The Trump administration’s decision to ban ZTE from using components made in the United States for the next seven years will likely result in widespread ramifications for service providers, particularly those in China. This ZTE ban could also pose a bit of challenge for Chinese operators such as China Mobile and China Unicom, which have very aggressive 5G deployment plans.
Yesterday, ZTE announced that it is no longer manufacturing telecom equipment and has stopped all “major operating activities” in its Shenzhen, China factory. That means that service providers using ZTE’s optical gear in their networks will have to find another supplier.
According to Jimmy Yu, optical transport analyst with Dell’Oro Group, the majority of ZTE’s optical business is with Chinese operators. Dell’Oro Group estimates that in 2017 optical transport was a $2.2 billion business for ZTE. Yu estimates that ZTE accounts for about 16 percent of the global optical transport business. Huawei is the leader with 29 percent of the market.
ZTE does have a significant presence in the Chinese market where Yu said it has about 40 percent market share. Raymond James analyst Simon Leopold has speculated that in China, Huawei, Nokia, and Fiberhome are best positioned to pick up ZTE’s business.
But switching from one vendor to another isn’t an easy proposition. According to Yu, optical equipment isn’t interoperable. Most have proprietary features that will make if challenging for service providers to switch from one vendor to another. “Getting another vendor, qualifying them on the network, and installing it — that requires a lot of truck rolls,” he said.
Emir Halilovic, principal analyst with GlobalData, agrees with Yu. He said that while vendors have made some improvements to make their gear more interoperable, particularly with software-defined networking (SDN), few operators have multi-vendor environments deployed in their networks. And like Yu, Halilovic said that optical networks are “notorious” for being proprietary to some degree.
However, Halilovic noted that many service providers, especially large operators, have “safety mechanisms” in place to prepare for situations like this, which is why most operators have multiple vendors for all their networking gear. That means that some cities or geographic areas may be equipped with ZTE optical transport gear that will have to be replaced or upgraded, but it won’t cause a disruption to the entire network. “In my view, in cases such as this some disruption seems inevitable. But for large operators who have a relatively diversified supply chain this shouldn’t be a showstopper,” he said.
Nevertheless, Chinese service providers have been particularly aggressive with their 5G plans. In fact, some analysts believe China may be the first country to have 5G deployed commercially on a widespread basis. China Mobile is in the midst of conducting some large-scale 5G trials in five cities with more than 100 base stations in each city. The operator is using equipment from multiple vendors, including ZTE.
Halilovic said that he believes much of 5G readiness in the transport network can be done by upgrading current optical networks or building new capabilities into existing networks. But he said that situations like what is happening with ZTE might actually prompt operators to build completely new optical transport networks instead of just upgrading.