Sunday, March 2, 2008

UTStarcom competitor ZTE and Philippine National Broadband Network (NBN) and Cyber Education Projects (CEP).

How difficult is it to compete with ZTE in the international markets?

A quick background of the "size" of ZTE,

"First, as a global enterprise and China's only publicly listed telecommunication supplier both in Hong Kong and Shen Zhen, ZTE has made great achievements in business growth during the year 2007. The turnover of the first 3 quarters has increased 47%, and the annual profits are expected to increase by 50-70% in fiscal year 2007. ZTE has set its goal of $10 billion US dollars for global sales in 2008."

Currently, there is a major bribery scandal in the Philippines involving ZTE and Philippine governement officials (all the way to the President's husband).

"The Philippine government in April 2007 awarded CTE a US$300 million-contract to build a broadband network to connect all government agencies and offices across the country. The project was later scrapped after allegations emerged that the deal had benefited high-ranking officials through commissions and kickbacks."

The Chinese government was going to loan the entire amount of the contract with loan payments not starting until 2012.

There are now hearings into this matter and officials from ZTE and the Chinese government are being called to testify. Obviously, they are refusing and instead using the massive trade between the two countries as leverage and instead trying to turn it around and saying this will discourage trade between foreign countries and the Philippines.

That is a tough situation for UTStarcom to compete against. The shear size of ZTE ($10b in revs and the backing/credit of the Chinese government) make it almost unsurmountable. However, they have managed to win at PLDT and is even using this as a showcase to win more projects in the region (and even in Italy with Tiscali very recently). Hopefully, these cases of corruption against ZTE will help UT in securing more wins as governments avoid the potential controversy in dealing with Chinese backed companies.

With the current very succesful PLDT win at hand, UT should go after the National Broadband Network (NBN) and Cyber Education Projects (CEP) in the Philippines that ZTE did not get and involved in the scandal. This is another discussion point we can bring up during the meeting with management.

No comments: