ZTE is back in business. The Chinese mobile phone and network equipment manufacturer paid $1.4 billion in fines and replaced its board of directors in order to make peace with the U.S. government. The federal commerce department effectively shut ZTE in May when it cut off access to U.S.-made products, including high end chips and key bits of the Android mobile operating system.
The problems began when the U.S. government accused ZTE of doing business with Iran and North Korea, in violation of U.S. trade sanctions. ZTE’s response wasn’t robust enough to suit the U.S. government, so the company was cut off from U.S. technology and had to close its doors, albeit temporarily. That kicked off a round of what passes for superpower diplomacy these days, according to a story in Bloomberg…
President Donald Trump reversed course in May, saying he was reconsidering penalties on ZTE as a personal favor to Chinese President Xi Jinping. Later that month, his administration announced it would allow the company to stay in business after paying a new fine, changing its management and providing “high-level security guarantees”…
ZTE last month took a major step forward in meeting the White House’s conditions by firing its entire board and appointing a new chairman. Its new management faces the challenge of rebuilding trust with phone companies and corporate customers. But the company is said to be facing at least $3 billion in total losses from a months-long moratorium that choked off the chips and other components needed to make its networking gear and smartphones.
ZTE isn’t alone. Huawei, China’s biggest mobile phone maker (ZTE is number two), is also in the Trump administration’s crosshairs. The Federal Communications Commission is considering locking both companies out of federally subsidised projects, because of security concerns. That same kind of thinking led the Trump administration to block the sale of Californian chipmaker Qualcomm to a Singapore based company, Broadcom.
It’s appropriate for the U.S. government to worry about national security, and to take specific steps to meet specific threats. But conflating security with economic advantage is a losing game. The best guarantee of national security is shared economic interests, not trade barriers. To paraphrase Benjamin Franklin, perhaps egregiously, those who would give up a free market to purchase a little temporary security will get neither.
A major Chinese smart phone and telecoms infrastructure manufacturer was stopped cold by U.S. trade sanctions, after it 1. did business with Iran contrary to U.S. rules and 2. didn’t adequately punish the executives responsible for the violation. ZTE announced last week that “the major operating activities of the company have ceased”. It’s number two smart phone maker in China, behind Huawei, but has a low profile among U.S. consumers.
The U.S. commerce department issued an order that bans U.S. companies from doing business with ZTE. Since technology developed in the U.S. – much of it here in California – is critical to high technology products, ZTE had no choice but to shut down. It might be temporary, though, according to an article by Roger Cheng on CNET…
The company had to shut down its operations to comply with the order, but it continues to talk with US government officials about a potential stay or reconsideration of the denial order, according to a person familiar with the situation.
“Ceasing operations does not mean we’re going away,” the person said, noting that ZTE has a cash reserve and could eventually tap into financing to stay alive.
The company is also pegging its hopes on broader discussions between US and Chinese officials in their bilateral trade talks – ZTE is expected to be a topic of conversation brought up on the Chinese side, the person said.
One critical piece of technology that ZTE can’t have is Google’s Android operating system, or at least the bells and whistles that go along with it. Android’s core is open source, but linked elements, like the Google Play store and many of the apps in it, are proprietary and now off limits.
ZTE won’t just roll over die. The commerce department’s order might even serve to weaken the Apple/Google mobile operating system duopoly. Of the two ZTE smart phones I’ve owned, one was based on the Firefox mobile OS. It didn’t go anywhere in the market and was eventually shelved, but it shows that ZTE knows its options.
It takes a crowd to stand out in a crowd.
ZTE is crowdsourcing its brand strategy, along with product design and test marketing. Based in China, the company has been in business for nearly twenty years, and selling in the U.S. in a meaningful way for ten years.
On the consumer side, it’s a smartphone maker. But it’s also a major telecoms infrastructure player, including mobile infrastructure. Company executives didn’t say much about that aspect of the business today during a media presentation at CES, except to drop some hints about developing 5G infrastructure in tandem with consumer products, and to say that their plan is to develop technology that will allow 5G service to be deployed on 4G networks. Whether that means a forklift upgrade of current technology or just adding nominally 5G features to existing LTE service is a question still to be answered.
As a consumer brand, ZTE’s products are solid enough, but don’t stand out. The company doesn’t have world domination on its road map like Samsung, or the premium brand ambitions (or at least not the budget) of Huawei. It showed the obligatory virtual reality-capable smart phone, but depends on Google’s Daydream VR platform for hardware and content.
To break out of the Apple/Samsung chase pack, ZTE is counting on an online consumer fan base for brand differentiation. One of the new smart phones it introduced this afternoon – the Hawkeye – was designed and named in an online contest. Instead of trotting out an engineering vice president, they had the four guys who won the design contest stand up and take a bow. It’s still a work in progress and all they had onsite was a mock up, so they’re launching the phone on Kickstarter with a discounted $200 price and a promised delivery date sometime in the third quarter of this year.
This crowd sourcing strategy centers on an online forum that ZTE says has 12,000 members, some of whom are hot enough about the company to fly out to Las Vegas for the presentation. That earned them recognition from company execs too. It’s common enough for tech companies to cultivate online communities, but not to turn product management over to those fans. ZTE might have found a way to truly differentiate itself as a consumer brand.
LG is in the Firefox game too.
The Firefox OS smart phone universe is expanding. ZTE, which launched the Open last year, essentially as a software developers’ kit, will be unveiling two new phones based on Mozilla’s open source, HTML5-centric operating system. The expected Wednesday announcement will launch the Open C and Open 2 smart phones, which are pegged to move up the value chain with more features than the $80 Open.
Two other Firefox phones were on display at the Pepcom event at CES this evening: the LG Fireweb, which is currently available in Brazil, and the Alcatel One Touch Fire. As the gap between mobile and traditional consumer electronic and computing products continues to narrow, mobile OSes are finding their way onto fixed platforms. The Firefox OS is no different. Panasonic has a Firefox smart TV in development, with availability expected before the end of 2014. Foxconn is building a Firefox tablet.
The more devices and the more carriers that support Firefox, the more apps, services and content will become available. Whether it’ll gain enough momentum to put a dent in Android’s or iOS’s market share is another question. Between them, the two dominant mobile operating systems have more than 90% of the mobile device market.
Firefox has the potential of claiming a distant third place, though. Of the HTML5 based OSes launched last year, it’s gained support from the broadest range of manufacturers. It costs less than Android and app development should eventually be far easier, assuming that HTML5 is finally wrestled into submission. With smart phone and tablet growth expected to increasingly shift to developing markets, those advantages should be enough to keep it in the game.
Puppies for a while longer.
The Firefox OS is built to run thin client HTML5 applications, which depend heavily on network connections to store data and offload processing. So far, the available applications are a promising mixed bag, at least judging by performance on the first readily available Firefox phone, the ZTE Open.
Both the Facebook and, particularly, the Twitter apps are consumer-ready, but most of the other available apps are little more than browser bookmarks that take you to a website. The included email and calendar apps work well with both Google and Apple services, and deliver a smooth user experience. The address book, though, needs a lot of help. It’ll only sync with Google contacts and it’s not well integrated with the phone – dialling directly from a contact is a clunky chore and it’s difficult to, for example, reply quickly to a phone call with a text message.
Mozilla is just one of the companies betting that HTML5 will fullfil its promise of “write once, run everywhere” apps. Tizen and Sailfish are also counting on a spontaneous wellspring of developer support as the language matures, although both of these Nokia MeeGo-descended OSes are also hoping to grow proprietary ecosystems. Jolla released its SDK for the Sailfish OS earlier this week, with a heavy emphasis on its support for Android applications.
The challenge for HTML5 developers is to find a proper balance of on-board functions and network services. Achieving acceptable performance depends on the speed of mobile broadband connections, so the speed of development will be governed, to a large degree, by the upgrade plans of carriers. With other alternative OSes available, developers might not want to wait.
Twitter top pick on Firefox app store.
The Firefox mobile operating system is clearly a work in progress, but that said, it works well enough already. I’ve been using a ZTE Open Firefox phone for three months, and can do most of the things I need to do and, as time goes on and software is released, more of the things I’d like to do.
The OS performs better than Bada, which I used for about a year on a Samsung handset. There’s more software available and it’s a snappier, less frustrating experience. On the other hand, it’s not as smooth or well stocked with apps as my two-year old LG Android phone. All three are in the same, low end price range.
The phone itself is well worth the $80 I paid for it. In its current form, it’s effectively a software developers’ kit rather than a consumer product, but even so it performs well. It also sold well – the first thousand phones were gone in hours. ZTE has been following up with purchasers, as it irons out bugs and extends the platform’s capabilities.
The Open lacks LTE connectivity, as did the unlocked Android phones that ZTE previewed at the Pepcom Holiday Spectacular in San Francisco last month. Which is a problem for developers, since the Firefox OS is built on HTML5, which in turn depends on fast connections between tiny apps and big servers.
On the consumer side, a ZTE product manager said that he didn’t think users would notice the lack of LTE on unlocked phones. Or maybe he’s just hoping they won’t. His argument was that since LTE networks are getting slammed by heavy traffic from high end phones, value conscious buyers will be happier with what he considered to be less crowded 3G bands. By that logic, though, they should be overjoyed using 2G Edge networks. Good luck with that.
Or it might be chasing its tail.
ZTE isn’t big in the U.S. Only the least of the four major mobile carriers – Sprint – offers a branded ZTE smart phone on its website and then just a single model. Its only distinguishing feature is the number of flaming negative reviews written by unhappy buyers.
With little to lose, ZTE is bypassing mobile carriers and going direct-to-geek by selling an unlocked $80 phone – the Open – running the new Firefox mobile operating system on eBay.
It’s a quad band GSM device, which pretty much targets customers running on AT&T’s network, either directly or via a reseller. Since T-Mobile’s 3G service primarily operates on the 1700/2100 MHz bands its usefulness there is limited, particularly since the HTML5-based Firefox OS is heavily dependent on full time connectivity.
But for eighty bucks, how can you go wrong? So I just ordered one, even though I’m a T-Mobile customer.
Selling a wonky phone with a niche OS on eBay isn’t a mass market strategy. It’s really a quick and dirty way to get what amounts to a development kit into the hands of would-be app developers. Judging from the sales numbers on its eBay listing, ZTE has sold about 700 Open phones in about a day.
That’s not going to do much for ZTE’s global ranking. Along with Huawei, LG and Lenovo, ZTE is a solid member of the five percent club, the distant pack of smart phone makers chasing Samsung and Apple, which account for about half the market between them. Even so, ZTE is beginning to eat into Apple’s share.
That trend is likely to continue. Apple focuses exclusively on high end devices, while Samsung offers something at pretty much every price point. As volume manufacturers increasingly target the sub-$100 end of the market, they’ll gain share at Apple’s expense. Using a cheap, stripped down OS helps, but they’ll need a lot of help from developers. Seeding the dev community with a few hundred Firefox phones could be a good way to get it.