Delivering Quality Projects, Offering Excellent Services

  An interview with Xu Huijun, Senior Vice President of ZTE Corporation

Telecom operators are now facing greater competition than ever before. Having been impacted by the global economic downturn and competitive pressure from the Internet industry, many are seeking to streamline their service operations and have begun redefining their positions in the value chain.  An increasing number of operators are choosing to outsource the construction, planning, operation, and maintenance of their networks as a means of controlling overall costs, and in order to focus their attention on business operations and user expansion. Higher requirements are therefore being placed on project delivery and engineering services, and while this brings about some difficult challenges, it also presents significant opportunities to equipment suppliers. Recently, the reporters of ZTE TECHNOLOGIES interviewed Xu Huijun, Senior Vice President of ZTE Corporation. In the interview, Xu Huijun analyzed these challenges and opportunities, and affirmed his full confidence in the growth of ZTE’s services field.

Journalist: Operators are now placing greater importance on engineering service capabilities. What is the significance of engineering services in the development of today’s telecommunications marketplace? What has changed in operators’ needs for engineering services?

Xu Huijun: It is true that operators place great importance on project delivery and engineering services when choosing their cooperative partners. There are several reasons for this.

First, because the technology gap between equipment vendors is narrowing, more attention is being paid to their project delivery and engineering services. For example, if a multinational telecom operator plans to construct a new network in a new country, it often has to be done from scratch. The speed of network construction can have great impact on its competitiveness in this country. However, equipment vendors differ considerably in their ability to build such a network. Some may not be capable of building the network as a whole; others may need three or four years to complete the job. If a vendor could provide a turnkey solution that guaranteed network completion within one or two years, the operator would be able to market its network one or two years earlier, and thus gain a competitive advantage. After all, a technology gap can sometimes be narrowed in as little time as six months to a year. The delivery capability of equipment vendors can win more time for operators. 

Second, operators have found that their Capital Expenditure (CAPEX) accounts for around 30% (or even less) of total costs, while their Operational Expenditure (OPEX) accounts for a more significant proportion of total costs when the whole value chain or cost structure is analyzed. Therefore, innovation and service guarantees may help operators lower their OPEX.

In addition, operators have more or less the same network infrastructure, and the technological differences between their devices are becoming smaller. Service quality can thus enhance the operators’ branding and be used to attract more users in market competition. These services include those offered by operators to end users, and those delivered by equipment vendors to operators. The latter involves a quality network, KPI guarantee, and operation support.

These factors have become more important to operators than the value and differentiation inherent in their equipment.

J: What new service models are now available in the industry?

Xu: Because operators are focusing more on services, they have created new cooperative models with equipment suppliers, including Managed Services and Managed Capacity models. Managed Services involves outsourcing network operation and maintenance to an equipment supplier to guarantee KPI, while Managed Capacity involves further outsourcing network planning and capacity expansion to the equipment supplier. For example, if an operator with 1 million subscribers intends to expand its subscriber base to 5 million in three years, the equipment supplier must not only manage and maintain the existing network, but also plan for future network expansion and optimization.

In this way, the operator can more easily devise its business plan. It need only attract subscribers, and can straightforwardly calculate the income and expenditure in the growth of its subscriber base from 1 million to 5 million. This “Pay As You Grow” model enables the operator to pay the equipment supplier only when its business growth reaches a certain level, otherwise no payment is required. The operator can effectively control costs and expenditure while maintaining a focus on expanding business. Using this model, the operator can minimize its operational risks with a business profit model and detailed network plan prepared by the equipment supplier. The equipment supplier must develop a clear plan of how and where to distribute the 5 million subscribers, and must keep track of service growth, and make decisions. The “Pay As You Grow” model has been implemented in many places.

J: What is ZTE’s service protfolio and how does it meet the needs of operators?

Xu: ZTE continues to expand its services portfolio, which includes equipment installation, debugging and maintenance, turnkey project delivery, Managed Services, and professional services like network planning and design, network optimization, and spare parts services. This year, ZTE is targeting the Indian market and is ready to carry out Managed Capacity services there.

Operators in developed Western countries need more Managed Services, and to counter high labour costs in this area, they are looking to outsource. Through years of development, ZTE has carried out more than 50 Managed Services projects around the globe, and its level of service has improved rapidly.

Chinese operators started to outsource spare parts services at the end of 2008. Spare parts services means that operators no longer buy spare parts but services. Spare parts are warehoused by, and remain the assets of equipment vendors, and repair personnel are sent to repair or replace parts if they fail to operate properly. Similar to warranty services for household appliances, spare parts services allows equipment vendors to take advantage of their network scale by sharing their spare parts among different operators in different areas, which can reduce costs on the whole. However, this also raises some management issues because these spare parts have to be properly managed.

In addition, operators also attach great importance to network optimization. We have been devoted not only to providing quality equipment, but also to constructing quality networks for our customers. Network optimization is key to ensuring optimal equipment performance in a wireless network. We have rapidly enhanced our capabilities in this regard. According to a third-party evaluation, ZTE ranked first in terms of network KPI in the construction of China’s three 3G networks in 2009. The gap between ZTE and the industry benchmark is narrowing significantly.

J: How does ZTE ensure its global project delivery? What is central to the competitiveness of ZTE’s engineering services?

Xu: Overseas engineering services was our weak link several years ago. Although it is still our weak point today, we have made rapid progress. Here is a typical example: At the 2008 Mobile World Congress in Barcelona, operators talked to us only about technologies; at the 2009 Mobile World Congress, they posed questions about how and whether we could successfully deliver projects; but at the 2010 Mobile World Congress, they no longer doubted our capacity to deliver projects, but talked with us more about future cooperation. We can see that our competitiveness has improved in recent years.

In regards to the core of our competitiveness, first, we have established the world’s most diligent engineering services team. With a strong service consciousness, every member of this team works hard to fulfill the company’s commitment to its customers. When I first took charge of after-sales services, I proposed a slogan: “Perseverance Makes Mission Possible.” It was just a slogan at the time, but today it has become the very essence of what they do. Armed with an awareness that they are competing in all aspects, this diligent team is where our core strength lies.

Second, we have continually improved our project management abilities. In particular, after more than two years of cooperation with CSL in Hong Kong, our ability to deliver projects has greatly improved. Since last year, we have been trying to effectively control project costs, and following on this year, we aim to improve our ability to control project quality. We intend to summarize the best practices of project management and develop teaching materials for our field engineers around the globe. 

Third, we have enhanced our ability to concentrate resources thanks to project-based marketing practice. In an integrated project management process, projects are carried out in sequence so that our resources can be concentrated. Those projects at the top of the sequence list are guaranteed resources not only for project delivery, but also for logistics, R&D, and finance. This is very important for us to win a competitive advantage in the marketplace.

Finally, we have enhanced our ability in engineering services by implementing integrated technologies. We used to divide project delivery by products, but in fact, what we were delivering to operators was a complete network that involved different technologies. For example, a BTS site involves microwave, power supply, and BTS equipment. How could we effectively manage all these elements and deliver a complete BTS site? We now need to improve our ability in this respect. At the beginning of 2010, we restructured our Engineering Services Department with the view of improving our service planning through an optimized organizational structure. Moreover, we will strengthen our study of serviceability, and make our equipment easier and less expensive to install and maintain. We also need to improve professional techniques, including those relating to documentation. Under the new organizational structure, we will focus our attention and resources on key projects, and continue to expand our service abilities.

J: What successful projects has ZTE delivered in recent years?

Xu: ZTE has delivered many successful projects at home and abroad. In constructing 3G networks in China, we have reached new heights in both project delivery and engineering services. Our delivery speed on these networks was fast, and our network KPI was the best of all. Overseas operators were impressed that tens of thousands of base stations were built up in little more than six months, and then quickly put into commercial use.

In the Hong Kong CSL project, we succeeded in integrating CSL’s original five networks (900MHz GSM, 1800MHz GSM, 900MHz UMTS, 2.1GHz UMTS, and the network of former New World) into one. Within a short time, we significantly improved its network capability and made its network KPI the best in Hong Kong. The original networks were beyond upgrading, but now the integrated network provides a data rate as high as 21.6Mbps, and also supports smooth evolution. We are currently planning the MIMO network and conducting an LTE trial. All these are based on a unified platform.

Our project delivery capabilities were highly regarded last year by Indian operators Aircel and TTSL. Projects in Europe, including Telenor’s project in Montenegro at the end of 2009, were delivered smoothly. We have also delivered a number of successful projects in the CIS, Africa, and other regions.

On the whole, our engineering capabilities are much stronger in China than abroad. Although we have been delivering more successful projects abroad, there is still a great gap between ZTE and the industry benchmark. We need our spread of successful projects to become more international. The overseas market is large and there exist great differences in different regions in terms of capability, management, and cooperation with partners. How to broaden our successes to these regions is our major concern.

J: Finally, would you talk about the future plans and vision of ZTE in the field of after-sales service?

Xu: Our overall vision is to make our engineering services one of the company’s core advantages and one of the company’s main sources of revenue. Operators value engineering services no less than equipment. In 2009, our revenue from engineering services accounted for only 7%–8% of the company’s total revenue. The growth of engineering services is not linear, but based on equipment stock. So its growth might be exponential, and our space for development very large.

On the one hand, we must do well in each project and build our brand image through successful cases; on the other, we must improve our capabilities in project management, resource concentration, serviceability, and integrated technologies delivery. Only with enhanced core competence can we truly fulfill our vision.