Chinese telco gearmakers aim to leap U.S. barriers

Huawei HWT.UL, the world's number three seller of network gear, and ZTE, number five, both told Reuters in interviews at the Mobile World Congress in Barcelona that they wanted to crack the United States.

"Our presence in the United States is just getting underway," said Lars Bondelind, Huawei's vice-president for wireless marketing. "There should be opportunities for us to grow there."

But unlike in Europe, where the groups have made deep inroads in recent year, they face an uphill battle on the western side of the Atlantic.

U.S. lawmakers have raised security concerns about having Chinese suppliers in telecom networks. The Wall Street Journal reported that the issue led Sprint Nextel to leave Huawei and ZTE out of a recent $5 billion contract for its network modernization.

Huawei also had to give up a bid for 3Com in 2008 due to security concerns, and its recent acquisition of technology firm 3Leaf is under White House review.

Xu Ming, the head of wireless networks at ZTE Corp, said he hoped the U.S. market would eventually open to Chinese vendors much as Europe has done.

"I know it is not a technical issue keeping us out of the U.S. operators' networks," said Xu in an interview. "We have technology to meet their needs, and we are already present there via our handset sales. Hopefully this will change over time in the interest of fairness and free trade."

In interviews with Reuters, Huawei and ZTE said their equipment met international standards and posed no security risks. Both pointed to their success in selling to major operators such as France Telecom (FTE.PA), Vodafone (VOD.L), and BT Group (BT.L) as evidence that their gear was secure and reliable.

ZTE sells handsets in the United States but hasn't made much progress selling network gear.

Huawei has about 1,000 staff at two R&D centres in the U.S. and earns about $400-500 million of its $28 billion in revenue there, the company said. It has yet to sign a contract with a major U.S. operator, though it does work with some small operators like Leap Wireless.

At stake is the roughly $7 billion market for network gear in the United States, which was a bright spot of growth last year in a largely stagnant market.

Telecom operators like AT&T and Verizon are investing heavily in mobile capacity to keep up with the rising flow of data on the networks as more people use smartphones to surf the web on the go.

To date, the absence of the Chinese vendors in the U.S. has benefited Alcatel-Lucent (ALUA.PA), Ericsson (ERICb.ST) and Nokia Siemens Networks NOKI.UL, which enjoy fatter margins on contracts there.

Founded in the 1980s, both Huawei and ZTE were nourished by China's national policy to build out telecom networks, winning huge contracts from China Mobile (0941.HK) to cover the country in wireless. From that base, the companies expanded into emerging markets in Africa and Latin America about a decade ago, and then into developed markets.