Thursday, March 8, 2018

ZTE makes a big showing at MWC with its push for 5G

ZTE, now one of the world’s major network equipment suppliers, recently reported 2017 operating revenue of RMB 108.82 billion, 7.49% higher than a year earlier, but not the double-digit growth rate seen earlier in the decade. The big 4G expansion projects in its home market of China have largely wrapped up and the company has pivoted from chasing any sale just for the sake of growing its global market share to the pursuit of profitability. For 2017, ZTE’s net profit RMB 4.55 billion, an increase of 293%. Net cash flow from operating activities for 2017 was approximately RMB 6.78 billion, about 28.88% year-on-year growth. This was a much stronger performance than 2016 when revenues grew just 4% and profits were lower.


The 2017 results were impacted by troubles with the U.S. government. In March 2017, ZTE made penalty payments of over US$1.19 billion to the U.S. government in the case involving the shipment of U.S.-origin technology to Iran during the period of economic sanctions. ZTE plead guilty in the case and paid the fine, but this has not opened new doors to the U.S. market. As with Huawei, U.S. government officials continue to cite national security as the reason to block the company from supplying any equipment to the U.S. government or U.S. carriers.

This has not impeded ZTE from growing sales in other global markets. ZTE generates about 40% of its revenue abroad. Like other suppliers from China, the company has been backed by substantial export/import loans from the China Development Bank (CDB), which have helped expand its international reach, especially in developing countries.

In Russia, ZTE has just clinched a 70% share of the first stage of  Rostelecom's the access network modernization project. ZTE's Multi-Service Access Network (MSAN) product delivers VDSL. Rostelcom is currently testing G.vectoring and G.fast for deployment in a second stage of its upgrade project. Rostelecom, of course, is Russia's leading broadband and pay-TV provider with over 12.7 million fixed-line broadband subscribers and over 9.7 million pay-TV subscribers, over 4.7 million of which are subscribed to its IPTV service.

One might have expected certain Nordic vendors to have been the likely choice for this Rostelecom tender, but it was not too be. Although geopolitics perhaps plays its role in deals at this level, there is no denying that ZTE has been highly successful with its MSAN platform in many other markets outside its home territory and that it is investing in the future of copper and fibre access technology just as aggressively as with 5G. On the copper side, ZTE recently became the first vendor to add 35b bonding profile support to its VDSL2 CPE device. Profile 35b technology can provide downstream rates three times those of profile 17a by expanding the spectrum to 35 MHz. This enables the CPE to deliver 500 Mbps downstream and 100 Mbps upstream rates over a 200-meter telephone line – a great solution for where it is not cost effective for the operator to pull fibre over that last link from the street to the home. As of February 2018, ZTE claims to have shipped over 280 million CPE devices.  Think about that number – certainly enough scale to become the major supplier in Russia going forwards.

A more surprising series of wins perhaps, given geopolitics, comes in India, where ZTE is now a major supplier of low-cost smartphones and optical transmission gear. From our records, we know that ZTE has been growing its engineering team in India since at least 2010. In October 2017, ZTE announced a 100G WDM Backbone Network Project and metro area network (MAN) construction contract with Idea Cellular, the third largest mobile operator in India with 189 million subscribers. With this deal, ZTE’s OTN optical transport platform captured a 95% share in the metro optical backbones that carry Idea Cellular’s traffic. ZTE has previously disclosed major contracts with Bharti Airtel as well. This success comes despite some protectionist voices in India warning against Chinese suppliers for critical network infrastructure.

With 5G, we are seeing the results of ZTE massive R&D efforts over the past five years. In 4G, ZTE already established itself as an equal to rival Huawei. The company knows that 5G is the opportunity to race ahead not only in core mobile infrastructure but also in smart city and industrial IoT deployments.

At Mobile World Congress in Barcelona, ZTE captured the “Best Technology Innovation for 5G" award for its end-to-end vision encompassing the radio access network, the core network, bearer platforms, custom 5G silicon and CPE terminals. As with other suppliers, many of these are “works in progress” rather than commercially deployable solutions right now.

The company believes its 5G strengths to include its work with Massive MIMO, the antenna technology which has been shown to improve spectral efficiency up to 8 times.

ZTE has been pioneering a multi-user shared access (MUSA) technology to effectively increase the number of connections served, and thereby enable support for scenarios involving mass connectivity with low power consumption. This could be extremely useful in very crowded areas, such as subway systems, when everyone is using their smartphone. The MUSA technology works by allowing high overload and eliminating scheduling operations, thereby increasing the number of connections by between 3- and 6-fold. It uses advanced spread spectrum sequence and SIC technology to simplify terminal implementation and help reduce energy consumption.

In an ongoing series of tests in China, ZTE’s MUSA reached 90 million connections / MHz / hour -- which far exceeds current network capacity/efficiency performance levels.

In the network core, ZTE is ready to commercialize end-to-end 5G network slicing. Its Cloud ServCore platform implements lightweight micro-service components to enable the network slices to operate independently and with easy scalability. This will allow IoT applications, for instance, to scale smoothly and without impacting other network slices.

ZTE is also readying a 5G Flexhaul bearer solution based on next-gen FlexE technology. Part of this vision to achieve a unified bearer network for 3G / 4G / 5G traffic. ZTE says its 5G Flexhaul achieves end-to-end protection switching time of less than 1ms, as well as single node forwarding latency of less than 0.5μs.

ZTE’s MWC performance included the signing of a 5G agreement with Ooredoo Group, which serves 164 million customers across the Middle East. ZTE will provide Ooredoo Group with end-to-end networks, applications, and terminals. Currently, the parties are completing the joint verification of the 5G architecture,. There are also the questions of defining the 5G business model and user experience. It is too early to quantify this work in financial terms, as it remains to be seen how fast the market adopts 5G and whether customers will pay more for 5G than their current 4G plans.  South Africa-based MTN also inked a deal with ZTE while at Mobile World Congress.  MTN is also currently conducting lab and field tests of ZTE’s 5G NR radio access, 5G virtualized network slicing, carrier DevOps and container-based vEPC, and 5G Flexhaul bearer network.


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