

Huawei’s product set suggests it risks spreading its marketing too thin by trying to be all things to all people, but the focus is certainly next-generation wireless. There’s a good chance any big Canadian announcements will be in WiMAX.

“We are beginning to see our first commercial wins with WiMAX in the States,” says Martin. “We expect similar movement in Canada, but perhaps on a different time scale. In North America this is tied to AWS (advanced wireless spectrum) and the impending allocation for 700 megahertz.”

Like Huawei, ZTE is a major infrastructure player with deep capabilities. It is also diligently trying to build awareness in North America. A recent announcement with Telus was intended to give ZTE Canada a healthy shot in the arm. Telus launched the ZTE D90 phone with software for improved data input (courtesy of Calgary’s Zi Corporation), as well as a Digit Wireless Fastap keyboard. The news meant that ZTE was the first wireless phone manufacturer from the People’s Republic of China directly to offer a device for sale in Canada.

“Handsets are just one of the products we offer,” says David Philp, senior director of sales for ZTE Canada. “Our global strategy has to be strong at home in China, and now we are pushing into the North American market. The best way to build brand is through consumer products.”

Steve Ospalak, Telus’ vice-president of subscriber equipment, is aware that ZTE does a lot more than make cell phones.

“ZTE is a globally recognized supplier of telecom equipment and networking solutions. We researched them, and found them appealing from that perspective. Is there an opportunity for them to do more with Telus? Sure there is.”

Ospalak points out that ZTE had to earn its stripes. Any product picked up by Telus is subject to a stringent battery of tests and engineering requirements. And, as was evident in the relationship with Tundra and Huawei, ZTE appealed to Telus because it offered the opportunity to offer the market a uniquely designed product.

“The innovation was important to us. We needed some custom work done, and ZTE is able to do that.”

Although these are compelling stories, they are hardly the kinds of large infrastructure deals one would expect of such players. To get an idea of how big these companies are: UTStarcom has approximately 9,000 employees, with two offices in Canada — one in Richmond, B.C., and one in Toronto devoted to personal communications. ZTE has 40,000 employees globally and, like Huawei, operates in more than 100 countries. It has also moved into Canada, with a small office in the Toronto area that employs 12 people. However, the elephant in the room, Huawei, has yet to show up.

Martin is clear on Huawei’s strategy.

“We feel that Huawei has to be a North American company to succeed. We are hiring American and Canadian citizens. We need to be 70 per cent local by the end of the year. Our management team knows that this is essential.”

Huawei’s breadth is staggering. It reaches into almost every corner of the world, and has 12 research and development and 28 training centres. The geographic distribution may strike some as a little bizarre: Huawei has offices in Angola, Botswana, Yemen, and Iraq, but not in Canada.

“At present we have 240 people in the United States,” says Martin. “Headquarters are in Texas — we’re moving into a new facility in Richardson — with other offices in San Diego, Santa Clara, Boston, Chicago, and Bridgewater, N.J. We are in the process of establishing offices in Canada.”

When Huawei moves into Canada the impact may be significant, given that at present 13,000 of its employees are outside of China. Although the company promotes its ability to work closely with its customers in design and development, it may leapfrog ZTE and UTStarcom in the Canadian market by building an indirect channel.

“We’re very optimistic about new deals in 2007 and 2008 for terminals, handsets and data cards,” Martin says. “These deals are all direct, but we are looking at the potential of a channel.” This channel, however, may be more one of marketing to partners, rather than a well-entrenched VAR community on the ground.

UTStarcom sells its pocket PC, the 6700, through Bell and Telus, which includes a channel of mobility dealers. The infrastructure side is represented by the Vancouver office, which came out of the 2004 purchase of Telos, a CDMA soft-switch vendor. This office seems to be focused more on supporting the UTStarcom product portfolio, rather than generating infrastructure sales in Canada.

One of Huawei’s big wins in the US has been with the wireless operator Cricket Communications, where Phase 1 involved a CDMA EVDO soft-switch core network in Boise, Idaho. Phase 2 isn’t public, but involves a Top 5 U.S. urban market and 1,300 base stations.

“That’s a big deal for us on the infrastructure side,” Martin says. The question is, although Huawei can play in both the GSM and CDMA space, has it missed-out on much of the build out in Canada? Martin doesn’t think so.

“Bell Mobility, Telus, Rogers, these are the usual suspects, and they all have a desire to push broadband wireless. Canadian operators are taking a strong shot at broadband. They’re doing it in a smart way, and aggressively.”

Tundra’s Richardson, however, explains Huawei’s late arrival in the Canadian market with the simple observation that the biggest growth has been in elsewhere. The irony is that Tundra’s Serial RapidIO(R) Switch, with its low power usage, small form factor, and high data rates, will be used first in base stations in foreign markets.

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