Optimizing Operations to Give Customers Better Value

The telecommunications market is in a critical period of transition from voice to data, and broadband is sweeping across the globe. To seize this historic opportunity for broadband development, ZTE has planned a number of 4G/LTE deployments in different locations. ZTE is seeking to gain a leading edge in LTE. In 2011, ZTE became the fifth largest telecom equipment vendor in the world. ZTE has also recognized opportunities in the smartphone market. The company’s brand image has been boosted with star smartphones such as ZTE Blade. ZTE is now one of the top four mobile phone suppliers in the world. In 2011, ZTE reaped the rewards of its “going global” strategy. Our journalist recently interviewed Fan Qingfeng, executive vice president of ZTE. He shared his thoughts on ZTE’s overseas expansion, global telecom environment, and some hot topics in the industry.

Journalist: In 2011, ZTE achieved significant sales growth in overseas markets. Could you talk about the company’s overseas expansion? What are ZTE’s main achievements this year in overseas markets?

Fan Qingfeng: Our revenue from overseas markets in 2011 accounted for more than 60% of total operating revenue, an increase of nearly 30% year-on-year. ZTE has entered a phase of optimized operation in Asia, Africa, and Latin America and has become the mainstream telecom supplier in these regions. ZTE has also tapped into high-end European and American markets and is now optimizing operations in order to fast-track development in these markets.

ZTE performed well in overseas markets in 2011. Our operating revenue from European and American markets increased, and now accounts for 22% of the total operating revenue. We have also expanded our presence in high-end markets, and our “going global” strategy has had a noticeable impact in these markets. ZTE is one of the world’s leading telecom suppliers. The key to tapping into high-end European and American markets lies in our many years of sustainable investment and operation in these regions and in our world-class products and solutions. We have cost advantages and competence in customization, so we can better satisfy customer needs and create greater value for our customers.

Journalist: What are opportunities and challenges in the international telecom market? How is ZTE seizing opportunities?

Fan Qingfeng: Growth in the global voice market has slowed down. Developed countries already have a saturated voice market. In emerging markets, demand for voice is declining and is close to saturation after ten years of rapid development. As voice tariffs continue to fall, voice revenue for operators will decline in the years to come.

Data services have developed rapidly in recent years to the point where the volume of data traffic now significantly exceeds that of voice traffic. However, revenue from data services is only a small proportion of operator total revenue, and increased revenue from data business does not match data traffic growth or make up for declining voice revenue.

The pace of global telecom investment has also slowed in recent years to an annual growth rate of 3–5%. Uncertainties in the global economy will also affect the growth of the global telecom market. These are big challenges for telecom equipment suppliers. However, there are also new opportunities. With the advent of the information age, there is a huge market opportunity for operators and equipment suppliers to build government-enterprise information systems.

There are more opportunities than challenges for ZTE. We have just tapped into the European, American, and Japanese telecom markets, and there is still much room for us to increase our market share in these markets. Although operators have curtailed their investments, we can make full use of our cost advantages. Diverse operator needs also allows us to give full play to our customization advantages. We can provide world-class products, solutions, and services, and we have the confidence and ability to acquire a greater share in the global telecom market. The rapid growth of the government-enterprise network market will also create new opportunities for us.

Journalist: LTE is a hot topic right now. Could you give us an update on ZTE’s involvement in LTE network deployment?

Fan Qingfeng: LTE is currently the fastest-growing wireless technology. Since June 2010, the number of operators investing in LTE networks has almost doubled. By Q3 2011, ZTE had secured 28 commercial LTE contracts with operators including Hi3G, Softbank, Telenor, Sonaecom, and CSL. We have teamed up with 90 operators to deploy LTE trial networks worldwide. In March 2011, we cooperated with Hi3G to construct the world’s first large-scale LTE FDD/TDD dual-mode commercial network in Sweden and Denmark.

In 2011, ZTE made many breakthroughs in LTE and was recognized within the industry. Frost & Sullivan awarded ZTE the prestigious title “2011 LTE Vendor of the Year” for its contribution to LTE. ZTE’s self-developed LTE micro base station, ZXSDR BS8920, won the 2011 Informa LTE award for best enabling technology. In October 2011, ZTE completed the industry’s first test of interoperability between FDD-LTE/TD-LTE and GSM/UMTS. In July 2011, ZTE unveiled the world’s first commercial LTE micro base station, ZXSDR BS8920, with 2×10W transmit power and 2T4R modulation for a large footprint.

ZTE has declared 235 essential LTE patents to ETSI, accounting for 7% of the total number of patent declarations. This makes ZTE one of the main patent holders of 4G standards.

Journalist: In recent years, national broadband network construction has gained momentum. How is NBN construction influencing the telecom industry? What role can ZTE play?

Fan Qingfeng: NBN construction is another very important development in the telecom industry following voice network construction. Broadband has greatly affected the telecom industry. It has especially affected operators, who are becoming pipe providers, and their control over the value chain is gradually weakening. However, broadband networks have also brought unprecedented opportunities to the IT and CT industries. The explosive growth in traffic volume caused by the ever-growing information demands of governments, enterprises, families, and individuals, is creating great market opportunities.

To adapt to broadband, we are responding to challenges and crises; we are cementing our position in the value chain; we are helping telecom operators with their business transformation and value enhancement; and we are working with IT service providers to promote healthy development of the industry.

Journalist: According to Q3 2011 reports by ABI Research, IDC, and Strategy Analytics, ZTE is now the fourth largest mobile phone manufacturer in the world. What are ZTE’s goals in the mobile terminal and smartphone markets?

Fan Qingfeng: The global smartphone industry grew rapidly in 2011, and China experienced significant growth in smartphone sales. China surpassed the US in Q3 2011 to become the largest smartphone market in the world. ZTE continued to expand its sales of terminals in the first three quarters of 2011. Our star smartphones, such as Blade and Skate, have rapidly enhanced our brand value. Our shipment of smartphones in 2011 far exceeded our expectations. In the future, we hope that sales revenue from mobile phones in North America will exceed that in China. Only in this way can we lay a good foundation for our sustainable development and achieve our higher goals.

Journalist: Services have become a new means of profit in the telecom industry. What plans does ZTE have to develop its services, and what has ZTE achieved with its services?

Fan Qingfeng: Early in 2005, ZTE planned to expand its services, and since then, our service business has grown. In 2011, we made breakthroughs in managed services for Vodafone, STC, Zain, Telefonica, AM, and China Mobile. Throughout the lifecycle of a network, OPEX accounts for a significant proportion of an operator’s TCO. It has been our goal over the past few years to reduce operator OPEX with our services. At present, operators are under pressure with their data business operations. This is what our services focus on. We will provide our customers with a turnkey solution for managed services and IT integration.

Journalist: Government-enterprise networks have become a strategic market of equipment suppliers. Would you talk about ZTE’s strategy and implementation in the government-enterprise network sector, especially its overseas development?

Fan Qingfeng: Since beginning its expansion into overseas markets, ZTE has been improving the quality of local telecommunication services. With 16 years’ effort and development, ZTE has brought good economic and social benefits to local governments and people. ZTE has cooperated with local governments and businesses in e-government, green energy, national safety network, safe city, and smart power grid. In 2011, ZTE made overseas government-enterprise networks a strategic target and planned full-scale entry into that market. ZTE has established special government-enterprise network marketing and service agencies in countries such as the US, India, Brazil, Japan, Russia, Britain, and France. Within a year, our government-enterprise network channels have developed rapidly, especially in Russia, Japan, the US, Brazil, and Europe.

Focus and cooperation are our key strategies in developing the overseas government-enterprise network market. In 2012, we aim to achieve breakthroughs in high-end overseas markets with our star products and solutions. As well as leveraging our advantages in traditional government projects, we are going to develop overseas distribution channels in key markets and focus on generating value in industries such as railway transportation, energy, and finance. We will strengthen overseas cooperation with Chinese-funded enterprises. The government-enterprise network market is far bigger and more complicated than the telecom market. We will follow the 80-20 rule and concentrate on core industries and core solutions to sustainably develop both the telecom and government-enterprise network markets.

Journalist: Finally, could you talk about ZTE’s business strategies for overseas markets in the next three years?

Fan Qingfeng: Our vision is to be a global telecommunications leader that provides our clients with satisfying and customized products and services. We strive to become a world-class excellent enterprise and to be among the world’s top three telecom equipment vendors by 2015. In the next three years, we expect to maintain growth of 20−25%, with higher revenue growth from the international market than the domestic market.

In emerging markets, we will further optimize our operations, better serve operators, and enhance our profitability. In high-end markets, we will shift our focus from penetrating new markets to optimizing operations. We will rapidly expand our overseas market share and become a mainstream equipment supplier and service provider. We will strengthen the competitiveness of our terminal products, including mobile phones, increase our market position, and become a first-class smartphone manufacturer. We will also explore the government-enterprise network market and seek new opportunities for development.