Jarich: Has China lost its innovative spirit? (Huawei, ZTE and the future of competition)
Here at Current Analysis, we get a lot of questions about Huawei and ZTE.
If you don't already know, our focus is the Competitive Response Lifecycle; instead of market forecast reports, market share estimates or foundational market primers, we look at the tactical, competitive dynamics that shape sales and marketing strategies. Over the past few years, few companies have been seen as bigger competitive threats than China's leading wireless and telecom vendors. If their early innovation didn't get them on the radar of their competitors, their impressive growth over the past few years was certainly a wakeup call.
Looking back, then, at this year's Mobile World Congress, we had to ask ourselves a question: "Are Huawei and ZTE the same, innovative companies they once were?"
To be sure, they took the occasion to make some impressive announcements. Huawei talked up cloud, HSPA evolutions, TD-LTE, het net techniques, LTE-Advanced inter-band carrier aggregation and extensions to its GigaSite solution. ZTE had its own cloud and TD-LTE news, not to mention its own LTE-Advanced inter-band carrier aggregation announcement and a TD-LTE picocell. Forget, for a moment, the overlap in topics. What is more striking is how incremental the developments are. Years ago, when Huawei announced its main-remote 3G base station solution and gained initial traction in Europe, it was the beginning of a new network architecture that would revolutionize how networks were built. The same could be said as both vendors moved early on multi-standard base stations. At MWC 2012, however, they trailed competitors who led with small cells or advanced antenna innovation the year before. They, largely, ignored the service provider WiFi space--despite the fact that Chinese operators like China Mobile have talked up massive hotspot network launches. They ceded the spotlight to Ericsson (with its acquisition of BelAir), NSN (with its ambitious Flexi Zone launch) and Alcatel-Lucent (with its LTE metrocell momentum).
If this seems a bit melodramatic, it is. Nobody expects that Huawei or ZTE will see their stature eclipsed in the near-term, especially with ZTE recently announcing a 28.6 percent revenue bump in 2011. Still, how should we think about innovation being driven from other quarters?
- Innovation Ceiling. There's no shortage of original thinking or novel products in the mobile space. Mobility is at the core of most service innovation today. In the network, however, there's only so much that can be done. There are a finite number of spectrum bands available and a finite number of technologies operating in them. Those technologies are tightly prescribed by standards which ensure interoperability (with handsets, at least), but also limit the room for "outside the box" thinking or R&D. Yes, standards allow for innovation in terms of implementations, architectures and even which standards to pursue. Bucking the trends on which standards to follow, however, comes with risks. Just ask Ericsson about its pursuit of GSM450 and MBMS...or anyone else about their decision to bet the farm on WiMAX.
- Innovation Elsewhere. Just because Huawei and ZTE didn't come to MWC 2012 with jaw-dropping mobile networks innovation doesn't mean they didn't come to the show ready to highlight some new thinking. Last year, both companies took great pains to highlight their mobile device and enterprise infrastructure strategies. In part, this is because they truly feel they have solid assets to leverage. In part, it's because there's likely no way to sustain the level of growth they've enjoyed based on network infrastructure sales alone. Thus, we saw Huawei's partnership with IBM around enterprise mobility, its (long anticipated) move to build mobile devices based on its own silicon and its support for fledgling Tizen mobile device operating system. We saw ZTE join Lenovo and Motorola in plans to develop Intel-based mobile devices while launching a new Android UI and NFC media sharing application. You could argue that some of this is incremental too; quad core device announcements were commonplace at MWC and in-house UIs are a common tool for Android differentiation. Together, however, this points to places, other than the network where the Chinese, vendors will likely be investing their R&D.
- The Perils of Following Customers. Long before Huawei and ZTE were proclaiming their focus on the enterprise or smartphone markets, they were highlighting their focus on the customer. Being keenly aware of their customers' demands, they argue, allows them to best meet those demands and carry forward their learnings to other operators. Unfortunately, there's a problem in this logic; operators are not the most innovative of beasts. More often than not, they're known for being slow to react rather than visionary in how they evolve their networks and services. This is why, to their credit, we've seen new "innovation centers" from the likes of AT&T, Verizon and Vodafone; they understand the need to break from this past. Against this backdrop, simply listening to your customers and giving them what they want isn't always the best strategy for supporting a culture of "new thinking."
- The Innovation Imperative. Arguing that innovation is overrated will likely get you laughed out of most any room. Arguing that a business can still be successful without being truly innovative is a much more defensible position. To be fair, some cultures put a premium on innovation either because of the image it sends or the leverage it can deliver. This is why China spent so much time pushing TD-SCMA. It's why Huawei and ZTE endlessly tout their patent filings. Yet, while TD-SCDMA has been a failure and Huawei and ZTE's rivals argue that patent filings are very different from meaningful, defensible, awarded patents, few of them will argue with the impressive growth these Chinese vendors have enjoyed.
This last point may be the most important. Innovation is critical for operators looking to move forward with new business models and revenue opportunities. It's critical for vendors looking to one-up their competitors. It's not, however, necessarily critical for business success. Where costs can be kept down and quality maintained, the "fast follower" strategy is a valid one...even if pride means that lip service must be paid to the concept of innovation.
Peter Jarich is the Service Director leading Current Analysis telecom infrastructure practice. Follow him on Twitter: @pnjarich.