Climbing Up to the South End of the World

An Interview with Zhou Hongfeng, President of ZTE South America

The Amazon River is the pride of Latin America and of the world. It winds through Peru, Brazil, Bolivia, Ecuador, Columbia, and Venezuela, nourishing a vast land of 8 million square kilometers. The river also supports the largest tropical rainforest on Earth; the Amazon Basin is a mysterious and world-renowned “kingdom of life”, home to millions of species of plants and animals. In this land rich with diversity of life, ZTE—China’s leading telecom equipment supplier—has had a presence for almost 9 years. To understand the development of ZTE in South America, reporter Zhao Lili recently interviewed Zhou Hongfeng, President of ZTE South America. 

A Market of Distinctive Features

Zhou Hongfeng had just arrived at his office in Peru when our reporter met him. After a six hour flight from Brazil, he showed no signs of tiredness. His eyes were deep and clear, and he was enthusiastic to take questions. When asked to introduce the South American telecom market, Zhou described it as a market with distinctive features.

What makes the South American telecom market so distinctive can be considered from two perspectives. First, in terms of operator presence, there are two major players in the market: Telefonica (a Spanish telecom company), and America Movil (AM). Both companies are listed as a world’s Top 10 telecom operator, and both have an extensive presence in almost every South American country. Ranked fifth among the world’s Top 10 operators, Telefonica holds a 50% share of Brazil’s largest mobile company, Vivo, and accounts for 28% of the market share in Brazil. In Peru, Telefonica is the largest operator in terms of fixed-line and mobile operations. AM’s mobile business under the Claro brand has a 26% market share in Brazil—the second largest in the country. The South American market is basically a duopoly between these two Multinational Telecom Operators (MTOs). Their combined market share totals around 60% to 70%. In this sense, South America is a tightly dominated market. 

Now, however, a new trend is appearing. A number of local operators have emerged in South American countries where the economy is relatively developed. These local operators are demonstrating robust market growth. Brazil’s Oi, for example, purchased Brazil Telecom to become the largest fixed-line and fourth largest mobile operator in the country. With the help of local financial groups and government, Telecom Argentina and Entel Chile have grown into strong operators that can compete with the foreign MTOs. In Bolivia and Ecuador, government support has also assisted state-owned local operators to become more competitive. Local giants are therefore flourishing in South America, although the telecom market is still primarily controlled by MTOs.

Second, from the perspective of technical development, all South American countries have released 3G licenses. 2008 and 2009 witnessed significant 3G technical upgrades in the region, and as a result, Chile, Brazil, and Argentina have experienced rapid 3G business growth. In Peru and Columbia, data services are growing relatively slowly, but this also provides good opportunities. Over the past two years, all operators have focused on deploying broadband networks. Fixed-line operators have begun introducing new techniques such as VDSL and GPON into the conventional ADSL-dominated broadband networks. Mobile operators have constantly improved their network speeds by upgrading networks from GSM to EDGE, HSDPA, and HSPA+.

 2009 was a year of serious broadband deployment in South America. Zhou recalls that before 2009, broadband penetration in the entire South American region was less than 10%. Many countries are presently engaged in building their broadband networks. Countries such as Brazil and Chile, have devised national broadband plans as a stimulus for their economies. Media reports suggest that Brazil will launch its national broadband plan soon with an aim towards doubling its broadband user base within five years. Its citizens will be able to enjoy improvements in life and work brought about by information technologies.

Well-Planned Market Exploitation

The maturing telecom market in South America—including operator demands for terminal products and large-scale investments in fixed and mobile broadband deployment—provides good opportunities for ZTE. Drawing on years of business development experience in South America and substantial enhancement of its overall strength, ZTE is well positioned to capitalize on future opportunities in the region.

When asked about the achievements of ZTE in South America, Zhou started with the introduction of his team: “70-80% of our sales team in South America were born after 1980. They are young, bright, energetic and ready to meet all challenges head on. Leveraging the company’s advantages in technology, customization, and capital, they actively communicate with operators to develop cooperative projects. To date, ZTE has built long-term strategic ties with almost all operators in South America, including the MTOs Telefonica and AM; Telecom Italy Mobile (which is influential in the Americas); and competitive local operators such as Brazil’s Oi.”

ZTE has successfully penetrated the South American market with its terminal products, service and transport products, fixed broadband, and wireless products. In the terminal sector, ZTE sells its mobile phones and data cards to all operators in South America and has achieved a stable rate of growth. It has also established a mature communication and operation mechanism with operators. ZTE’s data card business accounts for more than 60% of the market share in South America (nearly 70% in Brazil). Its Digital TV handsets are selling well to Vivo, Claro, and TIM.

Take Vivo for example. Vivo is the largest mobile operator in Brazil with 50% of its shares being held by Telefonica. Its annual revenue in Brazil alone exceeds 10 billion U.S. dollars, far more than that of other Telefonica subsidiaries in Latin America. Vivo operates GSM, UMTS, and fixed-line networks across Brazil, with nearly 53 million mobile subscribers. In 2008, the company was granted a 3G license (UMTS 2100M) and began its 3G network deployment. Now, Vivo’s 3G network is the largest and the fastest growing in South America. ZTE began cooperating with Vivo in 2004, and is now its largest 3G data card supplier, accounting for more than 70% of the market share. This April, to enable Brazilian subscribers to enjoy the World Cup anywhere and at any time, ZTE and Vivo jointly launched the latest Digital TV handset—the ZTE N290. This handset is currently being sold in large cities including Rio de Janeiro and St. Paul. According to Vivo’s Executive Vice President of Marketing and Innovation, Hugo Janeba, the launch is timed to give people a new way of supporting their team in the 2010 World Cup. Janeba explains: “We want Brazilians to fully experience the World Cup and to be able to watch the games anywhere and at anytime. When soccer fans have their own pocket TV, the experience certainly becomes much more complete.”

In the sales of service and transport products, ZTE has also achieved breakthroughs with Telefonica South America as well as Vivo, TIM, and Oi. In 2007, ZTE signed a deal to supply Vivo with its Voice Mailbox System (VMS) service product. As a result, ZTE has now become Vivo’s major supplier of service products. ZTE has been highly recognized by Vivo for product quality, engineering implementation, and after-sales service. In 2009, ZTE helped Vivo build a backbone transport network.

TIM is a wholly owned subsidiary of Telecom Italy. With over 42 million GSM subscribers, TIM has become the third largest mobile operator in Brazil behind Vivo and Claro. The company owns GSM, UTMS, and fixed-line network licenses, and its networks are spread across the entire country. The number of TIM mobile subscribers has been increasing by more than 15% annually, and TIM’s total revenue in 2009 amounted to 10 billion U.S. dollars. Since 2007, ZTE has become TIM’s major supplier of 3G handsets and data cards. In 2009, ZTE achieved a breakthrough with TIM in the VMS project. The project is being implemented smoothly, and TIM holds ZTE’s product and engineering quality in high regard. At the beginning of 2010, ZTE won another contract to build a nationwide backbone and MAN transport network for TIM. Winning that contract cemented ZTE’s position as the primary supplier to TIM. ZTE is also a major supplier of transport equipment to Brazil’s local operator Oi.

With regards to fixed-line products, ZTE has achieved successes with Brazil’s Oi, Telecom Argentina, and Entel Chile. As the largest local operator and largest fixed-line operator in Brazil, Oi’s revenue in 2009 reached 25.5 billion U.S. dollars. ZTE began cooperation with Oi in a DSLAM broadband project in 2005, and has now become its major supplier of fixed-line broadband. In 2010, the company plans to further expand its fixed-line broadband business into other areas of South America.

In the wireless sector, ZTE has widely deployed GSM/UMTS products for Oi, built commercial GSM networks in Columbia and Chile, and supplied CDMA products to Brazil’s largest enterprise network service supplier, Embratel. ZTE has now become Embratel’s main mobile network supplier.

“In general, our terminal, service and transport, fixed broadband, and wireless products are well planned and deployed in the whole of South America,” Zhou firmly concluded. “In the next one to two years, we will certainly become a mainstream supplier of both fixed-line and wireless equipment in this region.”

Social Responsibility for Stable Long-Term Development

ZTE announced in April 2010 that it had set up two telecommunications training centers at INATEL, Brazil’s famous National Telecommunications Institute. The two centers, located on INATEL’s Santa Rita campus, Minas Gerais, are oriented towards training corporate staff, college students, and customers. Equipped with modern facilities, they provide professional training and consultation services in areas such as software and hardware development, testing, and standard customization. They are dedicated to becoming technology improvement and innovation centers for Brazil’s domestic and international enterprises.

In addition to the training centers, ZTE has also set up its after-sales service center and mobile call center in South America. When asked about the reasons for these investments, Zhou replied: “As the main body in an economic system, enterprise is playing an increasingly important role in wider society. The development of an enterprise is only lasting and stable when it is associated with social development. This is a reflection of a company’s Corporate Social Responsibility (CSR). Today, the whole world is paying attention to low-carbon technologies. This creates an opening for enterprise to grow along with society through more reasonable technologies. With the expansion of our business in South America, we hope to become integrated into its societies and to facilitate long-term development.”

“Brazil, for example, is a country of great potential. It has a population of just under 200 million, and its GDP is 1.68 trillion U.S. dollars (close to that of Russia and far exceeding that of India). Brazil is rich in natural resources and has the seventh largest petroleum reserves in the world. The 2014 FIFA World Cup and 2016 Olympic Games are also promising for Brazil’s economic development. Across the entire nation, development is stable, and its telecom investment accounts for over 50% of the total telecom investment in Latin America. The overall conditions in Brazil are favorable, and we need to continue to expand our business there. Our turnover in 2009 increased 70% from the previous year, and will increase more than 100% this year. With the expansion of our business, widespread deployment of our products, and increase in our customer numbers, there will be an increased need for training. In response, we have set up training centers as this is important for our customer service. Opening a joint facility in conjunction with the best university or best-fit college major in the local area is an effective way of providing training. The centers will train not only our staff and customers, but also local telecommunications professionals in Brazil. We have established another joint training center with the best privately-owned university in Columbia. This also serves as our pre-sales and after-sales technical support center in Latin America. The construction of these facilities satisfies our development requirements, demonstrates our social responsibility, and improves our brand reputation.”

Being an Enterprise Remembered by History

Finally, when asked about ZTE’s three-year plan in South America, Zhou calmly spoke of a grand goal: “First, in the coming three years, we will manage to be among the Top 3 market shareholders in South America. This is our main target. We will expand our market continuously to make a substantial contribution to the company’s strategic 2015 goal. Second, we will foster a group of telecom professionals in the South American region, and build a mature business operation mechanism to improve management. We will do this with the view of turning South America into a solid base for our sustainable development. Third, we will increase our brand recognition in South America through innovative business operations. By making a true contribution to the telecom industry in this region, we will make ZTE an enterprise to be remembered in South American history.”

Reporter’s Note

Opportunities Arise From a Solid Foundation

“Opportunities arise from a solid foundation,” Zhou repeated throughout the interview. These are simple words that have inspired Zhou with passion and enthusiasm and to think on the run in South America. 

The reporter learned that Zhou rarely has a regular office in South America. He flies from country to country on business, visiting local staff and customers, and staying  only one or two weeks before moving on to another country. Because many South American countries are located on high plateaus, the frequent travelling between plateau and plain areas is a great challenge. Zhou said that he had completely acclimatized to the plateau environment. When he arrives in such an environment, he has no altitude sickness and can start work immediately. This is the result of his frequent travelling to plateau countries. But what surprised the reporter more is that Zhou doesn’t suffer from jet lag after flights from China to South America or from South America to China. When asked about the secret to his vitality he smiled, “I go to sleep when boarding a plane, wake up when a food trolley passes by, and work when getting off the plane. I’m trained to be like this.” Such a purposeful routine gives Zhou more time and energy to think and work.

Zhou is a born optimist. He believes in the old saying “Nothing is impossible to a willing mind”. Zhou often talks and exchanges ideas with his staff. He said, “Despite fierce competition in the South American market, we must keep moving ahead with a firm faith and an optimistic mind. When building a solid foundation, we are sure to have opportunities. Opportunities arise from a solid foundation.” These simple words are the basis of Zhou’s colorful vision, which he retains in plain sight.