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Call it the shot heard 'round the world — or at least a shot across the bow of the major infrastructure suppliers: On April 28, British Telecom announced the preferred vendors for its $10 billion 21st Century Network project: Alcatel, Ciena, Cisco, Ericsson, Fujitsu, Lucent, Siemens and … Huawei. Being mentioned in the same breath as the other seven — let alone beating out established players such as Marconi and Motorola — shows major operators are taking Chinese vendors seriously.

But a big question remains: Can Chinese vendors duplicate that success in North America?

“Their first priority for international expansion is Europe,” said Thierry Delmarcelle, vice president of the communications and media industries practice at A.T. Kearney, whose clients include Huawei and ZTE. “They see the United States as the next step.”

That's why the BT win is a big deal for Huawei. “It certainly gives the Huawei brand name more credibility among the larger operators,” said Douglas Black, VP of marketing at FutureWei, its U.S. division. “Since we've announced deals in Europe, the telephone has been more active.”

The phone has been ringing at UTStarcom, too, although its position in the U.S. market tends to get overlooked because of what it has sold here: the packet-core infrastructure for next-gen wireless networks rather than base stations, where contract wins tend to generate bigger headlines because more boxes and dollars are involved.

“We currently serve 90% plus of data subscribers in the United States,” said Manish Matta, UTStarcom's director of international marketing, who lists Alltel, Sprint, U.S. Cellular and Verizon Wireless as buyers of its packet data serving nodes and home agents.

Matta said UTStarcom also has sold CDMA base stations to a U.S. carrier but won't say which one. That wouldn't be surprising because wireless — particularly CDMA — is one of the best ways for Chinese vendors to get in the door at major North American carriers. CDMA carriers such as Sprint and Verizon scrutinize new services in Asia to get a sense of how they might fare here. By supplying those deployments, Chinese vendors get on their radar, and they can point to major 3G launches as proof that their equipment works.

Those deployments also help convince major U.S. carriers that they're capable of supporting big roll-outs. “It's less about product capability and functionality and more about convincing a U.S. carrier that supply chain, customer care, logistics — the usual hand-holding and support mechanisms — would not only work over long distance but that they can be relied upon over the long term,” said Mitch Mitchell, vice president of the communications practice at A.T. Kearney.

One way to handle that concern is to put the world headquarters here, as UTStarcom has done in California, or create a U.S. subsidiary, as Huawei did with FutureWei. Another way is to be as responsive as possible during the RFP and RFQ processes in hopes of convincing a potential customer that they'll get the same level of support after the sale. Black said that's partly what helped sell wireless gear to ClearTalk and DWDM equipment to Hibernia Atlantic. “They were impressed with the amount of support they received while making their decision. And they found that our technology was right there equal to anybody else in the industry.”

If Asian vendors have a weak flank, it's the perception that they're leaders in price rather than innovation, product performance and customer support. One example: In a July 2004 survey of wireless infrastructure buyers by Heavy Reading, respondents identified Huawei as the price leader in every category but had little to say about the performance and quality of its equipment. The analyst firm found the same perception in other telecom sectors, too.

Black counters that Huawei doesn't play up price. “When we go in to win a proposal, we don't think that we have to win it on price. Almost every one of the clients that have selected us said that they didn't select us for price.”

Being perceived as the low-cost option isn't necessarily a bad thing. For one, it provides an edge in the wireless base station market, where pricing pressure is enormous. But no vendor is immune to eroding margins, which is why Huawei and others are offering services such as design and installation.

“They can look at us a one-stop shop,” said UTStarcom's Matta.

It's also worth remembering that decades ago, Asian vendors used low prices to enter the U.S. consumer electronics and automotive markets. The trick is to avoid being pigeonholed as a cheap supplier over the long term. In order to build market share and attract foreign investors, they'll have to follow the lead of Sony and Toyota in evolving from low-cost suppliers to innovators whose products have performance that justifies a price premium.

Equipment prices aren't the only place where money helps win contracts. In December 2004, China Development Bank gave Huawei a $10 billion credit facility. “That's for Huawei to use to expand its overseas market, and most likely it will be used for vendor financing,” Black said. One example: In April, Huawei financed a $200 million wireless network project in Nigeria.

Strategies such as vendor financing and ample support before the sale seem to be paying off. Huawei said that about 40% of its sales came from international markets in 2004, although it won't say how much of that was from North America.

Winning a major contract with a Verizon-size carrier is still key. “Within North America, you're seen as a [vendor] that has arrived when you're selling to the Tier-1 carriers,” Black said.

	Revenue Category	2003	2004	2005	2006	2007	2008
Revenue (in millions)	Switched local service	$12,026	$11,939	$12,178	$12,300	$12,792	$13,560
	Long-distance	$2816	$2742	$2660	$2527	$2375	$2185
	Dedicated access & private line	$5556	$5662	$5832	$5948	$6067	$6189
	Data	$15,984	$16,399	$17,219	$18,080	$18,803	$19,367
	Total CLEC service revenue	$36,384	$36,744	$37,890	$38,857	$40,039	$41,302
	All other revenue	$1674	$1555	$1348	$1151	$1116	$1095
	TOTAL REVENUE	$38,059	$38,299	$39,239	$40,008	$41,156	$42,398
Source: New Paradigm Resources Group

The CLECs that have survived the telecom downturn and a changing regulatory environment are actually expected to record growth and see some stability, stated New Paradigm Resources Group's annual CLEC report. Revenue was almost flat between 2003 and 2004 but is projected to make modest but steady improvement over the next four years.