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Chopstick wars


Johannesburg, 14 Jul 2011

Sparks are flying in the telecoms sector as China-based infrastructure provider ZTE accuses competitor Huawei of being behind yesterday's nationwide raids by home affairs and police officials on its local offices.

ZTE and Huawei, the dominant providers of telecoms infrastructure in Africa, are battling it out for bigger slices of the communications infrastructure market in SA and on the continent.

Tensions have been building between the companies. In May, Huawei filed lawsuits in Germany, France and Hungary against ZTE for patent and trademark infringements.

Huawei alleged ZTE was infringing its patents relating to data card and LTE technologies, illegally using a Huawei-registered trademark on some of its data card products.

Yesterday morning, the Hawks, a division of the South African Police Service (SAPS), and home affairs officials swooped on ZTE's offices across the country, based on allegations the firm was bringing in foreign nationals without the required permits.

The raids form part of government's bid to clamp down on illegal immigrants in SA. However, ZTE alleges its main competitor in SA, Huawei, orchestrated the sorties on its offices in a bid to undermine its efforts to grow market share.

Both companies are involved in rolling out mobile infrastructure for SA's cellular operators. ZTE has a R2.9 billion contract to upgrade Cell C's network, while Huawei provides equipment to MTN, Vodacom, Neotel, Telkom and Cell C.

Cracking down

Home affairs says the joint raid was a bid to “crack down on the illegal facilitation of foreign nationals into SA, using fraudulently acquired documents”, which is in line with government's “commitment to stem the tide of illegal immigration into SA”.

“Government remains committed to ensuring we push back the frontiers of fraud and corruption and will ensure those complicit in the facilitation of such activities are brought to justice.”

The raids, at ZTE's offices in Johannesburg, Cape Town, Port Elizabeth and Umhlanga, led to the detention of 18 Chinese nationals, of which 17 were male and one female. This is the second raid on the company in under a year, after 16 staff members were arrested last November.

Home affairs spokesman Ronnie Mamoepa says the joint swoops were based on accusations that ZTE was illegally facilitating the entry of Chinese foreign nationals into SA. He says the foreigners were suspected to have fake documents, or no documents at all.

Anti-competitive

However, ZTE believes competitor Huawei was behind the investigation. ZTE SA executive director Tumi Magasa alleges: “Huawei told them to come and raid.”

He says the nationwide investigation is suspicious due to the complexity of orchestrating such an effort.

ZTE was founded in 1985 and claims to be China's largest listed telecoms equipment company. It provides telecommunications equipment and network solutions through operations in more than 140 countries and turned over about R70 billion in the 2010 financial year.

Magasa heads up empowerment consortium 8 Mile Investments, which acquired a 32% stake in ZTE SA in May 2007. He says: “I'm 100% certain the raid was triggered by Huawei.”

The telecoms equipment arena is dominated by ZTE and Huawei, as European and US companies cannot compete on price and technological advancements, argues Magasa. “The two front-runners are seriously competitive.”

It is no coincidence that ZTE is due to submit a bid for a “big tender” tomorrow, a few days after the raid, says Magasa. Huawei has a “deliberate ploy to destabilise us,” he claims.

Cell C is ZTE SA's largest client as the company has been contracted to upgrade its network in several parts of SA. Cell C group general counsel Graham Mackinnon says the mobile operator is “not responsible for the recruitment policies or processes of ZTE”.

ZTE is “responsible for its own employees and sub-contractors”, says Mackinnon. Under the terms of the turnkey contract, “ZTE is legally obliged to comply with all laws, including those that apply to SA immigration”, he adds.

Not true

In response to ZTE's accusations, Huawei argues it does not have “the mandate or the authority to instruct the South African law enforcement agencies to carry out raids on any entities or anyone” as it is a private company.

Shalate Davhana, corporate affairs manager for Huawei Technologies Africa, says: “Any allegations suggesting such an act from Huawei are unfounded.”

Huawei does not view ZTE as a major competitor as there are several telecommunications vendors in SA, says Davhana. The Chinese company complies with local rules and regulations in all countries where it has operations, including SA, she says.

The company is ranked second in the ICT fraternity globally, serving 45 of the world's top 50 operators, notes Davhana.

Fixing the problem

Magasa says SAPS is expected to release the foreign nationals either today or tomorrow, as the department has 48 hours to verify whether its staff are in the country legally, or if documents have been forged.

A ZTE staff member, who spoke on condition of anonymity, says the raids started at about 10.30am and officials asked to see Chinese staff members' passports and work permits. The staff member says the raids occurred across the country at the same time.

The staff member alleges ZTE is bringing in Chinese nationals illegally to work on large infrastructure projects, and the paperwork is only sorted out once staff members are in the country.

ZTE was using a third-party service provider to bring in specialised skills from China and had no control over its employees' work permits, notes Magasa. He says the company has terminated that relationship and is now putting procedures in place to make sure it does not go through another raid. “We want this thing sorted out, and sorted out once and for all.”

The company supports home affairs in its bid to root out corruption and get rid of illegal immigrants, comments Magasa. However, he questions whether it was necessary for the department to make such a “big deal” about the raid.

Magasa says foreign nationals should only be brought into SA if they have skills that are not available locally, and then they need to transfer their knowledge. “It is not right for so many Chinese to be brought into the country.”

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