MWC 2009: SDR Coup for ZTE

BARCELONA -- Mobile World Congress 2009 -- GSM operator Hong Kong CSL Ltd. is to rip out its existing network and deploy an entirely new infrastructure from ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763) to take it to the next level of mobile broadband services, the carrier announced here today.

Here is Light Reading's on-the-spot analysis:

Unstrung first reported CSL's plans to replace its 2G and 3G infrastructure as long ago as March 2008, but it was unclear at the time why the operator had decided on such dramatic action. (See ZTE Ousts NSN in Hong Kong .)

Now the carrier, a subsidiary of Australian incumbent Telstra Corp. (Pink Sheets: TLSYY), has provided the details. With competition in Hong Kong so intense, the carrier is looking to increase its efficiencies, prepare for the migration to LTE (Long-Term Evolution), and maximize its mobile broadband potential as fast as possible. CSL, which has about 2.5 million GSM and UMTS customers, is the largest of five mobile carriers serving Hong Kong's 7 million inhabitants

The answer to those needs is a new HSPA+ network, including access, core, and transmission, based on software-defined radio (SDR) technology, which enables an operator to simultaneously run different radio technologies from the same infrastructure. (See Multi-Standard Radio Systems.)

"We need a network that is multiband and multimode" that creates an easy migration path to LTE, CSL CEO Tarik Robbiati told a press conference held here Tuesday morning. And the CEO is totally focused on data service functionality rather than voice.

"You can't make money from voice services in Hong Kong -- this is why we are focused on high-speed data," Robbiati told a press conference held here Tuesday morning.

"This will be the first SDR-based HSPA+ network," continued Robbiati, who said that, while he wouldn't reveal the exact capital expenditure plans associated with the ambitious project, CSL will be spending "several hundred million Hong Kong dollars" on building the new network. (For the record, HK$100 million currently equates to US$12.9 million, so even HK$400 would come in at US$51.6 million.)

"Deploying an SDR network means we can reuse the capex investment for a number of years," as ZTE has a modular base station that enables an easy migration to LTE, noted the CEO. (See ZTE Goes to MWC.)

And when capex is a relatively high percentage of sales, as it is in the telecom world, at between 12 percent and 14 percent, continued Robbiati, "you have to make big bets," and you have to get it right. He didn't, however, pinpoint any kind of operating expenditure gain, noting only that the opex-to-sales ratio with an SDR–based network is "good."

The network is to be built this year, and recent tests have shown ZTE's technology capable of delivering downlink data speeds of 21 Mbit/s. The planned commercial launch date is being kept under wraps for now.

"We feel this investment will yield a return commensurate to shareholders' expectations," stated Robbiati.

And the main shareholder is very happy with the move. Telstra CEO Sol Trujillo was on hand to praise CSL for "raising the game" for its customers. And he believes the move will also deliver a positive financial payback for CSL. "We have a lot of data to show what happens when you move from 7 Mbit/s, to 14 Mbit/s, to 21 Mbit/s -- it raises ARPU, margins and customer experience," stated Trujillo.

For ZTE, the deal is something of a coup, though industry analysts and other carriers, who wish to remain anonymous, believe the Chinese vendor will have offered CSL a very enticing deal to win the business.

Robbiati says the vendor choice was made with three factors in mind: deployment know-how, technology, and price. "We are very comfortable with the SDR technology that ZTE has developed. That was the main reason for choosing [that company]."

So with Trujillo advocating the CSL strategy, does this mean he might be thinking about bringing ZTE into Telstra's mobile network? Ericsson AB (Nasdaq: ERIC) is the company that has underpinned Telstra's rapid development of high-speed mobile broadband services -- so far.

If any such plans exist, Trujillo isn't saying, though he noted that ZTE is already a supplier of handsets to Telstra. "We made a decision to go with Ericsson for Australia three years ago, and we've had a terrific partnership and we're very pleased," stated the CEO. (See Ericsson,Telstra Achieve First and Telstra Unveils Switch to IP.)

— Ray Le Maistre, International News Editor, Light Reading