The future oriented Mobile Data Service development

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Technology is no longer the essential point in the 3G era. Technological advantages are
not equal to service advantages, and service advantages may not always win market
share. Data service development is a systemized engineering. Operators have to plan
overall service development and gather the power of the industrial chain to increase their
competitive capability in the development of 3G.

AIS, the biggest mobile operator in Thailand, has more than 15 million mobile
subscribers. It has experienced many successes in GPRS and SMS services. In the mobile
data service & operation forum held in Guangdong, China, Mr. Pratthana Leelapanang,
Strategic Planning & Future Lab Manager of AIS, made a presentation "Understanding
and Meeting Customer Needs in Delivering New Mobile Services."The reporter from
Huawei made an interview with Mr. Pratthana after his speech.

Reporter: Thailand is one of the quickly developing markets of mobile communications

in Asia-Pacific region. AIS keeps ahead in market share despite tense competition, and
this proves the AIS operation mode is successful. Could you introduce your experience in
value-added service development and market exploitation?

Mr. Pratthana: I agree with you that mobile services have developed rapidly in Thailand
in recent years. In 2004, the penetration rate of mobile subscribers exceeded 40%, and
this exceeded greatly the increment of value-added services on the Internet in the same
period. The reason that AIS became the advanced mobile operator is closely related with
our many years of effort to improve people" s lives by providing high-quality mobile
communication services. In addition, we have been cooperating closely with our partners
in network construction and service provisioning.

In service development, AIS takes "meeting subscriber" s demands" as our highest goal,
and we push the whole telecom industry toward healthy development. We study and
understand market requirements, cooperate with the best equipment manufacturers, and
use the most advanced technology and engineering to offer mobile services suitable for
customers.

By now, AIS provides two main categories of services, postpaid and prepaid mobile
services, including more than 40 types of value-added services. Among these, the most
popular services including ring back tone (RBT), voice mail and ring tone downloading.
Up to now, AIS, as the only operator promoting multiple service brands, has established
cooperative relationships in value-added services with more than 200 Business Partners
and provided more than 1200 brilliant service contents.
AIS pays attention to dividing individual and enterprise markets. In enterprise market, it
has a 90% market share. The enterprise subscribers prefer AIS because of AIS has good
network coverage, and AIS understands their requirements, invests heavily in future
services, and will continuously provide them with required services.

In service promotion and sales, AIS emphasizes the concept of mobile life. It provides
abundant services such as M-chat, Education. Based on the subdivision of subscriber
groups, we offer training and free trials of services to subscribers, and we also promote
through some kinds of media.

Reporter: It is widely said that the terminal problem is one of the main restrictions in
mobile data service development. How does AIS think and do to solve this problem?

Mr. Pratthana: This is a good question. We have been putting our attention on
terminals. We must push interactive development between the mobile terminal and
mobile services. It is an essential requirement that terminal providers, operators,
equipment providers, and content and application developers together build a commercial
association to meet customers"demands. In recent years, it has become a trend to
customize handsets to match an operators"data service development strategy. AIS has
cooperated with mobile terminal manufacturers, participated in mobile marketing
activities, and we" ve got a good result. However, Operators have to face some
difficulties in the adaptation between value-added services and terminals, for example,
nonsupport of Thai language input problem has affected the applications of MSM
services.

The mobile data service development requires enough style of terminals, enough
functions, and good compatible. However, it will take a long time to solve the problem of
the match between terminals and services. Terminals must meet the service requirements.
The development of terminals depends on the mobile data market, including good market
environment and large mobile data service requirements. On the other hand, without
suitable terminals, mobile data services cannot be promoted smoothly in the market.

Reporter: It is well known that SMS service is recognized as the most successful 2G
mobile data service. What do you think of its success? As a successful example for 2G,
do you think it is also a good reference in 2.5G/3G value-added service development, and
what can we do?

Mr. Pratthana: I think the success of SMS service has its connatural character: it" s easy
to use and caters to users" habits. It" ll take user a little time and knowledge to be a good
SMS operator.

SMS is a simple service which does not need Hi-Tech support, and it" s not a multi-
medium but a mono-medium. The key for its success is that SMS matches the customers"
habits, and it offers a cheap and interactive communication tool for subscribers, and it
brings operators a new service field to development. Similarly, no matter whether they
are GPRS value-added services or 3G services, innovation in services or commercial
models is necessary, but it is not enough. For example, in Korea and Japan, RBT
downloading service is very popular, while in Europe and America, Voice Email and
commercial services are attractive. Before launching a new service, operators must
consider their historical and cultural backgrounds, and their subscribers" habits. We
should offer innovative services to follow subscribers" habits instead of trying to change
them.

Reporter: What challenges do you think AIS is facing in developing GPRS-based

mobile data services? How do you think of the smooth upgrading from GPRS services to
3G services? What" s your fee strategy in GPRS?

Mr. Pratthana: In the transition from 2G to 3G, the users" customs should not be
changed too much. Most GPRS data services can be applied to 3G, and 3G services can
be looked as the development of GPRS services on individuation and abundance. AIS
always regards GPRS service development as the most important thing. Whether or not
we can build a solid service base will decide the future success of 3G services. In the
future, most 3G subscribers will be from the current 2.5G subscribers. Once subscribers
have formed their habits in using 2.5G services, we should not try to change these and get
subscribers to accept something fully new. We can use the good chance to find out the
application modes suiting end users, and develop sufficient new services for the market,
thus building a base for developing 3G services. So, I think GPRS is the basis of 3G.

The fee strategy for GPRS is an important element in service development. The monthly
rent is the most popular payment mode in using the Internet. However, it is not suitable
for GPRS, because customers are not sure of their GPRS usage at present. Just like the
beginning of Internet, people seldom would buy an unlimited use time service. So, the fee
strategy for GPRS depends on GPRS development, users acceptance and trust of the
GPRS.

At the initial stage of introducing GPRS services, we provide free tryout, time-based
charging, and other preferential charging packages to attract subscribers, and this brought
good results.

Reporter: How will AIS develop data services to raise your competitive position and
win advantages in the 3G era?

Mr. Pratthana: Objectively, mobile data services need some time to reach maturity in
mobile telecommunications. At present, Japan" s data service has the highest weight in
revenue among services. However, the ratio is still less than 30%. What does this figure
mean? The current 3G services are still insufficient and killer applications have not been
found. On the other hand, most subscribers" demands for 3G services are still developing.
Subscribers need some time to get used to 3G services. I think the two points affect each
other. Finding out the relationship between the applications and requirements will be one
of the main tasks in the 3G era.

We think the technology is no longer the essential point in the 3G era. Technological
advantages are not equal to service advantages, and the service advantages may not
always create market share. Data service development is system engineering. We will pay
attention to planning the overall service development, especially the market subdivision,
and value chain reforming and commercial mode creation. Besides, we have to gather the
power of the industrial chain, balance the roles in the chain, cooperate with each other,
and thus build up competitive advantage in the development of 3G.

Research-based Huawei #2 with a Bullet

Written by Dave Burstein
Huawei reports $21.5B in 2009 sales, up 17% despite the economy. They probably
haven't caught Alcatel yet, but almost inevitably will pass them in a quarter soon. UBS
has an estimate of $22.5B for Alcatel (with some hesitation) while Michael Genovese of
Soleil comes in with a lower guess of $21.7B, so they likely remain ahead.

The NY Times was impressed with Huawei's win at Norway's Telenor, beating out
Scandinavian rivals Ericsson and NokiaSiemens close to home. Kevin O'Brien points to
“innovative Huawei products like its SingleRAN. … Huawei was the first company to
produce an L.T.E. base station, the fastest in the industry, on a large scale.” Some one at
Huawei pr has what looks like a coup. Gustav Sandstrom of The Wall Street Journal
writes Huawei “now has another key selling point: the quality of its technology.”

No one can dismiss Huawei and ZTE any longer. Working with Verizon, they are testing
the first 10 gig XG-PON.
(Release below) Their research facilities in Shenzen are among the best in the world,
growing while everyone else – especially Alcatel & Lucent – have been cutting back.
Back in 2003, Dr Miguel Horta e Costa of Portugal Telecom told me he had visited
Shenzen and told me “It matches Cisco.”

Huawei no longer has a labor cost advantage because Alcatel has moved most
manufacturing and much of the engineering work to Asia. But they do have enormous
advantages in a huge home marker and a very supportive government. The Chinese
government provided a 20 year, 2% loan to Uganda for Huawei to build a $106M fiber
network across 2,000 kilometers and connect to the new East Africa cables. State
controlled banks have provided over $10B in financing.

They've built service networks in many parts of the world that are strong. They are now
ahead technically in many products although still behind in others. They still face
obstacles many places. India has just forbidden their national carrier, BSNL, from
purchasing gear from Huawei to use in any of the provinces on the Pakistan or Chinese
border.

With a bullet” is a fast-rising star in the record business, marked with a bullet symbol in
Billboard's sales ratings. Huawei does not intend to stay #2.
Verizon Conducts World's First 10 Gigabit-per-Second Fiber-to-the-Premises Field Test

Next-Generation Passive Optical Network Test Paves Way for Enormous Capacity
Increases

News Release ShareThis

WALTHAM, Mass. – December 16, 2009 –

Verizon is the first telecommunications company in the world to successfully field-test a

passive optical network system known as XG-PON that can transmit data at 10 gigabits
per second (Gbps) downstream and 2.4 Gbps upstream, four times as fast as the current
top transmission speeds supporting the company's all-fiber FiOS network.

The test, conducted recently in southern Massachusetts, sets the stage for Verizon to meet
the emerging customer demand for a wide variety of devices and applications that require
a network capable of transmitting large amounts of data at very high speeds. The devices
and applications could include unicast HD video streaming, ultra-high-definition video,
3D video, user-generated content distribution, video conferencing, and new high-speed
data services for medium- and large-business customers.

The XG-PON signal was tested independently on a dedicated passive optical network
(PON) as well as overlaid on a fiber providing FiOS service to a customer. The overlay
test verified there was no interference between the XG-PON signal and the regular FiOS
signal using gigabit passive optical network (GPON) technology and running at 2.5 Gbps
downstream and 1.24 Gbps upstream.

Previously, Verizon tested the XG-PON signal in the company's Waltham laboratory.

Until now, ITU standards-based XG-PON technology has been tried only in
demonstrations and lab trials. Final technical standards for global design and deployment
aren't expected until mid 2010. Verizon, however, is working to test and validate the next
generation of fiber-to-the-premises (FTTP) technologies from various vendors to help
accelerate standards activities, and to ensure that Verizon maintains its leadership in FTTP
development and deployment to meet customers' ever-growing bandwidth and service-
quality needs.

"From the earliest stages of the FiOS design, we knew we could repeatedly and
progressively leverage the immense capacity of fiber to carry more and more data in
support of customer applications," said Mark Wegleitner, senior vice president of
technology for Verizon. "Now we're already working on the best way to take the next leap
forward in capacity."
Wegleitner noted that in 2004 Verizon launched FiOS service using the broadband
passive optical network (BPON) technology, which provided downstream speeds of 622
Mbps per second. Less than three years later, the company successfully introduced the
gigabit passive optical network, or GPON technology, at speeds that are four times faster
than the broadband passive optical network's downstream rate and eight times faster than
its upstream rate.

The XG-PON trial, according to Dr. Vincent O'Byrne, director of technology for Verizon,
consisted of a new optical line terminal (OLT) installed in the Verizon central office,
generating a 10 Gbps XG-PON signal transmitted over a wavelength, or color of light.
Two tests were conducted: One test transmitted the XG-PON signal by itself on a
separate PON fiber between the central office and a new optical network terminal (ONT)
device at a customer's home. In the other test, the XG-PON stream was merged as a
separate wavelength onto an already-operating live fiber running FiOS with GPON at 2.5
Gbps to provide a total downstream flow of 12.5 Gbps. At the customer's house, the XG-
PON and GPON signals were received by ONT devices, showing that the network can
simultaneously deliver the GPON and XG-PON signals on the same fiber at the two
speeds, without any degradation in service.

A "test cart" prepared by technical staff from Verizon's FTTP Architecture and Design
Group in Waltham was installed at the FiOS customer's house, and was used to exercise
the XG-PON information channel. It transmitted and received data service at the XG-
PON rate. On the test cart, the signal was demodulated and the performance of the new
technology was measured.

O'Byrne said the test is a technology validation, rather than a product trial, affirming the
present XG-PON specification and confirming what has been achieved in Verizon's lab.

"This trial is a first for the industry and sets the stage for Verizon to offer increased speeds
on the same network currently being used by our GPON customers," said Brian Whitton,
executive director of access and video technologies. "This further validates our strategic
choice of fiber-to-the-premises as the best way to build a future-proof network."

The trial was conducted with XG-PON equipment from Huawei, a leader in providing
next generation telecommunications networks. Future trials with other suppliers'
advanced systems are expected over the coming months.

Verizon Communications Inc. (NYSE:VZ), headquartered in New York, is a global leader

in delivering broadband and other wireless and wireline communications services to mass
market, business, government and wholesale customers. Verizon Wireless operates
America's most reliable wireless network, serving more than 89 million customers
nationwide. Verizon also provides converged communications, information and
entertainment services over America's most advanced fiber-optic network, and delivers
innovative, seamless business solutions to customers around the world. A Dow 30
company, Verizon employs a diverse workforce of more than 230,000 and last year
generated consolidated revenues of more than $97 billion. For more information, visit
www.verizon.com.

Remade in China: Huawei and the Future of the Global

Telecom Market
The global telecom landscape is in a significant period of transformation at all levels.
Carriers are embracing the vision of IP-based next-generation networks, converging
services and infrastructures on IP and an IP Multimedia Subsystem (IMS)-enabled
control structure to reduce capital and operating costs, offer multimedia-rich services, and
eliminate the barriers between wireline and wireless networks. At the same time, carriers
are finding themselves in increasingly hostile competitive markets, with cable MSOs and
Internet-centric companies such as Google among the biggest threats.

Carrier consolidation has been one of the early effects of these changes. In the U.S.,
former regional Bell operating companies (RBOCs) are being rolled up into supercarriers,
while Level 3 continues its acquisition binge to create a major wholesale operation with
an extensive backbone and metro footprint. Consolidation is also underway in Europe,
with many city carriers and pan-continental operators joining forces to offer more
extensive services to broader geographies.

The result for the supplier community has been growing anxiety that these new
supercarriers will require vendors of similar scope and scale. As carriers' top service
priorities are now fixed/mobile convergence, IPTV, IMS/VOIP, carrier Ethernet, optical
networking, and enhanced broadband, vendors have understandably begun to feel that
bigger is better. Vendor M&A activity has already reached an unprecedented pitch,
involving some of the world's largest suppliers – including Alcatel, Ericsson, Lucent
Technologies, Marconi, Nokia, and Siemens. And that's just this year.
Regardless of the larger forces at work in the service provider customer base, the most
game-changing factor in the telecom supply market in the past five years has arguably
been the expansion of Huawei outside of China. With the benefit of an expanding
Chinese telecom sector driving basic revenue growth and substantial economic support
from China's government, Huawei has been able to broaden its product line and address
emerging market opportunities throughout the globe with such speed and power that the
global telecom supplier market has been able to do little more than watch in stunned
silence.

Last year, Huawei recorded nearly $6 billion (U.S.) in revenues. The company now has
35,000 employees, with products deployed in over 100 countries, and revenue growth
exceeding 50 percent per year. In 2005, Huawei was able for the first time in its brief
history to sell more internationally than domestically, and also penetrate Western
Europe's top carriers, including wins at BT, Vodafone, Telefónica, and KPN.

Remade in China: Huawei and the Future of the Global Telecom Market analyzes
the strengths and weaknesses of Huawei across seven key product/market opportunity
areas:

Core voice switching (including VOIP) and next-generation network (NGN)

technologies
IP Multimedia Subsystem (IMS)
IPTV
Optical networking
Data networking products for carriers
Access technologies
Wireless and mobility

DOWNLOAD TABLE OF CONTENTS

DOWNLOAD LIST OF FIGURES
PRINT EXECUTIVE SUMMARY

To create this report, Heavy Reading analysts conducted interviews with a variety of
product managers at Huawei, attended company analyst events, and traveled to Shenzhen,
China, to interview Huawei personnel directly.

Huawei's expansion outside of China, an initiative launched in 1996, has been the key to
its growth, and represents the primary challenge for its continued success. Looking at
Huawei's fundamental growth metrics, over the past four years it has expanded its
contract sales (as opposed to the smaller figure for actual revenue) from $2.67 billion in
2002 to approximately $8.2 billion in 2005, with contracts at 28 of the top 50 network
operators worldwide.
Along with providing independent insight into Huawei’s current and projected expansion,
the report delivers critical detail and analysis of Huawei’s market positioning and future
development plans in the key technology sectors that will drive growth in the telecom
market in the months and years ahead.
Report Scope and Structure

Remade in China: Huawei and the Future of the Global Telecom Market is
structured as follows:

Section I is an introduction to the report, with complete report key findings.

Section II provides a detailed analysis of Huawei's overall performance in the telecom

sector, including breakouts by product line and regional markets. It also includes
estimates for the company's performance in 2006, as well as insight into Huawei's key
product strategies.

Section III focuses on the core voice switching and NGN sectors, again comparing
Huawei's past and projected performance with key competitors.

Sections IV analyzes Huawei's prospects in the emerging IMS product sector.

Section V explores Huawei's IPTV product portfolio, focusing on its market standing in
emerging markets in Asia/Pacific and Eastern Europe.

Section VI assesses Huawei's competitive positioning in the optical networking sector,

including Sonet/SDH add-drop multiplexers (ADMs), multiservice provisioning
platforms (MSPPs), digital crossconnect systems, optical switches, metro WDM systems,
and long-haul DWDM.
Section VII evaluates Huawei's data networking portfolio as it pertains specifically to the
carrier market (including carrier Ethernet switches and routers).

Section VIII covers access technologies, including DSLAMs, broadband remote access
servers (B-RASs), and FTTH.

Section IX focuses on Huawei's portfolio of wireless and mobility products and

technologies.

The report is essential reading for a wide range of industry participants, including:

Telecom equipment suppliers: How does Huawei’s emergence outside its home
market affect your product positioning and marketing strategies? Where does your
company fit into the telecom technology supply chain as it is being redefined? What
are your competitive advantages compared with Huawei, and what areas require
improvement? Which areas of your business are most susceptible to market share
loss, and what strategies can you pursue to prevent that erosion?
Telecom service providers: How is the telecom technology vendor landscape
changing, and how can you leverage those changes to your advantage? How will
Huawei’s emergence as a global supplier affect your relationships with your
established suppliers? Which product areas are Huawei’s strongest, and which are
worth considering for your organization?
Investors: How will established technology suppliers be affected by Huawei’s
expansion? Which companies are in the best position to compete against Huawei,
and which are in jeopardy? How much will price pressure affect profitability in the
telecom technology sector in the months and years ahead?

Remade in China: Huawei and the Future of the Global Telecom Market is
published in PDF format.

------------------------------------

Huawei's Vision: Telecom Industry Trends in the Next Decade Looking at the next
decade, telecom industry will have to take advantage of opportunities through the “Four
Beyonds” Friday, January 22, 2010
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For the past two decades, waves of continuous

transformation in technology and information have driven high growth in the global
telecom industry. However, the industry must confront the reality of saturated subscriber
penetration in telecom services. Looking to the next decade, how can the telecom
industry adapt itself to the requirements of the changing environment? It will have to take
advantage of opportunities through the "Four Beyonds."

Beyond people, the Internet of Things opens the door to new opportunities

The rapid development of mobile communication and the Internet facilitates the coming
of a "global village". By 2012, the number of mobile subscribers will be up to 5 billion,
with the network covering over 80% of the global population.

However, we have already gone far beyond connecting human beings. According to
ABI's "Mobile Data Device and Service Retail Trends" report, with the growth of smart
and embedded devices like netbooks, readers and smartphones, these gadgets will
account for 1.5 billion of the 2.5 billion connected data-centric devices used worldwide
by 2014.

The age of "Internet of Things"is here. The essence of the "Internet of Things"is to apply
information and communication technology (ICT) to different industries, thus realizing
"Intelligent Perception and Intelligent Control"via the adoption of ICT to achieve the
objective of "efficiency improvement, scientific decision making, energy saving and
environmental protection, and cost savings"to promote the upgrade and development of
human society from an electronic society (E society) to a ubiquitous society (U society).
That is, in the future, connecting things will go beyond helping individual people take
advantage of the efficiencies and improvements made possible by electronic devices and
services. In the years to come, the telecom industry has significant opportunities to help
meet these individual and societal needs.

Beyond voice communications, mobile broadband will account for a significant

portion of the industry's growth.

Revenue for voice services has been gradually declining with the development of mobile
communications in the past decade. In the past five years, the revenue for fixed voice
services decreased by 15%, and the growth rate for mobile voice services decreased from
17.5% in 2004 to 1% in 2009 in Spain.

Meanwhile, mobile broadband is entering a golden age of development, bringing human

society to a new height of ubiquity. The number of mobile broadband subscribers will
increase tenfold, reaching three billion by 2014. New network technologies such as
HSPA/LTE provide cost efficiencies that enable further mobile broadband development.
New types of smart terminals such as iPhones bring convenient man-to-machine
interactions. Web Oriented Architecture (WOA) technology, which makes possible the
recent and continued adoption of widgets and "apps,"bring online services and industry
services to mobile phones, greatly enriching and expanding the services and applications
for mobile broadband.

However, there are many challenges ahead in meeting the demands of an expected
thousand-fold increase in data flow on mobile broadband for the next decade. The high
price of smart terminals can restrict the growth of mobile broadband adoption. Once these
challenges of data flow and cost are addressed, mobile broadband is poised to become the
most significant force in the telecom industry's development. Operators looking for
sustainable growth need to focus on developing mobile broadband services rather than
voice communications.

Beyond the pipeline, cloud computing brings a new wave of opportunities.

The growth and advent of new Internet services and applications has turned many
traditional business models on its head. Cloud computing has revolutionalized business
models across a number of industries including software, hardware, and media. Not only
has it moved consumers from buying products to buying services, it has redefined the
structure of entire industries. Google is incubating a larger revolution to achieve
development, deployment, and operation of software and services through its APP
engine, with flexible expansion possible through the use of a cloud computing platform
and cloud storage platform at the bottom layer. With this solution, there is no need for
software vendors and users to buy any hardware equipment or platform software, calling
into question the bread and butter of the products currently.

The development of cloud computing provides operators with tremendous opportunities.

Since cloud computing relies on the networks, it shows the significance of networks and
promotes network development. It also requires secure and reliable service providers,
capabilities that operators have deep expertise in. Operators can enter the cloud
computing market and create new value-added services and experiences by integrating
industry content and applications in the digital supermarket model, but do so on a secure
and reliable network, thereby leveraging the network and subscriber advantages unique to
operators. In addition, operators can develop new business models that help them
capitalize on the growing base of assets they help users manage and valuable user
information they have access to, including data mining and advertising platforms.

The market for cloud computing is developing rapidly, with the market size expected to
exceed USD 200 billion by 2015. Cloud computing will be a key area for business
development for operators if they want to go beyond the pipeline.

Beyond the telecom industry, home networks will create new markets.

With the increase in broadband penetration, our lives will be transformed from outside to
inside our homes. Our home network is composed of six components: audiovisual
entertainment network dominated by the television; communications network dominated
by PCs and mobile phones; sensor network; video surveillance network; home network;
and an interconnection and control network. Among them, the television is the first to
experience revolutionary change. On-line and on-demand has started and will continue to
bring consumers a new service experience. Users can select and consume content at any
time. Over time, traditional distribution models like broadcast and DVD will become
obsolete.
Microsoft CEO Steve Ballmer said in June 2009 that traditional media would disappear
within 10 years, to be replaced by internet-based content. European Union pointed out in
"Internet of 2020"that by then, TV channels will be distributed as other Internet services,
and neither terrestrial nor satellite broadcasting will be necessary anymore, except in
isolated areas. We witnessed the convergence of telecom and the Internet in the past
decade, and expect that in the next decade will be the convergence of broadcast, TV, and
the Internet. This network convergence means unprecedented challenges as well as
opportunities for those operators who can meet these bi-direction and high bandwidth
needs.

The telecom industry will continue to experience growth as demand for information and
connectivity increase. With this growth comes challenges in addressing the expected
hundred-fold increase in network flow brought by mass terminals and mass digital
content, and the thousand-fold, increase in traffic flow on mobile networks. There will
also be bandwidth and cost constraints to tackle. However, those operators who
adequately prepare for and take advantage of the opportunities in the "Four Beyonds
“will achieve growth. To that end, Huawei will continue to innovate in products, services,
and technologies in order to develop a future-oriented single network strategy that
supports the growth of future services and promotes sustainable development for the
entire industry.

Contributed by Huawei

--------------------------------------------------

The rivalry between Cisco Systems Inc. and China’s Huawei Technologies Company
offers yet another illustration of the potential downside a company faces if it fails to
stretch its core skills across a cohesive China–India market strategy. Huawei is one of
Cisco’s most aggressive global challengers; indeed, in 2003, Cisco sued Huawei for
stealing its source code and using it in competitive routers and switches. The case was
dropped nearly 20 months later, after Huawei agreed to discontinue the products.

Between 2003 and 2007, Huawei’s annual revenue grew from about 20 percent of
Cisco’s to nearly half. Huawei’s increasing competitive advantage rests heavily on cost
leadership, which derives primarily from the fact that the bulk of its R&D and
manufacturing operations are based in China. With its lower-cost product portfolio,
Huawei is attractive to customers in emerging markets. In fact, in 2007, the Chinese
company generated 72 percent of its revenues from outside China, largely in developing
countries.

Huawei is on the record as saying that its goal is to become India’s number one supplier
of telecom infrastructure equipment. The implications for Cisco are clear. It must develop
a counterstrategy that rests on at least three legs: innovating faster than Huawei,
drastically reducing its cost structure to match or beat Huawei’s low prices, and then
riding these gains to attack Huawei in both of its key markets — China and India.