China in Africa
9. China's Telecommunications Footprint in AfricaChina’s increased involvement in the African telecommunications industry is part of amultidimensional engagement in the continent to serve its broader strategy to enhance itsglobal standing, counter Western influence and to obtain resources and new exportmarkets to feed its rapidly expanding economy. Alongside construction, energy andmining, telecommunications is one of the four strategic pillars underpinning China’seconomic development and providing the necessary platform from which to challenge theWest for global hegemony.
It is therefore regarded a vital industry for Chinese strategic interests on several fronts:
- Acquisition of foreign technology
- Dual use military application
- Reinforcing China’s space and satellite development programme
- Breaking into new markets.
Such assessments are closely driven by the Chinese Communist Party (CCP) and relatedministerial and strategic planning institutions which have as their primary mandate, theemergence of competitive international companies aligned with the strategic politicalconsiderations of the motherland. Importantly, Chinese telecom companies do not operatein isolation but operate in tandem with Chinese geo-strategic objectives. This makes theneed for effective countervailing strategies all the more important in dealing with Chinesetelecommunications challenge in Africa.
Initial assessments suggest that China has chosen several hubs from which to roll-out itstelecommunication strategy on the continent. These include Egypt, Algeria, TunisiaKenya, Nigeria and South Africa.
Leading the pack are Chinese heavyweight companies such as Huawei Technologies,Zhongxing Telecom Ltd (ZTE) – both linked to the Chinese military and intelligenceestablishments, China Telecom, and Alcatel Shanghai Bell (ASB). Improving technicalcapacity, linked to low costs of production, access to cheap state subsidized fundingsources and state political support provide such companies an important competitive edgenot available to independent telecom companies.
9.1. The Chinese Business Method
The links between telecom deals and China’s African strategy are not new. According toMark Natkin, managing director of Beijing-based IT and telecom consultancy Marbridge:“Chinese telecom vendors have identified opportunities in developing nations and canleverage their price advantage to develop relationships that vendors from rich countriescan’t be bothered with. China is taking a much longer-term approach that better integratesbusiness and political objectives. If you’re the company that gets in there and builds thecore network, you have a good shot at winning all upgrade contracts to follow. It’s likebetting on a portfolio of high-risk stocks. Many will be losing propositions, but those will beoutweighed by the few that take off”.
Importantly, Natkin added: “It might be coincidental, but many of the telecom deals doneby Chinese vendors in Africa and other developing countries have been with oil-producingcountries”. Part of Chinese economic penetration strategies into new markets is to letChinese oil companies act as the vanguard of Chinese business and later politicalinterests. Chinese oil companies allow for low-level intrusion into new markets withoutattracting unnecessary attention. But they inevitably herald an influx of governmentofficials, mainly from the intelligence community, to help assess both business and politicalopportunities in such countries. This has been especially evident in countries in Africawhich have not had diplomatic relations with Beijing, most notably Chad (prior to 2006)and Sao Tome Principe.
Compared to the established Western telecom gear-makers, Chinese companies offermore cost-effective equipment and solutions. In addition, according to Zhou Tao,executive vice-president of ASB, the Chinese Government's increasing financial support toAfrican countries is also giving a boost to the establishment of telecom infrastructure.
The Chinese government’s role was underlined in 2004 when Deputy Minister ofCommerce Chen Jian stated: “China will further expand telecom cooperation with Africannations in line with mutual benefits and common development. Moreover, the Chinesegovernment will support its telecom enterprises to run more telecom services in Africa."This in a nutshell explains the core of the Chinese telecommunication strategy in Africa.
Some important strategic indicators underlining the business threat posed by Chinese telecoms companies are the following:
- As a result of government support for its telecommunication companies, Chineseflagship companies, Huawei Technologies, ZTE and ASB can keep their pricesextremely low, and tailor-make solutions for poor African countries. Critics of ZTE andHuawei point out that they sell cheaply to troubled governments like the regimes inAlgiers or the Sudan in deals that effectively amount to foreign aid, and with the fullsupport of the Chinese government. For example, because of its “national champion” status in China, ZTE can obtain lowcostmoney that it can then lend to its own customers. Loans for African contracts arebeing encouraged via preferential loans from government banks, which amount to a defacto subsidy. Money is funneled through lending channels, via preferential loans fromthe China Ex-Im Bank, through the China Development Bank. [See below.] According to Russell Southwood, CEO of Balancing Act (a consulting firm and onlinepublisher specializing in internet and telecoms in Africa) all major telecoms equipmentproviders engage in customer financing, but in ZTE’s case there is no transparency incustomer lending: “Not only are they offering preferential loans, but it’s impossible totell what add-ons become part of the package. They’re likely to say ‘if you wantsomething like Extra Departmental Branch Offices (EBDO - a 3G mobile voicetechnology), we’ll wrap it into the price,’” explained Southwood.
- Chinese companies establish themselves as key suppliers early in the development ofeach market. They then position themselves to win subsequent network upgrades aseconomies improve. They also gain an opportunity to showcase and refine its moreadvanced technologies-for example, Wideband - Code Division Multiple Access (WCDMA)networks deployed in Tunisia and Libya. Countries are concerned more aboutprice and less about track records. Leveraging their experience in these markets andadding low-cost African production facilities to reduce freight expenses, the companiesthus pave the way for future expansion in Africa.
- Chinese companies can offer services and products at a fraction of the cost of theirWestern counterparts because of the abundance of labour and low paying salaries.For example, China has an annual turnout of two million engineering graduates, whileFrance has 300 000 and Germany just 100 000. However, average annual salaries ofengineers in China only amount to US$19 000 per year as opposed to roughly US$110000 in Germany and France. Likewise, Chinese labourers work 50 hours on averageper week, whereas French and German labourers work 38 hours.
- According to Chinese officials from Ministry of Information Industry (MII), China, as adeveloping country, has similarities with developing countries in Africa and enjoys arich experience in ICT development from the perspective of a developing country. Thedirector said that Africa needs all kinds of capacity building, such as the training forboth students and teachers, and capacity building and e-learning are a key factor topromote the development in the continent.
- In West Africa, companies in the area say they find procuring equipment from Chinesecompanies attractive for an array of reasons. For instance, ZTE offered the bestproposal in terms of price when Kasapa Telecom Ltd., a subsidiary of HutchisonTelecom and one of four mobile operators in Ghana wanted to procure equipment."Five vendors submitted proposals; two Chinese and three were not. ZTE won on thebasis of price, speed and service and demonstrated commitment," according to RobertPalitz Managing Director of Kasapa. He further elaborated: "We have the ability todirect the growth of the network over the contract period so that we can quicklyrespond to marketplace conditions while benefiting from the prices negotiated. Thevendor includes quality-of-service parameters.”
Asked about the outlook for Chinese telecom equipment vendors in Africa, Palitz said:"I can’t predict but certainly the non-Chinese vendors have a challenge to meet inmarkets where increased penetration will depend on lower costs per subscriber. As theChinese vendors become more experienced in project management outside China, thehistorical advantage of older vendors may diminish."
- Zhou Tao, executive vice-president of ASB states that Chinese Government'sincreasing financial support to African countries is giving a boost to the establishmentof telecom infrastructure. The Export-Import Bank of China granted ASB financialassistance of US$63,3 million in 2004 to aid its overseas expansion. "As China andAfrican countries build solid political mutual trust, African countries are willing to getChinese companies involved in more infrastructure projects," said Zhou. "We believeChinese telecom equipment makers will have even bigger business opportunities inAfrica in the future."
- According to Victor Yip, an analyst with UOB Kay Hian Securities in Hong Kong:"Doing business in China has taught ZTE and Huawei to focus on keeping theirproducts simple and cheap. People in developing markets don't need fancy (sic) - theywant something that works."
- According to Richard Windsor, communications equipment analyst with Nomura, oneof the greatest threats that Asian (Chinese and Indian) mobile terminal manufacturerspose to their US and European counterparts is their comparative openness to the socalled‘white label’ phone model, where operators can brand the mobile phone as theirown or other vendors can purchase components (from the Asian manufacturers) tomake the terminal themselves. Duncan Clark, chairman of BDA Consulting, a telecomsresearch firm based in Beijing stated in this regard that “ZTE is willing to forgo itsbranding, go the white label approach and customize to what operators and customerswant.”
- According to Shi Lirong, senior vice president of ZTE, one reason why a growingnumber of service providers in Europe and North America are forging new partnershipswith Chinese suppliers is because their relationships with traditional partners are failingto deliver: “R&D cost-cutting exercises over recent years may have lost Western-basedtelephony equipment manufacturers-including Lucent/Alcatel, Nortel, Siemens-theirtechnological edge in the market place,” he says. “However, the story is radicallydifferent for Chinese equipment manufacturers that have so far concentrated salesefforts on developing areas. We haven’t had those problems,” he says. “There was nobubble to burst in these countries, so the trading environment is normal. Marketinvestment is still increasing. For R&D investment there is no problem; we are stillincreasing budgets.”
- Finally China is always careful to engage potential clients at the highest possible level.A macro-strategic intervention approach is key to winning over the power elites, whichwill buy into any proposed business plan. Only then do Chinese officials work downthe food chain to engage with local parastatals and businessman, unless they are alsowell connected to the power elites.
9.2. Targeted Countries in Africa
The top African telecom markets for Chinese companies are Algeria, Egypt, Tunisia,Morocco and South Africa, comprising 60 percent of China’s total telecom assets on thecontinent. Outside of these, only Nigeria and Angola are becoming truly significant. Ofimportance here is that Chinese telecommunication developments in Africa have initiallyfocused on coastal countries – those that strategically straddle main shipping routes andstrategic choke-points – known in military parlance as sea lanes of communications(SLOCs). Tracking shipping movements, especially in times of war, suggests that Chinesetelecom investments in Africa closely follow global strategic considerations of the CCPwhen it looks at the global nature of its telecommunications strategy. It is of course not thesole motivating factor for its investment decisions related to telecoms, but it is a significantone.
A second tier of countries are those which provide market access or springboards forinvestment into other regional sectors of the sub-continent, or which are rich in energy andnatural resources, critical for China’s economic growth prospects. In the first instance,Kenya is a useful example, given its strategic location in East Africa. Sudan is an exampleof the second instance where its oil riches provide China with over 300 000 barrels of oilper day or some 7 to 8 percent of its total oil imports. Other second tier countries include:Angola, Ethiopia, Ghana, Ivory Coast, Tunisia and Zimbabwe.
There are important military and security considerations linked to China’s penetration ofthe African telecoms market. For example, the most important main fixed base related toBeijing’s space programme outside of China, entirely manned by PRC technicians andbuilt with Beijing money and technology, is the coastal Namibia tracking station inSwakopmund. Chinese companies responsible for the more sensitive construction tasksincluded: China Great Wall Industry Corp (CGWIC); China State Construction Group,Windhoek; China Aerospace Machinery and Electronics Corporation (CAMEC); and ChinaAerospace International Holding Ltd (CASIL).
9.3. The Role of Telecoms Alliances in Africa
Looking at the pattern of China’s penetration of the African market, the following emerges:
- Chinese firms will link up with global operators to a) piggyback their existing networksto sell their product and service lines, and b) use as launch pads to penetrate andentrench themselves in new markets.
- Link up with local telecom companies to access political leverage to clinch deals in targeted countries.
- Link-up with fellow Chinese companies to compete against foreign companies for contracts.
- Avoid JVs with non-Chinese companies in the absence of the above criteria.
Against this background, the opportunities in the African market are obvious. For instance, the number of mobile phone subscribers in Africa hit 280 million in May 2008 (compared to 76,8 million in 2004 and just 7,5 million in 1998) representing a market penetration rate of over 30 percent. All the major Chinese companies already involved in the African market have categorically stated their intent to focus on Africa for future growth. Key to their future strategy in the market will remain competitive pricing, the expansion of wireless connections and partnerships with major western companies.
The African environment enjoys a positive outlook as far as the wireless market is concerned. 3G services have been commercially available since 2003 in Africa. Further 3G launches are expected. ZTE’s exciting TD-SCDMA system is destined for the African market after passing tests with flying colours last year. It was successfully tested at the Beijing Olympics, where ZTE was the largest supplier of TD-SCDMA handsets for the Olympics. The company supplied about 30 percent of the purchase order placed by China Mobile, thus making the company the biggest 3G provider of both network infrastructure and handsets of the global sporting event. The handset division was one of ZTE’s fastest growing units in 2007, with year-on-year sales revenues growing by 69,16 percent shipping over 30 million handsets in 2007.
9.3.1. Selected Important Partners and Contracts
Looking at the role played by foreign alliances in China’s entry into the African market, the following is noted:
- In December 2006 Comptel Corporation (A leading Helsinki-a leading OSS software vendor for convergent mediation, charging, provisioning and network inventory) was selected by Huawei as a qualified partner. This means that Comptel is a preferred Huawei partner for the deployment of mediation & provisioning services to its customers. Huawei and Comptel have already delivered joint-projects, including a CDMA Voice, Data Provisioning and Mediation solution for Telecom Namibia.
[Note: The Comptel InstantLink provisioning solution covers all the processes from accepting an order to activating a billable service. It interacts with Huawei equipment, allowing service providers to activate new customers and services fast and efficiently.Comptel Eventlink is a convergent mediation solution that is designed to collect and process usage information from many diverse sources, including Huawei network elements, and forward them to billing systems. ]
Comptel has been present in the Middle-East and Africa region since 1997 including countries like South Africa, Namibia, Nigeria, Ghana, Morocco, Sudan, Oman, UAE, Qatar, Pakistan, Jordania and Saudi Arabia. Comptel was established in 1986 and is listed on the Helsinki Stock Exchange (CTL1V) in Finland.
- In October 2006 Emirates Telecommunications Corporation ("Etisalat") selected Huawei as its major supplier for the construction of its nationwide UMTS/HSPA network. Under the 3-year contract, Huawei will provide the new generation UMTSequipment including more than one thousand Node-B base stations for the construction of a nationwide (UMTS/ HSPA) network, which will be the first HSPA network based on Iub/IP (Interface UMTS B/ Internet Protocol) transmission in the Middle East and North Africa. Huawei has been working with Etisalat since December 2003 for the launch of its commercial 3G services in the UAE. Etisalat has networks covering more than 14 countries including Egypt, Saudi Arabia and Sudan. Etisalat is also involved with The East African Marine Systems (TEAMS) initiative, which aims to provide more submarine cable links to the continent, particularly East Africa.
Etisalat represents an important cog in Huawei’s ongoing expansion plans in both Africa and the Middle East. For example, in 2006 a consortium led by Etisalat won the rights to develop Egypt's third mobile network, with a winning bid of 2,29 billion Euro. The network is being built jointly by Ericsson of Sweden and Huawei at a cost of approximately US$1,2 billion. The venture, Etisalat Egypt, competes with existing service providers Vodafone and Mobinil.
During the Financial Times Telecom World event held in London, in November 2007 Etisalat COO Ahmed Abdulkarim Julfar, confirmed that the company has further major expansion plans in Africa.
[Note: Etisalat ranks among the Financial Times Top 500 Corporations in terms of market capitalization and is the sixth largest company in the Middle East in terms of market capitalization according to London-based magazine, The Middle East.]
- Huawei was selected by South Africa’s MTN, which is the largest mobile operator in Africa, as a strategic partner. MTN, which is one of the largest cross-national mobile operators in southern Africa, selected Huawei's GSM Base Station Sub-System (BSS) to support its GSM expansion project in order to meet Africa's increasing demand for mobile services.
- In late 2006 Huawei was selected by Comium Mobile to build a GSM network in Cote d'Ivoire. The contract includes providing a full turnkey GSM, GPRS, 3G and Intelligent Network. The project adopted Huawei's EnerG GSM solution and new generation GSM Dual Density Base Transceiver Station, or BTS. Comium Mobile selected Huawei as a result of a successful three year partnership with Huawei in Sierra Leone and Liberia, to deploy the GSM network. [Note: Comium is aggressively pursuing the acquisition of new licenses across West Africa. Comium Mobile is a fully owned subsidiary of the Comium Group Luxemburg. In addition to the Ivory Coast, Comium is licensed to carry out GSM 900/1800, International Voice and Broadband Wireless Internet services in Liberia and Sierra Leone. It offers integrated mobile and telecom services comprising of post-paid and prepaid voice communications, value-added services, SMS, and secure high speed Internet Access, together with low cost alternative International calling card services.]
- In 2006 Oasis Sprl, the Congolese operation of Millicom International Cellular awarded Huawei a turnkey contract to provide a new GSM network. Under the first phase of the contract, Huawei supplied and installed its Huawei EnerG GSM technical platform and deployed more than 500 base stations across the country. The network offers voice communication as well as high speed Internet, video on demand, MMS and electronic payments. The initial phase of the network covered 85 percent of the population in the largest 182 cities. [Note: Millicom Incorporated was formed to pursue cellular telephone opportunities in America, and in 1982, was awarded by the US Federal Communications Commission one of three cellular development licenses. In 1982, Millicom founded, with Racal Electronics Plc, a joint venture which evolved into Vodafone Group Plc. Millicom International Cellular S.A. (“MIC”, “the Group”) was formed on 14 December 1990 when Industriförvaltnings AB Kinnevik of Sweden and Millicom, contributed their respective interests in international cellular joint ventures to form the Group. In 1993, MIC entered into discussions with Millicom, regarding the acquisition of Millicom. MIC officially began trading on NASDAQ on 31 December 1993. As a consequence of the merger MIC acquired all Millicom’s interest in MIC plus MACH and Millicom’s interest in 3C (UK), a UK based pay telephone operation. The remaining businesses of Millicom, including its successful satellite TV operations, the broadband license for Britain and Innova Inc, a computer networking company, were contributed to a new company, American Satellite Network Inc.]
Its operations in Africa are as follows:
- In 2005 ZTE signed a technology agreement with Portugal Telecom which heightened ZTE's prospects in Africa. The R&D Memorandum of Understanding (MoU) involves product and service development, and gives both companies a chance to enter new markets. It also allows for the two firms to jointly bid for carrier projects- PT holds stakes in operators in Angola, Cape Verde, Kenya, Morocco, and Mozambique.
- In 2005, ZTE also signed a deal with France Telecom to become its global supplier of Asymmetric Digital Subscriber Line (ADSL) equipment. France Telecom has 118,6 million customers worldwide. It also has an agreement with Alcatel to integrate its Code Division Multiple Access (CDMA) radio access portfolio into Alcatel’s CDMA endto-end solutions. [Note: France Telecom has a fairly large presence in the telecommunications industry in Francophone Africa, with majority or controlling interests in Senegal (Sonatal), Mali (the SNO Ikatel), Côte d’Ivoire (Côte d’Ivoire Telecom) and Mauritius (Mauritius Telecom). Specifically ZTE will play a key role in a 100 000-line CDMA telecom project in Egypt for the CDMA upgrade slated for Cairo and the Nile Delta.]
- In 2003, ZTE, joined with a regional telecom group in Africa known as Comtel to install a new communication system in 20 countries on the continent. Approximately $240 million will be spent to complete the project to install Asynchronous Transfer Mode (ATM) technology for Africa's major free trade bloc, the Common Market for Eastern and Southern Africa (Comesa). ZTE will implement the project, installing the fibre optic cables on existing telecom pylons or electricity power lines linking the Comesa region, which extends from Egypt to Swaziland. The Chinese company will become a major shareholder in Comtel as it had committed a substantial amount of money towards the $240 million required for the project.
Comtel was established by Comesa as an initiative to promote the establishment of a regional telecommunications network in the region. Registered in Mauritius on 26 May 2000, Comtel is set to save Africa $120 million each year, the amount paid to Western countries for the use of their telecom circuits for carrying international calls. Comtel will also introduce a direct telecom link between Comesa member states and other parts of the world. Currently, many calls from Africa have to pass through New York to get to Asia. The 20 Comesa members are Zambia, Zimbabwe, Kenya, Malawi, Namibia, Seychelles, the Democratic Republic of Congo, Egypt, Mauritius, Angola, Ethiopia, Uganda, Sudan, Rwanda, Swaziland, Burundi, Eritrea, Djibouti, Comoros and Madagascar. China’s participation in this project emphasizes the high priority being afforded to economic engagement with African countries in the field of telecommunications.
Cumulatively, the ICT sector in Africa attracted a total of almost US$3 billion of Chinese investment between 2001 and 2007. China’s involvement in the ICT sector in Africa mainly takes the form of equipment sales. In some cases, this involves normal commercial contacts between Chinese manufacturers and public and private operators in Africa. However, in some cases, it entails inter-governmental financing tied to purchases of Chinese equipment by state owned telecom incumbents.
While international attention has tended to focus on Africa’s new private operators such as Vodacom, MTN and Celtel, Chinese firms are emerging as key players in the supply of technology and equipment for networks typically to national telecom incumbents. By far the largest ICT project has been in Ethiopia (US$1,5 billion), which involved the associated rollout of mobile coverage in rural areas.
The four-year project, which was initially agreed upon in 2006, was to be undertaken by ZTE, Huawei, and Chinese International Telecommunication Construction Corporation (CITCC). It was expected that if completed, the project will more than double the country’s optical fiber deployment, more than triple mobile network expansion capacity, double rural telecom coverage, and quadruple the length of the fixed telephone network. In 2007, ZTE commenced construction of the fist two phases of the project. The three most active Chinese telecom equipment supply firms were state-owned ZTE Corp, privately held Huawei, and the mixed private-public 50-50 French-Chinese joint venture Alcatel Shanghai Bell. In most of the cases recorded by the database the state-owned Chinese banks directly provided the funds for the equipment to the host government. In some cases, ZTE was able to finance its deals through standing line of credit with China Ex-Im Bank of US$500 million, issued in 2004. Similarly, Huawei was granted US$600 million export seller’s credit from China Ex-Im bank, as well as US$10 billion in credit financing from the China Development Bank, both in 2004. It is important to stress that these lines of credit were given to the contractor firms for their worldwide operations.
A salient example of China’s ICT projects is the National Communication Backbone Infrastructural Project in Ghana, agreed to in June of 2006, whereby the China Ex-Im Bank is financing US$31 million of a US$70 million project initiated by the Ministry of Communications through a concessional loan. The project is aimed at rehabilitating and expanding fixed line communications technology in the country.
9.4. Chinese Telecommunications Companies in Africa
Huawei TechnologiesHuawei is the main supplier to telecommunication giants China Telecom and China Unicom, and one of the world’s ten-largest producers of telecom equipment. Its main products include switching systems, intelligent networks, Synchronous Digital Hierarchy (SDH) transmission networks, wireless, datacoms, broadband integrated services (BISDN), power supplies, and freespace optical systems. Company sources claim that “only” one percent of sales involve military customers, although this likely deflated number still represents more than US$30 million per year in equipment sales and service.
Huawei's products and solutions are deployed in over 100 countries and serve 31 of the world's top 50 operators, as well as over one billion users worldwide. In 2006, it had annual revenues of US$8,2 billion and over 44 000 employees. Over half its revenues came from overseas sales (US$ 4, 8 billion).
Huawei is often described as “a Chinese firm with close ties to Beijing's military and a history of illicit exports and industrial espionage”, an allegation it vehemently rejects.
ZTE communicationsOriginating from the Number 691 electronics factory under the China Aerospace Industry Corporation (CAIC), Zhongxing Telecom (ZTE) has grown to become China's largest listed telecommunications equipment manufacturer and wireless solutions provider. It lists shares in Hong Kong and Shenzhen and is China's second-biggest telecom equipment vendor after Huawei Technologies Co. The company develops and manufactures telecommunications equipment for fixed, mobile, data and optical networks, intelligent networks and next generation networks as well as mobile phones. The company has aggressively expanded in developing markets by exporting networking products, establishing joint ventures and investing in local communication operations. ZTE Chairman Li Taifong publicly confirmed in October 2006 that the African market has been targeted by the company as its “next business hub." ZTE has established three WiMAX R&D centers in America and China since its WiMAX operations began in 2002. With more than 400 R&D personnel dedicated to WiMAX operations, ZTE owns a growing patent portfolio in the WiMAX field.
Alcatel Shanghai Bell (ASB)Alcatel-Shanghai Bell (ASB) is one of the biggest telecommunications equipment and solution suppliers in Asia. ASB is the Chinese flagship company of Alcatel-Lucent in Asia Pacific. It is the first foreign invested company limited by shares in China’s telecommunications industry, with extensive global resources. ASB benefits from Alcatel- Lucent’s comprehensive next-generation (NGN) portfolio. In 2007 ASB teamed up with Datang Mobile (which initially developed TD-SCDMA network solutions) to provide TD-SCDMA to Chinese service provider, China Mobile. Datang and ASB deployed TD-SCDMA for China Mobile in Shanghai and in the southern city of Guangzhou. ASB provided the Node B equipment to be used in the network.
China MobileChina Mobile Limited, China’s largest telecoms company, was listed on the New York and Hong Kong Stock Exchanges in 1997. As the leading mobile services provider in China, the group boasts the world's largest unified, contiguous all-digital mobile network and the world's largest mobile subscriber base. In 2006, the Company was once again selected as one of the "FT Global 500" by Financial Times, and in the "The World's 2000 Biggest Public Companies" by Forbes Magazine. In April 2007 China Mobile indicated that it planned to buy companies in Africa and Southeast Asia as growth accelerates in those regions. However, it denied reports that it was planning to buy a stake in South African based mobile player, MTN Corp. However, sources confirm that for a period, MTN was the target of some sort of Chinese acquisition attempt. [See below]
9.5. Some Country Case Studies
AlgeriaAlgeria is one of China’s key strategic allies in Africa. The two main reasons for this have to do with oil and the war on terrorism.
On the energy front, Algeria was the first African country visited by Chinese President Hu Jintiao during his first ever overseas trip after becoming president in 2003. He touched down in Algiers in early February 2004 and signed several agreements related to the energy and telecommunications sectors within the broad framework of a new strategic cooperation agreement.
However, China was already active in Algeria’s telecoms industry prior to Hu Jintao’s . visit. Huawei was established in Algeria in 1999 and today has access to over 80 percent of all the operators and private network markets in Algeria. The company is the biggest CDMA wireless local loop (WLL) system and terminal provider in Algeria, and provided Algeria Telecom with a wired and wireless integrated CDMA WLL network solution, which adopts an integrated switch centre (C&C08) that can merge with Algeria Telecom's existing PSTN. In addition, the network can connect with Honet, fixed telephone line, ADSL and other vendor's CDMA WLL equipment, making it extremely flexible and requiring less start-up costs to construct the Algerian access network which covers 7 provinces through 113 000 lines.
In April 2003 Huawei was tasked with expanding Algeria's GSM network in 14 regions.
In 2005, Huawei won the bid of the purchased items for the next generation backbone transmission network equipment from Algeria Telecom. This project’s backbone transmission network will cover all territories within Algeria, which requires the network and equipment to be able to provide abundant data service characteristics, intelligent characteristics, and high reliability of next generation network oriented applications. Huawei won the project thanks to its customized ASON-based OptiX OSN system.
In March 2007 Huawei was selected by the Algerian federal railway - Société Nationale des Transports Ferroviaires (SNTF) to provide a GSM-R communication solution for the 220 kilometer-long Tabia-Mecheria railway line, an important passenger transport route in Algeria. In terms of the contract Huawei will provide GSM-R network design and engineering services to SNTF, with ALSTOM supplying the railway signalling system. When completed, the Tabia-Mecheria line will be Algeria's first modern railway equipped with world-class GSM-R technologies.
In May 2007 Huawei officially launched the CDMA 2000 1xEV-DO network in Algiers, the capital of Algeria. With Huawei's LiteFME solution, Algeria Telecom's PSTN, CDMA WLL network and ADSL network can be converged, including CRBT (Colour Ring Back tone), EV-DO data service, pre-paid portal for EV-DO service, video phone in fixed network and Integrated Centrex, which is a PBX-like service for enterprise users. [Note: Earlier in 2007 Algeria Telecom launched three new services, 'ADSL Assila Pack Pro 3000', 'ADSL Assila Pack Pro 4000' and 'ADSL Assila Pack Pro 8000' for its business customers with speeds up to 8 Mbps.] Other developments include:
- The donation by the company of telecom equipment including GSM, CDMA, switching and access products worth US$ 30 million
- The establishment of a training centre towards the end of 2006.
- The opening of a new regional office for northwest Africa in Algiers in September 2007.
- Work currently taking place on the trial project of EV-DO Rev.A, which can reduce the customers' OPEX, CAPEX and user churn while increasing service revenue.
ZTE In 2003, ZTE secured a contract to build Africa´s largest CDMA WLL in Algeria, after presenting a bid for a mobile network that was 18 to 21 percent less expensive than comparative bids made by US companies. The final contract was worth US$32 million, for a first phase of installation, with several spin-offs. Prices were kept low by the company, due to a Sinosure supported Industrial and Commercial Bank of China (ICBC) “soft loan” – a classic example of state subsidized Chinese deals. This deal included the construction by ZTE of two CDMA WLL networks, which cover 43 provinces in all eight districts of Algeria.
In October 2004 ZTE announced that it was to open a manufacturing facility in the country (for wireless fixed terminals and other equipment) in cooperation with local company INATEL.
By 2005, the company had provided a national CDMA network covering 95 percent of the country (including the three provinces of Tizi Ouzou, Bouira and Bejaia in northern Algeria). The new network involves a Mobile Switching System (MSS), Base Station System (BSS), Packet Data Serving Node (PDSN), Operation and Maintenance Center (OMC), a repair centre, a training centre and a software support centre.
In 2006 ZTE was awarded a contract to supply optical network equipment to ATM Mobilis, the largest mobile operator in Algeria with 1,2 million subscribers at the time. Under the contract, ZTE is to provide its optical products including transmission equipment, power supply, optical network management software and SDH/PDH analyzers.
EgyptWith a population of over 60 million, Egypt is the third largest mobile market in Africa after South Africa and Morocco. The Egyptian mobile market is dominated by two private operators, MobiNil and Vodafone Egypt. MobiNil and Vodafone were for years the only providers for mobile telecommunications before the Emirates-based Etisalat was chosen as the third provider offering third generation (3G) services in 2006.
In 2002 the Ministry of Communications and Information Technology of Egypt and the Ministry of Information Industry (MII) of China signed a memorandum of understanding aiming at the development of the ICT industry in both countries.
HuaweiHuawei entered Egypt in 2000 and its Middle East and North African operations are headquartered in Egypt. Huawei also has a training centre in the country. Telecom Egypt used Huawei's TELLIN solution to build a Fixed-line Intelligent Network (FIN) that covers the whole country. Huawei enabled Telecom Egypt to provide CDMA WLL services to both fixed and mobile subscribers, including voice and data services, with a network capacity of 100 000. In addition, Telecom Egypt built a MSAN (Multi Service Access Network) nationwide comprising 500 000 lines which made use of Huawei's Honet access network solution. Telecom Egypt also deployed Huawei's OptiX 10G equipment to build the core Cairo Metropolitan network, which has more than 50 nodes. In 2006 Telecom Egypt and Huawei signed an agreement to manufacture CDMA wireless local loop terminals.
Huawei used Raya NS (RNS) to undertake the turn-key installation of Huawei CDMA2000 WLL switches and base stations in Upper Egypt and Suez Canal regions to expand Telecom Egypt telephony services to remote areas.
Egypt’s IN Hardware Installation Network supplied by Huawei Technologies covering 8 sites: Roda, Abbassia, Alexandria, Suez, Tanta, Mansura, Sohag and Menia, were also implemented by RNS. RNS further completed the installation of 4 fibre optics rings covering 17 sites along with its network management system. RNS was awarded the installation by Huawei which received the contract to perform the first trial for 10G and 155/622M fiber optics transmission equipment.
In 2005 the Egyptian Company for Mobile Services (Mobinil), Egypt's leading mobile service operator and Huawei started to work on Softswitch trials in Egypt and finished the first call on this trial mobile network during this period. Mobinil signed a commercial contract with Huawei in 2006 to expand the network capacity to 5 million prospective customers. [Note: Mobinil which was the first equipment supplier to introduce Softswitch technology into 2G/3G mobile core network commercial construction, selected Huawei for the provision of its core network. Mobinil’s shareholders are Orange and Orascom Telecom Holding.]
In 2006, Telecom Egypt selected Huawei to provide Dense Wavelength Division Multiplexing (DWDM) technology. This technology enables multiple video, audio, and data channels to be transmitted over one fibre and increases the efficiency and bandwidth of networks by supporting different formats. The three year contract will increase the capacity of Telecom Egypt’s Cairo network and reduce operating costs while increasing quality of service.
According to Dawlat El Badawi, the planning vice chairman of Telecom Egypt:Emerging demand for advanced, higher-quality communications poses a paradigmshifting challenge to telephone operators. Originally designed to carry circuitswitched voice traffic, existing networks now need to carry heavy data loads, deliver streaming video, and provide Internet access to a rapidly growing user base. The decision to evolve our network is significant and is the result of in-depth research and analysis. Huawei offers industry leading transmission network architecture with its DWDM technology and enable us to give our customers access to new, advanced services while enhancing the security and quality of existing services.
The Huawei DWDM equipment has been applied to over 250 national and inter-city transmission networks. In the Middle East, Huawei DWDM Technologies have been widely adopted in many countries like the UAE, Saudi Arabia Oman, Tunisia, Algeria, and Morocco.
In 2005, Huawei Technologies inaugurated a regional technical assistance centre and a training centre in Cairo, aimed at educating partners, customers and sub-contractors of the company’s extensive portfolio of telecoms equipment. The training facility covers an area of 300 square metres and comprise13 classrooms and labs, with a capacity of 150 trainees at any given time. On its opening, a total of 58 training programmes were available.
At the time, Tian Feng, vice president of Huawei Technologies boasted that “our entry into Egypt four years ago and our knowledge and experience is equal to the best in the world” and added that “the strategic location of Egypt is important to us”. The total size of the investment in the two centres amounts to US$20 million.
ZTEOn 6 May 2004, ZTE and Huawei won a contract to launch a mobile phone network using CDMA technology in Egypt after fighting off fierce competition from other global giants. The contract, signed between the two Chinese companies and the Egyptian Communications Company (ECC), aimed to launch the CDMA mobile phone network to serve up to 100 000 users at a cost of more than US$20 million.
The ECC picked the two Chinese firms after inviting an international tender that attracted seven global telecommunication companies. According to ECC’s Chairman Okail Bashir, the selection was not based on low prices only, though prices are one of the important criteria, but technical efficiency which was the essential element.
The first phase of the project entailed 48 000 lines in the Delta and 52 000 lines in Cairo’s 16 suburbs. Phase II includes the establishment of an 800M core network along with an access network and fixed wireless terminals. In 2005 ZTE signed a further contract to expand the CDMA WLL network to 100 CDMA WLL.
AngolaAngola has become one of China’s most important telecoms market in recent years. The largest player in the country is ZTE.
In 2005 ZTE deployed its first ever Africa commercial WiMAX network in Angola following an agreement of US$69 million signed with Mundostartel (MST), Angola's second largest fixed-line operator. ZTE provided Mundostartel with the equipment to build a nationwide WiMAX network. The network covers three cities (Luanda, Benguela and Lobito) and provides broadband and VoIP services for more than six million people. It will eventually be deployed in 8 provinces. It was also the first time that ZTE installed an NGN based on an IP platform with CDMA2000 1x and EV-DO technology.
Under the terms of the agreement, ZTE supplied MST with its end-to-end WiMAX solution including base stations and CPEs (Customer Premises Equipment) which offer scalability to an 802.16e (mobile WiMAX) network, roaming support architecture and product serialisation.
ZTE said the network would provide NGN technology, which allows analog services like traditional fixed-line voice calls to be carried on the same network as digital signals such as mobile telecom traffic. It would be among the first of its kind in Africa.
[Note: Mundo Startel has the license to roll out fixed-line telecommunications network in Angola and intends to increase its market share up to 40 percent by 2010. Telecom Namibia owns 44 percent of MST and contributed US 4,2 million of the original US$9,7 million in equity costing of the wireless network.]
In November 2006, Angola’s Prime Minister Peido Nandó visited the Shenzhen ZTE HQ where he was presented with the firm’s new generation proposals for Angola. ZTE has 100 people working full time in Angola and is now eyeing the Sao Tomese market. With projects in Angola currently worth US$400 million ZTE has been working on a NGN access network, Intelligent Optical Terminal (IOT) and GSM/CDMA networks, with Angola Telecom (the largest telecommunications company in the country) and MSTelem as its local partners. It has also been working on a classified secure telecoms network for Angola’s Armed Forces (FAA), valued at around US$80 million, because the military’s top brass are dissatisfied with the state of secure communication connections to command centers.
Alcatel Shanghai Bell (ASB)In 2002 Alcatel Shanghai Bell (ASB) and Angolan Telecom signed a US$60 million contract to expand and optimize the telecommunication network in south and east Angola (Namibe, Huile, Cunene and Lunda Norte). The deal covered design, project, products and equipment solutions.
Shanghai Bell provided Alcatel S12 switching equipment, Litespan integrated access equipment, SDH622M and SDH155M optical transmission equipment and optical and electric cable. It was also commissioned to set up a satellite earth station and reconstruct 4 satellite earth stations and all the exterior lines for Angolan Telecom. [Note: The construction and installation started in 2005. Japan Telecommunications Engineering and Consulting Service (JTEC) managed and supervised the installation.]
China International Telecommunication Construction Corporation (CITCC)In 2005 CITCC completed four phase projects for the improvement of Angola Telecom’s telephone network in Luanda. CITCC also built 42 km of new telecom ducts, laid 366 km of telephone cables, and supplied telephone lines for 200 000 people.
HuaweiHuawei is present in 6 Angolan provinces, where it has invested US$7 million to build a training centre of telecommunications technologies and upgrade the ITEL (School of Telecommunications Technologies) at the University of Telecommunications. The university is currently under construction in Luanda.
Huawei has also introduced NGN, access network, intelligent optical transmission, GSM, CDMA and datacom products to Angola.
It has signed cooperation framework agreements with Angola Telecom and MSTelcom.
South AfricaAnother critical area for Chinese telecom development in Africa, South Africa serves as the head-quarters and logistics centre for both ZTE and Huawei on the continent. The Huawei Sub-Saharan command centre in Johannesburg is particularly impressive, located on the 1st floor, Building 28, The Woodlands, Woodmead in Johannesburg. Huawei also has a Technical Training Centre in South Africa, co-manned by Telkom.
Chinese firms are busy in trying to bring in South African technology to Beijing and Shanghai, and to establish joint ventures with big operators like MTN, in third countries where they have lower prospects of competing.
HuaweiHuawei first entered the South African market in 1998 in Pretoria, and relocated to Johannesburg in 1999. A training initiative with the University of Cape Town (UCT) is currently underway, and it will seek to supply basic and advanced product training to telecoms engineers. Huawei has supplied the university with the necessary equipment needed to operate a fully functional Huawei training facility.
Huawei is Telkom's only strategic partner for its 21CN integrated access network, providing an access platform integrating voice, IP and video. Furthermore, Huawei provides Vodacom with advanced 3G terminals and CellC with high-end IP networks and value added services. Huawei also became a strategic global partner of MTN in 2005, having signed a 3-year framework agreement worth US$600 million, featuring communications equipment provision and service. Huawei is also listed as the first partner to be chosen by the fixed network operator SNO. The Government of the Northwest Province has also purchased and implemented an IP WAN from Huawei.
Huawei has focused much attention on training programmes. For example, the company cooperated with Telkom to support South Africa's "Talent Plan" by funding Zululand University, and providing postgraduate students with education funds and research subjects.
Huawei has also set up an IP network training and certification centre in UCT to provide free IP engineering, technical training and certification for South Africa and surrounding countries. Over the past year, the centre has provided successful training and certification for more than 100 people.
Furthermore, on 6 August 2008 another training centre was opened in South Africa located in Woodmead. This facility brought the number of Huawei training centres in Africa to five, with the other facilities located in Nigeria, Kenya, Egypt and Tunisia. At the end of 2007, over 4000 Africans had graduated from these centres.
ZTEZTE entered the market through Vodafone Group plc, then a 50 percent share-holder in South Africa's Vodacom in May 2007. Vodafone unveiled ultra-cheap cell-phones, aimed at bolstering its position in emerging markets and at offering an alternative to Nokia and Motorola's cheapest handsets. The second-generation, or 2G, phones, called the Vodafone 125 and the Vodafone 225, are the fruit of Vodafone's recent partnership with ZTE. [Note: Vodafone is also working with Huawei on 3G handsets and with Sagem, the phone-manufacturing unit of France's Safran, on an ultra-cheap GSM handset.]
China Eyeing Mtn?For a period in 2007/early 2008, rumours persisted that China Telecom, the country's largest fixed-line telecommunications operator by users, was planning to buy a stake in South African mobile operator MTN Group. According to European sources, the Chinese takeover of MTN had long been planned. First it was thought that an umbrella group of enterprises should do it at the end of 2005. Then the plan was for China Mobile to make a bid with heavy China Eximbank financial support.
9.6. Recent Developments
- September 2008: ZTE Corporation announces a US$70 million contract to expand the country’s telecoms network. China’s Huawei Technologies has won a US$20 million contract to build a fibre optic network in Tripoli. Libya is planning a nation-wide Internet and mobile phone service. Chinese companies are expected to be at the forefront of these developments.
- October 2008: It was reported from Nigeria that plans are afoot to use the infrastructure of NIGCOMSAT for commercial telecommunications, which will be run by the government and ZTE, with the intention of rolling out lines across the country with the name of NIGCOMSAT and competing with the private telecommunications operators (PTOs), as well as GSM operators. NIGCOMSAT is said to be building a telecommunications network that would provide voice and data services with a host of other value-added services. [Note: NIGCOMSAT was launched into space in China on May 17, 2007 and was conceived to take care of the integrated communication infrastructure of Nigeria’s security agencies, including the State Security Service (SSS), Nigeria Intelligence Agency (NIA), as well as the Office of the National Security Adviser (NSA)
- November 2008: China’s ZTE Corporation won a contract to build a 2,5GHz mobile WiMAX commercial network in Mauritania. In terms of the agreement, ZTE will provide a core network, equipment, wireless access units and communications terminals.