The United States of Huawei

By The Informer

The chairman of Huawei USA, Ken Hu, published an extraordinary open letter on Thursday night in a bid to smooth the way for the firm’s continued presence in the land of the free.  The letter addressed the suspicions surrounding the company which came to a head recently when it was forced to back out of its acquisition of 3Leaf by the Committee for Foreign Investment in the US (CFIUS). Invoking the words of two US presidents, Huawei’s letter cannot be read without strains of the Star Spangled Banner coming to mind, as if it were printed in one of those musical greeting cards, or the image of Old Glory fluttering in the breeze appearing as a mental backdrop.

Clearly Huawei has had enough of the whispering /shouting campaign being waged against it, in particular the insinuations that it is little more than a for profit extension of the People’s Liberation Army.

“The United States of America is a great country and one for which Huawei has always had the utmost respect. The values of democracy, freedom, rule of law and human rights in the US are the very values that we at Huawei respect, advocate, and live by,” Hu wrote, leaving the Informer to wonder what the firm’s take is on the rest of the world.

On the subject of Huawei’s alleged ties to the Chinese military, Hu said: “It is factual to say that no one has ever offered any evidence that Huawei has been involved in any military technologies at any time.” It’s also factual to say that this statement is not an outright denial. Still perhaps Hu wanted to appeal to that other great American societal tenet; innocent until proven guilty.

The Chinese vendor has drawn a line in the sand, politely asking the US Government to formalise any complaints or suspicions, or to let the company get on with the business of establishing dominance in the telecoms industry.

The whole furore spilled across the pond, with reports last weekend that Huawei had offered to supply kit to provide cellular connectivity throughout London’s underground rail network ahead of the Olympic Games in 2012. This drew indignant spluttering from some quarters, with Conservative MP Patrick Mercer telling right of centre broadsheet the Telegraph: “It has been proven that a proportion of the cyber-attacks on this country come from China. I wonder when the eyes of the world are upon us whether there is sense in using a Chinese firm to install a sensitive mobile network.”

It’s difficult to know whose side not to be on.

Huawei also has the hump about wider suggestions that Chinese vendors benefit from almost limitless access to the state credit lines, but it looks like the Chinese are hitting back. The Wall Street Journal reported this week that China now views EU subsidies for telecoms companies as a breach of WTO rules, and is ready to retaliate in the event that Europe acts on recent findings that Huawei and ZTE benefit from significant government financial backing.

Earlier this month, the EU Commission distributed findings that Huawei and ZTE are state-controlled and receive cheap government loans that give them an unfair advantage over European competitors. Huawei has strenuously denied the allegations, stating that its receipt of a $30bn credit line from China Development Bank was for customers buying the company’s equipment, not the organisation itself, and therefore complied with OECD standards. ZTE received a $15bn credit line from the China Development Bank and $10bn from the China Export-Import Bank in 2009.

On the other side of the fence, China points to EU research and development grants to telecom manufacturers totalling €9.1bn for 2007-2013 as well as $2bn-worth of loans on non-commercial terms from the European Investment Bank to three unnamed European telecom equipment makers as evidence of European hypocrisy.

The EU report arose from a complaint last year by Belgian wireless device manufacturer Option that has since been withdrawn, following an agreement with Huawei last October. The EU has proposed dropping the case, stating in a document issued to member-state governments that “It would be disproportionate to continue the investigation and impose measures following the withdrawal of the complaint.” Whether the Chinese government will feel the same about its findings on European big-guns such as Nokia and Ericsson remains to be seen.

The week wasn’t all bad for the world’s second largest infrastructure provider, though. The firm secured an injunction against Motorola that stops (for now) the vendor passing on Huawei IP as part of the transfer of elements of its infrastructure business to Nokia Siemens Networks. Huawei also scored one over NSN in Australia, where VHA—the JV between Vodafone and Hutchison—has announced a rip and replace of its network in the wake of poor performance and customer dissatisfaction.

VHA CEO Nigel Dews threw himself at the mercy of the angry consumer mob, in a show of confessional contrition. “The issues some customers have experienced included dropped calls, delayed SMS and voicemails, slot data speeds, inconsistent coverage and long waits when you called us,” Dews wept. As a customer of O2 UK, the Informer had no idea that this kind of performance was actually sub-par.

So out go more than 5,000 Ericsson and NSN base stations, and in come Huawei replacements, in the Chinese vendor’s first RAN deal in Australia. But Ovum analyst Nicole McCormick wasn’t about to let Dews off the hook just because of a few crocodile (Dundee) tears. “This network overhaul is long overdue,” she harrumphed. “Vodafone and Huawei will need to proceed quickly to deploy the network infrastructure, which includes 42Mbps HSPA+ at 850MHz, to address Vodafone’s network capacity issues.”

Over in India, Vodafone Essar looks to be keen to get into the fixed line market, in a bid to build offerings for enterprise consumers. The carrier’s head of enterprise and carrier business was quoted in India’s Economic Times this week as saying that the potential volume available in the enterprise space is attractive despite the likely price fall that would be created by Vodafone joining the fray, currently dominated by Bharti and Tata.

It’s not an area that has any appeal for Indian competitor Aircel, which this week launched 3G services. A Telecoms.com interview with Aircel COO Gurdeep Singh will soon be online, so keep your eyes peeled for that.

Staying in India, mobile number portability – introduced nationwide last month – doesn’t seem to be working out too well for state-run carriers MTNL and BSNL.

According to junior Telecoms Minister Sachin Pilot, 10,355 users have jumped ship from MTNL to other providers, while 4,486 new subscribers have joined.

BSNL has reported a post-MNP loss of 223,824 users, gaining 92,243 from the competition. Reporting the findings in India’s parliament, Pilot stated that the main reasons for customers switching service were network/coverage and tariff issues. Both telcos have attempted to attract new users through waiving fees, introducing new tariffs and incentivising distributors but it seems that, to date, new customers aren’t biting.

Reports this week that the Indian Government has rekindled plans to merge the two carriers, which operate in separate regions, may have something to do with this latest, relatively downbeat development.

Indian carriers aren’t the only ones trading customers, as the first set of results from Everything Everywhere revealed this week. The largest UK operator, which owns the British T-Mobile and Orange offerings, has shed one million prepay users since the merger, adding 752,000 contract subs by way of compensation. It’s an anti-churn measure, with 58 per cent of customers on 24-month contracts at the close of 2010, according to CEO Tom Alexander.

This focus runs contrary to the mantra that operators should not tar prepayment with a low-value brush, and that customers can be decent revenue generators irrespective of the ways in which they choose to pay for service. For a longer discussion of this issue, click here.

The prepay/postpay argument reminds the Informer of an observation from German comedian Henning Wehn, who has made the UK his home, as well as the target of his satirical observations. “When I first ordered some food in a British pub, I didn’t understand why you had to pay for it before it arrived,” he said. “And then I saw the food.”

Staying in the UK for just a while longer, Vodafone, Orange, O2 and T-Mobile have announced their intention to launch NFC mobile payment services in the UK by 2012. NFC has been building a head of steam in recent months, with the likes of Google, RIM and Visa announcing their support.

Apple’s recent hiring of NFC expert Benjamin Vigier has sparked rumours of NFC capability in the next iPhone; with operators fighting a seemingly losing battle on the app store front, it looks like handbags are set to be drawn in the race to the consumer’s pocket at the convenience store.

The GSMA has called for standardisation and interoperability in the interests of preventing market fragmentation, but for many operators, NFC is something of a last-chance saloon in terms of getting a share of the e-commerce applications market currently dominated by likes of Apple and Google. By tying transaction security closely to the SIM, operators can inveigle themselves between customer and service in a way that pays off.

In recent times, the operators themselves have been viewed as the key obstacle to NFC deployment, but this looks set to change, presumably thanks to a market valued by Frost & Sullivan recently at more €100bn by 2015. As Deutsche Telekom CTO Ed Kozel told Bloomberg on Saturday: “Google’s massive but it does not have a billing relationship with 99 percent of its customers. That’s our opportunity.”

Former Google CEO Eric Schmidt disagrees about his firm’s role, but shares Kozel’s enthusiasm for the sector. At Mobile World Congress he described mobile payments as a “mega-scale opportunity for us.”

Hopping over to the States now, and some news from Lightsquared, the Greenfield wholesale player combining LTE and satcomms. The firm announced this week that it has scored a further $586m in debt financing from UBSAG and JPMorgan. The firm has raised more than $2bn in debt in the past seven months, it said. But that may not be enough money for it to take on the market alone, as reports surfaced as the week drew to a close that the firm, headed by ex-Orange chief Sanjiv Ahuja, is in talks with Sprint over network sharing. If it’s true, it’s another kick in the happy sacks for Sprint’s estranged WiMAX relative, Clearwire.

Interestingly, Lightsqaured also recently revealed that it has signed up a number of wholesale partners, including two carriers, one major retailer and one handset manufacturer.

Perhaps that handset manufacturer is Motorola. The firm could certainly do with a new outlet, having revealed this week that it is dependent on Verizon for a massive 28 per cent of its handset sales revenues.

In a bid perhaps to diversify, Motorola Mobility Ventures has announced the investment of an unspecified sum into CatchMedia, a cloud-based content delivery service that last year, was rumoured to be part of Google’s plans to take on Apple in the online music space. Catch Media offers a registry, tracking, routing and clearinghouse technology that allows digital content to be accessed from pretty much any device – from smartphones to televisions – while ensuring that all players involved in the making and delivery of the content get their share of the revenues.

And that’s about the size of it this week.

Take care

The Informer