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The great African telecoms equipment giveaway - who stands to benefit?

Within the last month several African telecom incumbents have received sizable donations of telecommunications equipment from a number of foreign companies and governments. The most generous of these offerings have come from the Chinese giants Huawei and ZTE, while the Government of Iran recently signed a telecommunications agreement with Zimbabwe and TelOne. Many of the recipients are cash-strapped incumbents whose buying choices have become somewhat curtailed by their trading position. Mapara Syed looks at whether it is better to give or to receive.

Equipment giveaways are the latest front in the fierce battle for dominance of Africa's telecommunications equipment market and none are fighting more fiercely than China's two contenders Huawei and ZTE. Both firms have gradually built their brand image as cutting-edge high-tech companies among African leading telecom operators, with its high-quality products, excellent service and customized solutions. But their key advantages have been a combination of low prices and soft loan support for buyers.

Currently, Huawei has set up approximately 30 branch offices in Africa, and has deployed products in almost 40 African countries. Between Q4 2003 and Q4 2004 Huawei increased its revenues from sales of mobile equipment to Africa from USD 65 million to USD 250 million. In Q4 2004 it signed an USD 80 million contract with GSM operator V-Mobile in Nigeria and is supplying GSM equipment to companies across the continent. Huawei has also increased its sales of CDMA equipment to fixed-line and WLL operators in Africa. Huawei Technologies has recently won a series of contracts which amount to over USD 400 million from incumbent telcos in Kenya, Zimbabwe, and Nigeria in Africa. These sales cover a wide range of Huawei products and solutions including 3G, NGN, optical transmission, switches, routers and Intelligent Network.

Earlier this month Nigerian National operator Nitel inaugurated a Dense Wave Division Multiplexing (DWDM) project, an initiative launched by Huawei Technologies to boost Nitel’s transmission capacity and offer better services to Nigerians. The project (worth about USD2.7 million) is a donation of modern digital equipment to the incumbent by Huawei, and is expected to enhance fibre optic wide band transmission on the NITEL network, and increase/improve voice and data traffic along the Lagos, Enugu and Port Harcourt route, which represents a major lucrative market for NITEL and other service providers.

Coming a few months after China and Nigeria signed a memorandum of mutual cooperation and understanding on the development of telecom infrastructure, Zeng Yong, DWDM Project Manager at Huawei’s Nigerian office, says that the donation is to “solve the problem that there is not enough bandwidth on backbone network.” “As an important and reliable partner of Nitel’s,” Huawei want to help the incumbent operator become a successful player in the industry with sustainable growth. However, he also stated that it was Huawei’s way of expressing appreciation to Nitel for awarding them a previous contract to build 250,000 digital lines through Lagos, which is projected to generate n1.5 Billion a month. This contract demonstrated for Huawei that they have become one of Nitel’s “main partners in building the communications” needed to improve services in the country, Yong went on to say. In supporting the healthy development of Nigeria's telecom market, Huawei has invested USD 7 million to establish a multi-product training centre in the Capital of Nigeria starting back to August 2004, and has trained over 150 professionals for Nigeria.

Huawei's commitment to help Nigeria develop its telecom industry has been well appreciated by the Nigerian telecom operators and has led to Huawei winning a series of rewarding bids. For a company which has been operating in Nigeria since 1999, Huawei has received contracts totalling USD340 million from Nigeria last year alone. According to Huawei, the DWDM initiative serves a purpose of giving something back to Nigeria. Yet at what cost? Although Huawei are adamant that they expect nothing in return, the collaboration on effective transmission through the DWDM project will ultimately mean that they will “have a better relationship and cooperate with each other in the future,” said Yong. Although the Chinese have a reputation for discretion, this might reasonably be translated as a gift today is an incentive for a contract tomorrow.

Another company that has profited from beneficial agreements is Chinese telecom firm ZTE who over the past few years, has established a predominant position in Africa's telecommunications markets, especially in North Africa: in 2003, ZTE was selected to build Africa's largest CDMA WLL project in Algeria; ZTE's GSM products have been used in large-scale applications in Nigeria and Ethiopia; and, in 2004, ZTE was selected by Egypt Telecom to construct a large-scale CDMA network covering the Nile River Delta.

Like Huawei, ZTE has recently donated Sh144 million worth of communication equipment to Telkom Kenya. Last year, Telkom Kenya awarded the company a contract to install a total of 26,000 switching lines in Nairobi's Gigiri, Kabete, Ruaraka and Changamwe in Mombasa. "Award of the tender has enabled Telkom Kenya to boost its telecommunication services," said Ma Zhongxin, ZTE's President of the African Region. This latest offer, the largest that Telkom Kenya has received in two years, is again meant to help the company to expand its services countrywide and will be provided within the next two months.

The equipment has been donated as a gift to “improve the quality of telecommunication in Kenya” says ZTE Kenya’s Chief Representative, Jianke Zhang, and to boost Kenya's economic recovery strategy for wealth and employment creation. The company has previously been involved in the installation of Telkom Kenya’s network and is an illustration of its ongoing commitment to Kenya.

Similar to Huawei, ZTE “do not expect anything in return,” they just hope that the Kenyans “will have better standards of living” adds Zhang. However, they also hope that they can establish a “strategic partnership with Telkom Kenya” in which Telkom Kenya will be attracted to become a ZTE “shareholder in the future,” Zhang went on to say. On December 29 2004, ZTE became listed in the Hong Kong stock exchange and as a result ZTE are hoping that companies all over the world will invest in them and buy ZTE shares. ZTE clearly have a fine sense of irony as the near-bankrupt Telkom Kenya (see Telecom News below) are unlikely to be buying shares in anybody in the near future.

Such is ZTE's determination to get contracts that it has sometimes acquired telco companies in order to be able to supply equipment. Some while back it announced an interest in acquiring licences and it now has three licences in two countries: Niger and DRC. But ZTE does not see itself becoming an operator. According to Dengming Feng, VP, ZTE International:”Our target is not operating companies. We are manufacturers. But it depends because there are some opportunities to get a licence which are linked to manufacturing and supplying equipment.” It is rumoured to be interested in acquiring a shareholding in Zamtel.

The following table lists recent contracts Huawei and ZTE have won across the continent:

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