ZTE recognizes mistake in giving up on U.S. infrastructure market

editor's corner

Chinese vendor ZTE said it would pursue U.S. network infrastructure deals after all.

"Although we have been blocked by the U.S. government, we just can't give up breaking into the U.S. market because its size is huge and per-capita spending is high," Richard Ye, senior director of wireless-product operations, told Dow Jones Newswires. Ye's comments are a reversal of what ZTE Chairman Hou Weigui said in an interview with Dow Jones last month, during which he indicated that the political obstacles to Chinese vendors in the United States were too difficult to overcome.

In that interview Hou said that ZTE won't seek equipment deals with companies such as Sprint Nextel (NYSE:S), AT&T (NYSE:T) and others. "Putting too much effort into this has no use. Last year we received a lesson" when the U.S. government essentially blocked ZTE (and Huawei) from winning an equipment deal with Sprint, Hou said. He added that ZTE has a growing business providing mobile devices to U.S. operators. and will focus on that.

However, Ye said that ZTE cannot just "walk away from this important market." Interestingly, he said the ZTE is still in discussions with all of the top operators, including Verizon Wireless (NYSE:VZ) and T-Mobile USA. Overall, Ye said ZTE expects global revenue from equipment to continue growing at a double-digit rate next year as operators upgrade to LTE.

U.S. lawmakers have singled out ZTE and rival Huawei, arguing that they represent a security risk to U.S. infrastructure. The companies, which have extensive business in Europe and Asia, have said the charges are unfounded. Last month the U.S. Commerce Department decided to block Huawei from participating in the construction of a nationwide, interoperable public-safety LTE network. The government said the decision was based on national security and declined to elaborate. Huawei has since been pushing back strongly against the decision.

Huawei, in particular, has spent much time, energy and money to allay security concerns that stem from belief that it has ties to the Chinese government and military. Huawei continues to refute those ties. In the past year it added measures that included establishing a national security committee, using an accredited independent test lab to check Huawei's proprietary software and ensuring trusted delivery of all products by using U.S. citizens to deliver product in the U.S. The manufacturer has also been working with U.S. law firms to help its cause.

Last year, Sprint Nextel (NYSE:S) decided to block both Huawei and ZTE from getting its multi-billion-dollar network modernization project because of mounting national security concerns from lawmakers and others within the government about the Chinese vendors. They are concerned about Huawei's chips, routers and other equipment that could be bugged to give China's government access to sensitive information.

Does ZTE have a better chance at U.S. contracts than Huawei? ZTE said it won't sell network equipment to countries like Iran as to not annoy U.S. officials. That move is in contrast to Huawei, which reportedly agreed to install equipment allowing police in Iran to track people using their mobile phones.

At any rate, it appears that ZTE recognized its mistake in declaring that it would give up on the U.S. infrastructure market. To show that it is a strong contender in the world's infrastructure market, it can't ignore the U.S. However, it's unlikely ZTE or Huawei will win major U.S. infrastructure deals, but the advent of non-traditional carrier network infrastructure, such as small cells and carrier-grade Wi-Fi, offer at least a foothold in more U.S. networks in a way that is perhaps less threatening to U.S. officials.--Lynnette

P.S. Take a look at my latest feature on carrier-grade Wi-Fi and how vendors are trying to position themselves to play in the market. Check it out here.