Telecom equipment maker ZTE Corp. (00763.HK, 000063.CN) will reengineer its business model towards individual and corporate data users in the next few years as the phone network segment hits saturation point, according to top management.
One of the first targets in its new strategy will be to supply what is known as over-the-top (OTT) content, including mobile games and peer-to-peer TV.
“The company is working on a new business model for individual data consumption. Users will pay the OTT service provider and the provider will pay network operators for the data consumed,” George Sun, ZTE vice president of corporate strategy, told EJ Insight in Shenzhen.
Instead of users buying a data package from a network operator and watching a video online, users simply pay the OTT content supplier to watch the video and the supplier bills the carrier for the data use. It means that users don’t have to pay carriers extra if they go over the data limit on their package.
“ZTE will provide solutions, basic infrastructure and middle-ware for mobile phone applications while software developers will take care of the application. We just give support to the middle-ware,” he said. “We started investing in the new business model last year and hopefully we can launch it next year.”
But it’s not ZTE’s only shift in direction. He Shiyou, ZTE senior vice president of handset operations, told the Hong Kong Economic Journal in mid-October that the company is stepping into the software market and developing applications for ZTE handsets. It might also work on a non-Android operating system to improve user experience, He said.
Sun said: “We cannot rely on only carriers and internet players for creativity. ZTE can play different roles in the industry. It’s just that at the moment we can do more on the equipment supply side.”
ZTE will also be giving more of its attention to telecommunication network services for corporate clients rather than the mass market. “We will shift our business focus to corporate clients that have stable demand and need high standards of security and efficiency,” he said, adding that he expects revenue from corporate clients to grow 5 to 10 percent annually in the next few years.
Alibaba, China’s e-commerce juggernaut, is already on board. ZTE provided ultra-high bandwidth and large-capacity data transmission systems to help Alibaba Group handle the bulk of its online shopping traffic on Nov. 11, a day known on the mainland as Singles’ Day and the busiest day of the year for internet retailers in China.
In June, ZTE was the sole winning bidder in Alibaba’s tender for a network to be able to handle 100 gigabytes of data traffic a second, and was entrusted to help build the broadband network infrastructure supporting Alibaba’s e-commerce platforms, including Alibaba.com, Taobao Marketplace and Tmall.com.
While revenue from corporate clients is still on average less a tenth of the total from communications equipment industry, Sun expects the contribution to rise to 20 to 25 percent in five years and half in the long term.
Looking beyond telecom network gear, ZTE plans to diversify mainland sales of its mobile phones.
“The handsets we have sold in China were mainly through business-to-business channels. Our market share in China is even less than that in the United States because most handsets sold on the mainland are via business-to-consumer channels,” Sun said.
“We will open more physical stores to sell our handsets and will expand our presence in B2C channels, including Sunning and JD.com.”
The phone maker is fourth globally in terms of shipments.
Sun expects handsets to bring in up to half of the company’s total revenue in three to five years, with revenue from this segment also growing at about 5 to 10 percent annually in coming years.
Finally, ZTE is also investing in e-commerce and hopes to launch a platform next year. “We can leverage our global sales network, so we may be able to source products from different channels out of reach to competitors,” Sun said.
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