800 million dollars deal on the brink of collapse, Sony Ericsson ready to step in
ZTE, the Chinese telecommunications equipment and network solutions provider, is on the brink of losing an 800 million dollars deal with ethio telecom, following its refusal to work on the swapping of the old networks. The deal termination will deliver ZTE into the hands of Sony Ericsson, now Sony Mobile Communications AB.
ZTE is going to lose the project within a few weeks if it does not agree to swap the old network with the one to be newly installed, according to Debretsion Gebremichael (PhD), minister at the Communication & Information Technology, in the rank of Deputy Prime Minister.
The project was signed in August last year, when ZTE and its other Chinese competitor, Huawei Technologies, won these contracts. The contract was to provide fourth generation (4G) technology, a broadband technology allowing browsing speed of 100mb per second in Addis Abeba, and to enable third generation (3G) services across the country, with a total investment of 1.6 billion dollars, which was to be obtained from the Chinese government through these companies.
Huawei finds itself in good footing with the project, moving now into testing its 4G network in the capital, with individuals selected by ethio-telecom experiencing the service. Its fierce competitor faces a snag.
ethio-telecom, the Ethiopian state monopoly, divided the country into 12 infrastructural zones, allowing one sole vendor within each to undertake swift maintenance services. The ZTE contract was to set up a network in Addis Abeba, where there have been other networks set up by Nokia, Siemens and Ericsson.
“We requested a new commitment from ZTE to include the swapping of the old network, along with the optimisation they are working on according to the former agreement” said Debretsion. “But their response to our demand was negative, reasoning that it is an extra service requiring additional payment.”
ZTE’s officials in Addis Abeba deny the government’s decision to pull out from the deal although confirmed the existence of discussion over the dispute.
“We are still negotiating stage,” ZTE’s public relations officer by the name Pise, told Fortune.
She has declined, however, to speak further on the subject, claiming non-disclosure clause in the contract with the telecom monopoly.
Under this contract, the three-phase project was finalised three months ago. The first phase involved replacing the old Nokia network, set up in 75 areas including Bisrate Gabriel, Mekanisa, Ayer Tena, Alem Bank, and Alem Gena, with a new Huawei network. The second phase involved 239 further areas.
In the third phase, ethio-telecom built the capacity for providing the 4G service for 400,000 customers, by completing civil works, erecting antennas and installing service equipment in an additional 410 sites. In these sites, there will be 210 antennas supporting 4G. A total of 722 antennas were installed bringing the city’s service coverage reach to 100pc.
The expansion project, which is to be completed by the end of the Growth & Transformation Plan (GTP) period, in 2014/15, is supposed to increase the mobile service capacity from 23 million to 50 million, with 40 million subscribers.
Following the completion of these three phases, ethio-telecom was expected to offer 4G services in Addis Abeba and begin the countrywide optimisation by the beginning of this year, but this has yet to happened.
“As an alternative, and as a back-up, we have planned two deals that we are discussing with Sony Ericsson, which seems fruitful,” Debretsion disclosed to Fortune.
ZTE also fell into a tax row with the Ethiopian Revenues & Customs Authority (ERCA), as the Authority required 920 million Br in tax from the company, as well as interest and penalties, which was finalised by administrative measures reducing the tax by nearly half.
Ericsson agreed to come up with the financing, as ZTE has done before, and will also work on the full swapping, according to Debretsion.
The first overseas firm to install mobile networks in Addis Abeba for 19,000 subscribers while still Ericsson AB, Sony-Eric is a multinational mobile phone manufacturing company headquartered in Tokyo, Japan, and Lund, Sweden.