The firm Andrew may not be a household name, but households across the globe rely on the company’s wireless infrastructure equipment. Brian Donohue, managing director for Andrew in Beijing, first came to China in 1997. Since then, Andrew has also emerged as a major supplier to Chinese telecom equipment firms Huawei and ZTE, which have been aggressively expanding into overseas markets. In 2007, Andrew was acquired by telecom infrastructure firm CommScope for US$2.65 billion and now operates as a wholly owned subsidiary of CommScope. Donohue spoke to CHINA ECONOMIC REVIEW about what the launch of 3G will mean for China’s telecom industry, as well as the foreign companies serving that industry.
Q: What does the issuance of 3G licenses mean for Andrew’s business in China?
A: Now that the telecom restructuring has been completed and consolidated into three wireline and wireless operators, we believe that there will be about US$29 billon spent on infrastructure in 2009. About 30% of it will be spent on hardware equipment that operators will buy direct from equipment system vendors and RF antenna and cable manufacturers. Our share of that space is 3-5%, so we’re looking at an addressable market – just for our products on the 3G build – of US$260 million-US$435 million. If China spends US$40 billion in two years, as the regulator has said it will, we’re looking at an addressable market of US$300 million-US$600 million.
Q: What advantage do you have over your domestic competitors?
A: Andrew’s products are able to manage the carriers’ needs in consolidating their RF antenna and line infrastructure using our dual-band and tri-band solutions. Our domestic competitors mainly focus on single-band technologies and solutions for the domestic market. The domestic competitors have limited share outside of the mainland, as well as limited experience in supplying product solutions to international carriers. Andrew has been supporting the international carriers in developing their 3G networks for more than eight years.
Q: You’re one of the foreign members of the TD-SCDMA [China’s local 3G standard] industry alliance. What is your assessment of the technology? Will it ever go global?
A: There’s obviously a lot of national pride behind the homegrown standard. Certainly, it has some benefits. For example, you can use the same frequency for uplink and downlink and there are some design characteristics that allow for better integration of location-based services. But the challenge with TD-SCDMA spreading outside of China is the antennas are much bigger and you also have more active components up on top of the cell tower. Carriers in Europe and North America don’t like to have their active components up on top of the tower due to the cost and risk involved in sending a technician to climb a tower. TD-SCDMA will be successful in China because China Mobile is the largest operator in the world. But the question is: How long will TD-SCDMA stay in its existing form before it evolves into LTE [Long-Term Evolution, a 4G technology under development]?
Q: Has the delay in 3G licensing threatened the potential of the 3G market in China?
A: I would have loved to have seen 3G develop five years ago. But now that it’s coming, I think it’s coming at a great time. Furthermore, government spending will not only help the development of the telecom industry in China, it will also help foreign operating companies such as CommScope to weather the financial storm outside of China.
Q: Given Beijing’s support for domestic companies, will foreign firms really get their fair share of the 3G orders?
A: If you look at the TD-SCDMA standard alone, the biggest vendors are ZTE and Datang. As far as CDMA2000 is concerned, there’s only a few players left in the world that are even making equipment, so here in China the CDMA2000 portion will surely go to Huawei and ZTE. The big question is how much of the WCDMA orders will be spread across the foreign system vendors.
Q: You’re a key supplier for Huawei and ZTE. What is the global standing of those Chinese companies?
A: Huawei and ZTE account for about 40% of Andrew’s system vendor business in China. Their initial strategy was to enter key markets with a low pricing strategy in order to win market share. But today marketing professionals at Ericsson or Nokia Siemens all agree that Huawei is a formidable competitor. For example, Nokia Siemens and Ericsson dominated the Brazilian telecom infrastructure market for over 12 years. In just three years, Huawei has built up a 40% share. Now more than 70% of its total revenue is generated by international business. Huawei’s revenue is estimated to top US$23 billion this year, up 40% on last year. ZTE has struggled a little bit, but I think it’s making progress and it has started winning significant amounts of business outside of China. Its international business accounts for about 60% of revenues and it will generate around US$5 billion in revenues this year, up about 30% from last year.
Q: You’ve talked about the opportunity for Andrew in China. What are some of the challenges you face?
A: For any single product, we have at least two dozen competitors in China, versus our traditional North American and European markets where you might have two or three major competitors. Furthermore, the operators let everybody in. They don’t control the quality standards particularly well in my opinion, because they are so price focused. They might have been able to get away with that with GSM networks, but I’m worried that if they allocate share to local companies just based on price they will have a lot of problems with 3G networks in the years to come. Our job is to convince them that for 3G rollouts you really need to go with the best products.
Q: How receptive have the operators been to that message?
A: We’ve had some success on the China Telecom bids. We have our own site team here in China and we sent them out to support the operators during the last Lunar New Year holiday when there were big storms in southern China. A huge number of cell sites were knocked out of service because of the heavy ice loading and the wind conditions. We documented site after site where products supplied by our local competitors were made with substandard materials and inferior designs. We saw antennas twisted like aluminum foil. This unfortunate situation generated a lot of questions as to why some products survived and others failed. In some of the subsequent bids since then we have seen operators put more weight on product integrity and less on cost when making buying decisions.