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Yahoo! My Yahoo! Mail More Yahoo! Services Account Options New User? Sign Up Sign In Help Yahoo! Search web search Home Singapore Asia Pacific World Business Entertainment Sports Technology Weekend Edition Analysis: Bumpy road in Africa for Europe's telco vendors Reuters - Wednesday, February 16 Send IM Story Print By Helen Nyambura-Mwaura NAIROBI - Chinese telecoms hardware and network makers are biting off bigger chunks of African business and are likely to overthrow hitherto dominant European vendors in a region with mouthwateringly low penetration rates. While in the past they might have brought unreliable technology and a handbook only in Chinese, the firms are leveraging on a pool of skilled labor and government loans to dislodge traditional vendors. "It is not good news for the traditional vendors," says Dobek Pater, telecoms analyst and partner at research firm Africa Analysis. China's main telecoms gear makers Huawei Technologies and ZTE are rapidly taking business from European vendors such as Ericsson, Nokia Siemens Network and Alcatel-Lucent. Chinese vendors' initial market entry strategy was hinged on low priced offerings, often to state-run operators, but the companies have reinvented themselves by throwing billions of dollars into research and development and are now often ahead of the curve with new technologies. Stringent testing by global operators such as Vodafone has seen the Chinese vendors become the approved suppliers of almost all core, access and transmission infrastructure in Africa. Analysts say Chinese vendors are also willing to bend the rules to provide more cost-effective solutions for emerging markets. "Chinese vendors have mastered doing business in Africa the African way, if we can put it that way," said Tinyiko Mavoni, chief executive at South Africa's Mavoni Technologies. "Chinese managers are largely shielded from facing the consequences that their western counterparts would have to face if they are found to have breached corporate ethics and governance principles to secure contracts in Africa." SWEET DEALS China's export-oriented growth strategy has supported its companies. In March 2009, China Development Bank agreed to provide ZTE with a $15 billion credit line, according to Simon Schaefer, an analyst at Johannesburg-based Frontier Advisory. To avoid rankling western competitors, China is now lending directly to African governments or operators, but the money comes with the proviso that it is spent on Chinese products. The European Union this month dropped an inquiry into the subsidy of Chinese firms after Belgium's Option withdrew its complaint after reaching a cooperation agreement with Huawei. The Chinese companies deploy skilled personnel to build new networks in numbers that few western vendors can match, and often offer a financing deal. Pater from Africa Analysis said Huawei ranked itself in the top three on money generated from operators. "They estimate that by 2014 they would be in the number one position in equipment and building networks," he said. FRINGE PLAYERS The era of acquisitions and mergers of established European and U.S.-based vendors in the mid 2000s resulted in a loss of strategic focus as the new companies tried to settle, says Simon Lee, head of Farwell Consultants. Up until that point the Chinese were fringe players, and the general perception was that they were cheap and unreliable. "The Chinese companies were not going to pack up their bags and go home. They saw ... the general confusion of the established vendors and went full blast on a new strategy to gain respect and confidence globally," Lee said. "From 2008 until last year they were picking up coveted contracts and even swapping out equipment from operators who had had long-standing relationships with their incumbent vendor." Chinese firms are also pushing the boundaries with handsets and personal devices but have some way to go to match the aesthetics and ease of use of established makers. Nokia and Samsung remain the dominant players in Africa, and the Blackberry is increasingly popular among the upwardly mobile. However, mobile phones recycled in China or of Chinese origin are making an entry, according to Fola Odufuwa, an Africa-focused telecoms consultant. It is in the broadband USB modem market where Huawei and ZTE head the pack in many African countries and where analysts see some of the choicest opportunities. Africa had a mobile penetration rate of only 41 percent, compared with 76 percent globally, while the broadband penetration rate on the continent was negligible, statistics from the U.N. agency International Telecommunication Union. As long as the Chinese vendors continue to provide quality, competitively priced equipment that is set up in a relatively short period of time, they will be the suppliers of choice. "The rise of Chinese Vendors in Africa is short of a miracle," said Mavoni. 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