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ZTE jumps into Japan's 5G market with low-cost strategy

Chinese equipment maker hopes to make up for limited US operations

ZTE Japan's Daimon R&D Center in Tokyo

TOKYO -- Japan's mobile phone carriers are gearing up for massive investments in fifth-generation technology, and major Chinese telecommunications equipment maker ZTE wants a piece of the pie.

Chen Liangwen, ZTE Japan's chief technology officer, said Japan will become the world's showcase for 5G technology, which is expected to become commercially available in 2020.

Japan's three mobile phone carriers are expected to invest heavily in 5G infrastructure ahead of the 2020 Tokyo Olympics.

ZTE's Shenzhen head office sent Chen to Japan to ensure that Ericsson of Sweden and other European companies did not win all of Japan's 5G contracts.

Currently, ZTE Japan has about 400 employees, including maintenance staff, over 10 times more than when Chen joined ZTE from Japanese electronics maker NEC in 2009.

ZTE last year opened its Daimon R&D Center near Tokyo's Hamamatsucho Station, at a cost of 1 billion yen ($9.34 million). Over the past six months, representatives from nearly 40 companies from Japan, Chile, Peru, Indonesia and other countries have visited the center.

Chen said that even with the new facilities, ZTE does not have enough space to conduct many 5G-related tests and the company is looking for a bigger office in Tokyo. About 500-600 engineers, including those at its Shenzhen head office, will spend more than six months testing equipment for Japan's mobile service providers.

ZTE's strength lies in its ultra-low prices, which are about a fifth of those of its European and Japanese competitors. It is currently testing 5G infrastructure equipment with SoftBank.

Chen Liangwen, deputy chief technology officer of ZTE Japan

It may prove difficult for ZTE to win contracts from NTT Docomo and KDDI during the initial stages, but the company has a chance to turn the tables as 5G investment is expected to last for at least 10 years.

ZTE delivers equipment to SoftBank and other carriers in the Japanese wireless infrastructure market. It mainly has dealings with Wireless City Planning, a unit of SoftBank Group and a provider of high-volume data transmission using the 2.5 GHz band.

Huawei Technologies of China, Ericsson and Nokia of Finland are in fierce competition to develop 5G.

ZTE, which ranks fourth in the global wireless infrastructure market, is likely to make a strong showing in the communications system known as time division duplex. It uses the same frequency to uplink from handsets to base stations and to downlink from base stations to handsets. The TDD system will make it easier to secure frequency more flexibly than frequency division duplex, which uses different frequencies to uplink and downlink; 5G will mainly use the TDD system.

TDD has been used in China since 3G cell phones were introduced, and ZTE's strength lies in its expertise in the system, according to Chen.

ZTE aims to win contracts for SoftBank's base station facilities. In the middle of last year, KDDI's technical executives visited ZTE Japan for a briefing on 5G technology. 

The handset business is another key to building relationships with major Japanese mobile phone carriers. Docomo's M Z-01K for winter/spring 2018, a foldable smartphone with a dual screen, was developed with ZTE. The M Z-01K is the first product planned by Docomo in years and will be sold by AT&T of the U.S. and Vodafone of the U.K. as well.

Isao Hirakodama, general manager of ZTE's mobile handset business, played a key role in developing a dual-screen smartphone at NEC. Docomo's M smartphones enable users to, for example, watch a movie on one screen while writing text on another.

"We spent a year and a half -- longer than usual -- to develop it, and we want to propose a new way of using smartphones," Hirakodama said.


Docomo has already launched test marketing with European companies and ZTE's arch rival Huawei. A Huawei representative said it is a big step even if the tests do not lead to contracts. ZTE wants to take advantage of joint handset development to gradually deepen its relationships with mobile phone carriers.

Japan has become more important than ever for ZTE. The company was slapped with massive U.S. fines on allegations of illegally shipping banned communications equipment to Iran and North Korea, resulting in a net loss in the fiscal year ended December 2016. Founder Hou Weigui, who turned ZTE into a global company, was forced to step down as chairman.

For ZTE, which like Huawei is restricted in its business dealings in the U.S. due to security concerns, it is important to expand business in Japan and Europe, where massive investments in 5G are expected.

Founded in 1985, ZTE started developing telephone switchboards under the sponsorship of a research institute owned by the Shenzhen municipal government. State-owned ZTE Holdings is the company's biggest shareholder, and it has listed its shares in Shenzhen and Hong Kong.

ZTE is touted as a "state-owned and private-operating" company in China. Nevertheless, ZTE is far behind Huawei in terms of earnings, prompting the company to scramble to catch up in Japan.

In China, Huawei and ZTE are often likened to a fox and a cow. But now ZTE, the easy-going cow, is acting like a raging bull as it faces intense 5G competition in Japan.

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