Thursday, March 26, 2009

Big is beautiful

Yesterday the guys here put on a great press conference for ZTE, and certainly the content seems to have struck the mood of the current climate. The Financial Times has reported on ZTE's "confidence" that it can maintain double digit growth in 2009 and, with a $15 billion line of credit from Chinese banks, can really drive market growth in the infrastructure market in Western Europe.

Indeed, it's this ability to offer vendor financing that Reuters picked up on as being the secret sauce for ZTE right now. With possible deals ranging from $100 million to $1 billion, it really is a game changer. If you can provide access to [affordable] financing, you're way ahead of the game.

The rationale behind the Chinese banks using ZTE as a route to overseas investments is fascinating yet simple ... Chinese banks have foreign currency which the government insists has to be invested overseas. But they don't know the international markets. They haven't got the presence, the heritage, the local understanding so how do they identify those investements? Simple. Partner with a company who does know the market, who understands the operators in the region and who can act as a channel.

While ZTE also launched a new touchscreen handset with T-Mobile UK yesterday (see pic on left) and reinforced its growing strength in the handset market (currently 6th, but targeting top three in next five years) it was a simple statistic which really brought home to me why the Chinese market is so fundamental to the shape of the telecoms landscape.

There are currently about 600,000 3G base stations globally (22,000'ish in the UK), and it took about five years to get to this number. China Unicom in the first phase of its 3G network roll-out will have 100,000 3G base stations.

This scale changes the economics. A 3G base station will become commoditised and the unit price will innevitably fall through the floor as vendors scale up production lines to meet this massive increase in demand. Oh, and ZTE is the largest 3G infrastructure vendor in the Chinese market. Do you see where this is all pointing ...

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