A Chinese national flag and two flags bearing the name of ZTE fly outside the ZTE research and development building in Shenzhen, China, in this 2016 file photo. Picture: REUTERS/Bobby Yip
A Chinese national flag and two flags bearing the name of ZTE fly outside the ZTE research and development building in Shenzhen, China, in this 2016 file photo. Picture: REUTERS/Bobby Yip

London — The US trade ban on Chinese telecom equipment maker ZTE wreaked havoc at wireless carriers in Europe and South Asia and forced operators worldwide to consider broadening supply networks, industry sources say.

Disruptions at Russian and emerging markets mobile operator Veon, one of the world’s 10 largest mobile firms by number of customers, illustrate the effects of the US ban, which lasted three months, ending when the US commerce department lifted the order on Friday.

Veon was especially hard hit, suffering launch delays at its Italian joint venture and in Ukraine, near network outages in Bangladesh and lesser disruptions at its Pakistan operations, sources at the Amsterdam-based operator said.

"Veon has decided to second source everything," a person familiar with the strategy shift at Veon said of moves to reduce dependence on any one supplier of network equipment.

"We don’t want the company to be in the same position we were in when the US ban on ZTE came out.

"It caused massive problems in three or four of our markets."

Perhaps the biggest setback was for Italian mobile operator Wind Tre, which had a €1bn contract with ZTE to upgrade radio equipment. The ban forced ZTE to abandon more than half of the remainder of the contract, and Wind Tre would use equipment from network supplier Ericsson instead, sources said.

The original deal had marked ZTE’s biggest breakthrough into the European market, which has been dominated by regional players such as Ericsson of Sweden and Nokia of Finland.

Ericsson’s win with Wind Tre could be a sign of renewed momentum for the Swedish equipment supplier, which has struggled with slowing growth, restructuring and big job cuts.

One industry expert said operators might start using multiple vendors to avoid being stuck with a supplier that came under trade sanctions.

"Many supplier strategies will be reviewed," said Bengt Nordstrom, a telecoms industry consultant based in Sweden who advises operators on equipment purchasing strategies. "Wind Tre was the first example so far. This is a wake-up call to the industry that if you have a single vendor dominating your network supply chain – ZTE for now, but other vendors eventually – you are leaving yourself exposed."

Network fallout

Veon’s Ukrainian unit, Kyivstar, the largest mobile operator in that country, postponed its introduction of 4G mobile services in April because of the ZTE ban, according to two sources at Veon and one at ZTE.

"The 4G launch had to actually be put on hold, so Kyivstar lost ground to competitors because of our obligations to comply with the denial order," said one of the sources, a senior executive at Veon.

Kyivstar’s two main rivals are Vodafone Ukraine, owned by Russia’s MTS/Sistema and UK-based global operator Vodafone ; and Lifecell, a unit of Turkcell of Turkey.

Kyivstar launched its 4G service in early July, more than two months behind schedule, by using a part of the network that didn’t depend on ZTE, one source said.

Network blackouts were narrowly averted at Veon’s Bangalink unit in Bangladesh.

"There was an issue with Bangladeshi network upgrades that really went down to the wire," the source told Reuters. "Only at the 11th hour did the US allow some temporary relief from the order."

Global telecoms trade group GSMA negotiated a one-month reprieve with the Commerce Department that allowed Bangalink and other ZTE customers to engage in "essential transactions" that allowed existing networks and handsets to keep working, the group said.

Veon has maintained strict compliance with the ZTE ban in all markets, two company sources said. All ZTE equipment shipped to Veon’s subsidiaries after the US order was returned. This included both network hardware and ZTE mobile handsets, a Veon executive at its Russian operating subsidiary said.

Spanish telecom operator Telefonica relied on technical workarounds during the ban, but still cancelled some ZTE contracts, a separate source with knowledge of the relationship between the firms told Reuters.

Lawyers at the two companies held weekly meetings to ensure careful compliance, the source said.

ZTE was unable to ship any gear to the Spanish telecoms giant that relied on components from US-based chipmakers Qualcomm or Intel or smartphones running the Google Android operating system, for example.

Disruptions were minimized because ZTE contracts accounted for less than 5% of the telecom giant’s equipment spending, the source said.

The scale of workarounds and outages at other major ZTE customers, including China Mobile and MTN, Africa’s top operator, is not yet known.

The US Department of Commerce in April banned US companies from selling goods to ZTE after the Chinese company failed to comply with a 2016 settlement involving evasion of sanctions against Iran.

The US lifted its ban on Friday, weeks after US President Donald Trump said the punishment was too harsh.


Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.

Speech Bubbles

Please read our Comment Policy before commenting.