Huawei, ZTE Win in Africa on Phone-Equipment Prices

Ernest Ndukwe, head of Nigeria’s telephone regulator, had personal guides for shopping, sightseeing, and dining when he visited Hong Kong this month, all courtesy of Huawei Technologies Co.Huawei, China’s biggest telephone-equipment maker, and local rival ZTE Corp. may jointly control more than half the Nigerian mobile-phone equipment market by 2007, four years after they started operating in Africa’s most-populous nation, Ndukwe said in an interview. Their prices are 40 percent lower than companies such as Ericsson AB and Alcatel-Lucent charge in Nigeria, he said.

Huawei and ZTE, both based in Shenzhen, are courting officials such as Ndukwe as they focus on Africa, Asia, and Latin America to expand sales of Chinese technology. Developing nations will drive growth as the global cell-phone market adds more than a billion subscribers in the next two years, Motorola Inc. Chief Executive Ed Zander said this month.

“Doing business in China has taught ZTE and Huawei to focus on keeping their products simple and cheap,” Victor Yip, an analyst with UOB Kay Hian Securities in Hong Kong, said by phone. “People in developing markets don’t need fancy — they want something that works.”

Shares of ZTE rose 0.3 percent today in Hong Kong to HK$36.90 as of 10:26 a.m. local time. The stock has risen 41 percent this year, compared with a 28.5 percent gain for the Hang Seng Index. Trading of ZTE’s Shenzhen-listed shares was suspended after the company said it would issue about 48 million new shares to employees as part of an incentives program.

Doubled Sales

Privately held Huawei, which makes equipment used to build telephone networks, doubled sales in Nigeria last year to $600 million, Zeng Yong, general manager of the company’s unit in the African nation, said in a Dec. 7 interview. Huawei has about 400 employees in Nigeria, with offices in Abuja and Lagos.

“We’ve done really well there and I think we’re only going to do better,” said Zeng, who traveled to Hong Kong with Ndukwe and other Nigerian officials to attend the International Telecommunications Union conference.

Ndukwe is the chief executive of the Nigerian Communications Commission, which licenses mobile-phone carriers in the nation. Nigeria, Africa’s biggest cellular market after South Africa, may double subscribers to 50 million by 2010 from 25 million at the end of August, according to South Africa’s Rand Merchant Bank.

Huawei and ZTE can fuel growth of mobile-phone users in Nigeria by helping to lower costs so services are available to more of the population, Ndukwe said in the Dec. 7 interview in Hong Kong.

Alcatel-Lucent, Ericsson

“Emerging markets offer better opportunities than Europe or North America because there’s less competition and greater growth potential,” said Michael Meng, a Citigroup Inc. analyst in Hong Kong. “The Chinese are doing better in emerging markets because they’ve put much more focus there.”

Alcatel-Lucent’s business in Africa is conducted mostly through its Shanghai-based unit Alcatel-Lucent Shanghai Bell, Annie Chen, a spokeswoman for the subsidiary, said. The unit, in which Alcatel-Lucent holds 50 percent plus one share with Shanghai Belling Co. holding the remainder, was established in May 2002. Chen declined to comment on competition with Huawei and ZTE in Africa.

Lungi Tyali, a spokeswoman for Ericsson’s sub-Saharan Africa business, didn’t return calls seeking comment.

Won Contract

ZTE may more than double its number of employees in India next year to 2,000, Cao Qing, vice president of ZTE’s mobile-phone products unit, said in an interview last week in Hong Kong. India, the world’s fastest-growing mobile-phone market, added a record 6.7 million cell-phone users in October for a total of 136 million.

The Chinese phone-gear maker won a contract last month to supply equipment and handsets to Reliance Communications Ltd., India’s second-biggest mobile-phone operator, Cao said, declining to say how much the contract was worth.

ZTE won two $30 million contracts last month to provide phone equipment to the African nations of Lesotho and Ghana. In August, the Chinese company secured a $312 million contract to build a fiber-optic network in Venezuela.

Huawei said in September it won a $50 million contract to supply Compania Anonima Nacional Telefonos de Venezuela with equipment for a telecommunications network in Venezuela. The Chinese equipment maker has in the past six months won contracts in Columbia, Uruguay, Russia, Vietnam, Pakistan, Nigeria, Indonesia, Bangladesh, Morocco, Tajikistan and Saudi Arabia.

Giving Loans

China’s government has also helped by giving Nigeria and other developing countries loans to buy phone equipment, Ndukwe said. Chinese President Hu Jintao pledged $3 billion in loans to African nations over the next three years during a China-Africa summit held last month in Beijing.

“Huawei and ZTE need to expand overseas as Ericsson and other foreign companies pay more attention to China,” said Steven Liu, a DBS Vickers Securities analyst in Hong Kong.

China added 55.62 million mobile-phone users in the first 10 months of this year, taking its total to 449 million, according to government data.

While sales at Huawei and ZTE have been boosted by their focus on developing nations, profit margins are being affected by the companies’ low prices, Citigroup’s Meng said.

ZTE’s net income in the quarter to Sept. 30 fell by half from a year earlier, even as sales rose 15 percent. Huawei’s annual contract sales may grow 34 percent, compared with 46 percent in 2005, according to a company statement. Lower prices are contributing to the slowdown, Huawei Vice President Liu Jiangfeng said in June.

As emerging markets in Asia, Africa, and Latin America grow and add users, Huawei and ZTE will be able to sell products at higher prices, Meng said.

Wireless Mobile Telecom