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By Ian Scales
From Wavelength October 2006

The award of a contract to supply Dutch mobile operator Telfort with a 3G network was a European breakthrough for Huawei. But then Telfort was bought by its large rival KPN. So how did the vendor cope with the change of ownership?

Breaking into an established market is always difficult. Breaking into a highly complex technology market, already well populated by formidable, local competitors with immense experience, is even harder but early last year Huawei made a significant commercial breakthrough, winning contracts to supply Dutch mobile operator Telfort with high-speed core and 3G network equipment. "The original Huawei contract was a bit of a milestone," says Thomas Wehmeier, an analyst at research firm Informa Telecoms & Media. "It was their first major win in Western Europe."

The relationship went well until late last year when Telfort was taken over by rival operator KPN. This could have been a threat to Huawei, as KPN might have decided to absorb Telfort onto its own technology platform. On the other hand, the takeover could have worked in Huawei's favour because if the vendor performed well for Telfort, the management team of the merged entity might install it as a supplier. In fact, it did go well because in a few months Huawei had won new contracts with KPN, not just for core network equipment but softswitching too.

"Part of the aftermath of the acquisition involved integrating the two networks," explains Michael Vocke, manager of mobile connection services at KPN Mobile in the Netherlands. "We had a traditional MSC (mobile switching center) network," he explains. "That network wasn't big enough to cope with the extra voice traffic from Telfort so we had to expand it and we decided on a three-layered architecture and a softswitch approach using the underlying Ethernet packet network. Obviously if we could handle all the voice traffic for Telfort and KPN on one network, then it would be much cheaper than having two networks."

Huawei is replacing the traditional setup with media gateways and MSC servers which jointly make up the softswitch. "This approach is future proof and easier to configure and maintain," says Vocke.

So not only did Huawei survive the takeover, but it was selected by KPN to supply a critical and leading-edge application. There were several reasons for this, explains Vocke, but importantly KPN felt their company was an excellent fit with Huawei in terms of its attitude. KPN is a substantial tier-one player in its home market, and also successfully operates cellular networks in Belgium and Germany, but is not yet at the same level as the largest pan-European groups. "In comparison to big operators like Vodafone, Orange and T-Mobile, while KPN and Telfort are big in Holland, we're small in the world," he says. Management felt this gave it a lot in common with Huawei. "We think Huawei has the right focus for us. In its markets it is like a challenger rather than an incumbent. "We are one of the first mobile operators in the world to deploy this (softswitch and Ethernet ) architecture." confirms Vocke.

One of the other major factors in KPN's choice of Huawei was what Vocke describes as "energy". He describes the vendor as "a young company with a lot of young, hardworking, bright boys and girls." He concedes that language could have been an issue but emphasizes that Huawei understands this potential problem very well and puts in a lot of effort to bridge the gap. "Firstly they put in some local staff to make sure that they're not purely Chinese because they want to really understand what is going on here. And secondly they send us the young people who are really eager to learn and to cooperate with us and focus on how we work."

Vocke points out that Huawei obviously has a huge pool of young staff in China and the those with the best technical and communications skills are sent to the Netherlands. "They then go back to China to deliver feedback. We did have some reservations about this, but in fact it's working out much better than we expected. They're really focusing."

Energy and talent is important, but there has to be real technological and operational excellence to back it up. What makes KPN think that Huawei can actually deliver over the longer term? "We regard Huawei as very focused on innovation and relations with the customer. We have been to China and have been quite impressed with what we've seen there. They are a young company and it's very impressive what they have there in terms of infrastructure and technology. We think they have a very high innovation capacity,"he says.

And of course there is now a track record in Europe. "As you know Telfort had a relationship with Huawei and Telfort had good experiences," explains Vocke "We felt Huawei had really proved itself by building a turnkey 3G network for Telfort – core and radio and all-over system integration – and solving all the problems. In that relationship Huawei delivered what they promised and they were also commercially very attractive."

Costs are always important to mobile network operators, and, according to Informa's Wehmeier, as 3G build-out accelerates all mobile operators are looking to make major savings on equipment costs. "We're now five years into this supply market and there are now more than a hundred 3G networks being built out around the world. In this phase of development operators are really looking for costs to drop," he stresses.

The arrangement with KPN involves Huawei working with its existing cellular equipment suppliers, Nokia and Ericsson, who will continue to be responsible for 2G and 3G radio networks respectively, so one of the key measures of the success of the multi-vendor arrangement is how well the new and old suppliers can work together. "Huawei is very eager to work with other suppliers," confirms Vocke "They are very open and they really try hard."

To date, KPN's experience of working with Huawei has been extremely positive. "The softswitch is being installed now," he says, "but first off, we went to China for a factory acceptance test because if the systems you are ordering are working there, then this is a good start." Vocke knew that it was crucial he convince his own staff that the radical move to form such a vital relationship with a relatively untested Chinese supplier was the right one. "In fact I sent some of my more critical guys to China," he confides. "This had a dual purpose. First, of course, you get accurate test results, but secondly if you send someone who is normally quite critical and they come back quite impressed then you know you have won."

And how will the network requirements evolve in the future? "I expect this system to be relatively future-proof," says Vocke. "These sorts of systems are not things you exchange every few years. Their introduction has a major impact and costs a lot of money. We chose Huawei, not for a short period, but because we trusted them to provide us with a long-term solution."

KPN is increasingly integrating its fixed and mobile infrastructure. The difference between the specific mobile and fixed systems will disappear. Both are already integrated on the IP backbone under the switching layer and the next phase will involve IMS which involves integrating the service control of fixed and mobile services.

"We know that the Huawei roadmap is ambitious," concludes Vocke, "but we think that together we can do it. After all Huawei's major customer in China is China Mobile, which has over 270 million customers. If the systems work for them, they're almost certainly going to work for us."