Huawei and ZTE must take major steps to succeed in US

Enterprise Innovation editors
08 Mar 2018

The American market just got tougher for Chinese telecoms companies Huawei and ZTE, as the heads of six major US intelligence agencies, including the CIA, FBI and NSA, have recently warned consumers against buying phones from them for national security reasons.

Against this backdrop, both the brands need to take substantive measures to succeed in the lucrative US smartphone market, according to data and analytics company GlobalData.

Huawei is the third largest smartphone vendor in the world, but it has long wanted to expand into the US market, which is carrier-driven. However, telecoms infrastructure sales from Huawei and ZTE have been effectively banned in the US on security grounds for years.

Apple and Samsung dominate sales of premium phones in the US, but in China, Huawei holds its own against Apple and vastly outsells Samsung.

In the US smartphone market, carriers are heavily regulated and reliant on government approval for mergers and acquisitions. In addition, vast majority of the US consumers buy phones at a carrier retail stores, and phones must be customized to work on each carrier’s specific network technologies and frequencies.

In exchange, the carriers offer large marketing budgets and thousands of retail outlets across the country. ZTE has many carrier distribution deals with US carriers, but Huawei has failed to sell its phones directly to US consumers online.

Avi Greengart, technology analyst at GlobalData, said: “Both Huawei and ZTE need to create some separation between the infrastructure and consumer devices sides of the business.

They must also commit to physically storing all cloud services data in the US rather than China, to offset the quite legitimate fears that regulations differ widely between Western and Chinese governments.

“ZTE, a public company listed on Shenzhen and Hong Kong exchanges, should add a listing in New York or London and then run a marketing campaign highlighting the fact that its phones use US processors from Qualcomm, US software from Google, and routinely pass strict US carrier certification.

“Huawei’s ownership structure is more opaque. It should spin out a US devices subsidiary under the Honor brand, which has no negative associations and is easier for Americans to pronounce in any event.”

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