Chinese 5G Provider ZTE Seeks a Way Out of the US Ban

Rebbeca Ren

posted on November 28, 2020 10:51 pm

ZTE, the second-largest telecom-equipment maker in China, has been at the center of increasingly tense China-US relations for years years. However, the company is still actively finding its way out by leveraging 5G technology.

The Trump administration issued a ban on the sale of US-made parts to ZTE in May 2018 for it believed that the Chinese company violated its sanctions on North Korea and Iran and sold telecoms equipment to these two countries. 

After in-depth negotiations, the ban was lifted, but ZTE had to pay a $1 billion penalty and placed $400 million in a US bank escrow account. The company isn't completely out of the woods. It will still have to operate with a 10-year suspended ban, which can be quickly activated by the US if it finds new violations.

The company, which mainly operates carrier networks, terminals, and telecommunication, has been significantly impacted by the embargo because it relied on American companies to provide certain components, especially the chips.

According to the China Semiconductor Industry Association, only 27 percent of chips sold in the country were made domestically, with the remainder covered by imports.

In the global 5G competition, investment in R&D is regarded as an essential indicator to measure an enterprise's development. ZTE's R&D investment in the first three quarters of 2020 reached 10.79 billion yuan, an increase of 15.3% year-on-year, accounting for 14.6% of the revenue. Among them, R&D expenses in the third quarter were 4.15 billion yuan, a year-on-year increase of 43.8%, the company's latest financial report revealed.

Continued investment is paying off. ZTE has declared 2,561 families of 5G Standard-Essential Patents (SEP) to the European Telecommunications Standards Institute (ETSI), thereby being included among the global top 3, according to IPlytics' report on February 2020.

"As a major contributor to and participant in the research of global 5G technologies and standards, ZTE has submitted over 7,000 5G-related proposals to 3GPP," Tang Wenhao, Vice President, CTO of Europe and America Region, ZTE Corporation, told PingWest.

Meanwhile, the telecommunications manufacturer has also made progress in chip design. ZTE stated in June that it already has the 7nm processors being mass-produced, and being utilized in global 5G infrastructures, while it has also begun importing 5nm process technology as well. 

"ZTE designs its own 7nm chips based on the latest chip manufacturing process, of which power consumption is now almost 50% lower than the previous generation," said Tang. "Currently, ZTE has been using 7nm chips globally in its product portfolio, including in Europe and Latin America."

Like Huawei, ZTE, with a Chinese background, also faces resistance in Europe. European governments have been tightening controls on Chinese companies building 5G networks following diplomatic pressure from Washington, which alleges Beijing could use these Chinese firms' equipment for spying.

Although these allegations have been denied, ZTE believes that regulations related to network security and solution reliability are crucial. 

"The reliability, trustworthiness, and security of ZTE solution is accepted internationally," said Tang, adding that the company will continue searching for collaborations with leading local security companies to offer reliable and customized cybersecurity solutions for the regional market.

The Chinese company has already set up two cybersecurity labs in Rome, Italy, and Brussels, Belgium, respectively, and recently passed the GSMA NESAS (Network Equipment Security Assurance Scheme) audit.

5g standalone network, which introduces advanced 5G features like URLLC (Ultra-reliable and Low Latency Communication), mMTC (massive Machine Type of Communication), and network slicing, is also a technology that the company is enthusiastically pushing forward.

"ZTE and operators regard the 5G SA network as a key driver of groundbreaking 5G use cases, particularly for enterprise and industry 4.0. To facilitate these use cases, we promote 5G SA development and deployment concurrently," said the CTO.

Orange, a French multinational telecommunications corporation, is working closely with ZTE to verify their commercialization approach for the 5G SA network. Additionally, in Spain, ZTE made the first-ever 5G SA call in Europe and tested advanced 5G features like Massive MIMO (multiple-input, multiple-output), Voice over New Radio (VoNR), URLLC, and slicing. 

Due to the COVID-19 pandemic, some operators have now postponed their evolution plan to 5G SA. However, operators are still actively testing and trialing 5G SA solutions to prepare for upgrades in the future, according to Tang.

As of mid-June, ZTE has won 46 5G commercial contracts worldwide, covering major 5G markets such as China, Europe, Asia Pacific, and the Middle East, and has expanded in-depth 5G cooperation with more than 70 operators around the world.

Founded in 1985, Shenzen-headquartered ZTE is often compared with its larger rival, Huawei. The company has also tapped into foreign markets, with overseas sales accounting for about 50% of its total. The company listed on the Shenzhen Stock Exchange in 1997 and on the Hong Kong Exchanges and Clearing in 2004. As of the end of September 2020, Zhongxingxin, a state-owned entity, is the company's largest shareholder, owning 23.40% of the shares.