Vendor financing is back on the agenda in Europe

Having been on a steady decline since the dot-com debacle nearly 10 years ago, vendor financing--where, in simplistic terms, the infrastructure developers lend money to the operators to give them the means to expand and upgrade their networks--is making a return.

Perhaps this shouldn't be a surprise given the cost saving efforts many operators are attempting to implement, with the 10-year network sharing deal between Vodafone and O2 being an obvious example. Also, the increasing pressure to upgrade to HSPA+ and eventually LTE will force operators to upgrade their infrastructure and could make "cheap" vendor financing a very attractive option, given that the banks are unwilling (or unable) to offer attractive terms.

But what might surprise some is which vendor is looking to finance operators--none other than ZTE, which is now the sixth-largest infrastructure provider after overtaking Motorola last year.

Indications of ZTE's intent come from the US$15 billion credit line it recently established with the China Development Bank specifically to allow it to expand its worldwide presence and introduce new technologies. Interestingly, this level of credit amounts to nearly a third of the US$49 billion annual global market for mobile infrastructure equipment.

According to those close to ZTE, the company is in negotiations with a number of European operators regarding vendor financing worth a total of between US$100 million to US$1 billion. These loans, if they go ahead, are considered private so the names of the companies accepting the ZTE finance would not be disclosed. This entry by the Chinese equipment manufacturers into vendor financing will increase the pressure on the world's No. 1 equipment provider, Ericsson. While the Swedish firm is holding its own, in market share terms, against these Asian invaders, and has been a long-term provider of financing options for mobile operators, can it match the back-up provided to ZTE from the Chinese banking community?

Presently, Ericsson has access to vendor financing through Sweden's state credit support agency, which has served it well in the past. However, the Chinese government is so keen to support ZTE and Huawei to expand outside of Asia that is has given permission for other state banks, including the China Import-Export Bank, to lend to mobile operators around the world. -Paul