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Cablegate: Huawei Sri Lanka: A Major Player with an Iron

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UNCLAS SECTION 01 OF 02 COLOMBO 001114

SIPDIS

DEPARTMENT FOR SCA/INSB

E.O. 12958: N/A
TAGS: CE ECON ETRD EINV EAID CH
SUBJECT: HUAWEI SRI LANKA: A MAJOR PLAYER WITH AN IRON
GRIP ON THE MARKET

1. (SBU) Summary. Chinese firms continue to make inroads
into the Sri Lankan market, including into areas such as
telecommunications infrastructure. The Sri Lankan
telecommunications market has expanded rapidly, and telephone
companies plan to expand into the newly freed conflict areas
of the North and East. Huawei Telecommunications, a Chinese
owned corporation, has worked diligently to corner the
telecommunications infrastructure market in Sri Lanka.
Huawei maintains a 33% sector share of existing
infrastructure maintenance. Alcatel-Lucent and Ericcson are
the two other major competitors, and each has a 33% sector
share of existing infrastructure maintenance. Another
Chinese company ZTE has a tiny 2% marker share. Huawei Sri
Lanka is expanding aggressively into the new infrastructure
market in the North and East, where they own more then 75%
market share. Alcatel-Lucent and Ericcson are not major
players in the new infrastructure market, and they seem
disinterested in increasing their market share. End Summary.


HUAWEI HAS A STRONG LOCAL PRESENCE

2. (SBU) Huawei currently has more than 300 permanent
employees located in three primary offices in Colombo, Kandy,
and Galle. More than 70% of its local staff are Sri Lankans.
Huawei supplements its permanent workforce with a large
number of Sri Lankan sub-contractors and temporary duty
Huawei engineers from its offices in Bangkok and Kuala
Lumpur. Huawei Sri Lanka has a robust marketing arm which
seems to do a yeoman's jobs obtaining new business for the
company. The Huawei General Manager for Marketing and New
Development recent advised us that Huawei hopes to have more
than 85% of the new infrastructure market by the beginning of
2010, as well as a larger share of the existing
infrastructure maintenance market.

3. (SBU) Huawei has adeptly maneuvered itself into the top
spot in terms of telecommunications infrastructure support in
Sri Lanka. No other competitor comes close to matching the
breadth and width of Huawei's operations in the country.
Huawei works with all Sri Lankan fixed line and mobile
service providers. It has a monopoly on support to Dialog
Mobile and Mobitel 3G infrastructure and splits 2G
infrastructure support with Alcatel-Lucent and Ericcson.
Huawei's largest recent infrastructure project was the
construction of mobile newcomer Bharati Airtel's network.
Huawei built 100% of their infrastructure and even built into
their contract a revenue sharing agreement which sends a
small percentage of each Airtel call on to its coffers.
Oddly enough, major competitors Alcatel-Lucent and Ericcson
seem lackluster about Sri Lanka and there are no indications
they plan to mount a challenge in the new infrastructure
sector.

4. (SBU) While fixed line and mobile service providers have
seen their profits dwindle over the past 18 months, Huawei
has seen record profits as the sector continues to expand its
infrastructure which also increases the demand for
maintenance of existing infrastructure. Huawei has also
expanded its support to the Code Division Multiple Access
(CDMA) sector and has entered into relationships to expand
and maintain infrastructure with CDMA players Sri Lanka
Telecom, Suntel, and Lankabell.

HUAWEI MOVES INTO THE NORTH AND EAST

5. (SBU) Huawei is working closely with all major fixed
line and mobile telecommunications providers to establish
development plans for northern and eastern Sri Lanka, which
were conflict zones until the May 2009 end of Sri Lanka,s
civil war. Plans for expansion into these areas have been
submitted to the Sri Lankan Telecommunications Regulatory
Authority for approval. Huawei is optimistic it will claim
the overwhelming majority of new business as well as the
after the fact maintenance of the networks for the north and

COLOMBO 00001114 002 OF 002


east. Chinese competitor Zhong Xing Telecommunications
Company (ZTE) is aggressively working to chip away at
Huawei's advantage in new and existing infrastructure
although the company has had little success. ZTE was
involved in a quality control flap with mobile provider TIGO
in 2006 which left it with a damaged reputation and less than
2% of the overall telecommunications infrastructure market in
Sri Lanka. Huawei executives do no believe ZTE can challenge
it for supremacy in vying for new business in the north and
east.

QUALITY PROBLEMS NOT HINDERING HUAWEI'S BUSINESS GROWTH

6. (SBU) Interestingly, in a number of meetings with Sri
Lankan mobile and CDMA providers, we have been told that
Huawei equipment is sometimes suspect and the quality of
their work is often questionable. Quality concerns do not
seem to be hindering its business model. Some have
speculated that Huawei has been assisted by the Chinese
Embassy, but we could not confirm whether these suspicions
are well founded.

7. (SBU) Huawei is a strong company, and our sense is that
they have been able to develop their market share through
normal business practices. That said, the Chinese Embassy
has been able to assist through arranging appointments and
assistance normally provided by an Embassy. In addition,
Huawei,s rise has also bee helped by the excellent
relationship between the Sri Lankan and Chinese government.
Huawei Sri Lanka's robust business presence and significant
market-share is in keeping with the Chinese outlook to
involve itself in all important facets of the marketplace.
If Chinese involvement in Sri Lanka is indeed strategic, and
it likely is, Huawei's success is a win-win for China. End
Comment.
FOWLER

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