ZTE discusses 2+1 vendor strategy

SHENZHEN, China–As ZTE Corp. pursues smaller carriers to advance its position in the United States, the company is also trying to expand its alliance with Qualcomm Inc. for broadband services on airlines beyond the United States.

Like its sister Chinese network vendor Huawei, ZTE realizes the U.S. marketplace is complex, said Xu Ming, VP, during its annual Global Analyst Conference here last week. ZTE believes smaller carriers – tier-two and tier-three operators – are the best place for the carrier to get a piece of the U.S. wireless carrier business. These operators are small but they have sound business models and their customers have an allegiance to them, he said.

While the U.S. market remains difficult to crack, the Chinese vendor can count quite a bit of success around the rest of the world. ZTE advanced to the No. 5 spot in global handset sales, surpassing Motorola Inc. Secondly, the company’s networks business pushed past Alcatel-Lucent to sit at the no. 4 spot worldwide in that business.

“Our wireless business grew more than 100% in each of three last three years,” Ming said. While much of that success came from the deployment of 3G equipment in China, substantial gains were made throughout the world, Ming said.

Indeed, the vendor now believes that in the future, there will likely only be three powerhouse infrastructure providers, a theory ZTE calls the Two plus One strategy. Whether it is supplying wireless networks, core networks or wireline equipment, ZXTE believes the top three vendors will be one Western company (think Ericsson) and two Chinese providers (Huawei and ZTE.) The Chinese vendors will be chosen for their prices and the Western supplier will be chosen for its leadership position in the space, as well as its technical expertise. Operators are tired of dealing with a myriad of providers and spending money on interoperability testing, he said.

In developed countries, ZTE has found success by supplying equipment to a major operators “branch” operations, rather than trying to deploy equipment into its core operations initially. In developing countries, the vendor can get in because it can deploy a solution quickly and help the operator with deployment costs, even to the point of helping build the shelter at the tower shelter, said another ZXTE executive.

ZTE had less than 5% of the Chinese market share for 2G CDMA services, but has managed today to gain 35%, even though the vendors supplying equipment remain the same, Ming said.

ZTE has been partnering with Qualcomm Inc. and Aircell to deliver a CDMA EV-DO solution for American Airlines, enabling the airline to offer wireless broadband to its in-flight customers, first deploying the solution in 2008. Ming said the companies are now hoping to expand that business model outside of the United States with other airline providers.