After a long battle, it seems that Qwest pulled out of the MCI auction leaving Verizon as the winner by default. Verizon's offer ($8.54 billion) was roughly 13 percent below the $9.85 billion offered by Qwest. After the MCI board rejected the higher Qwest bid for the fourth time in a row, the Denver-based company announced that " It is no longer in the best interests of shareowners, customers and employees to continue in a process that seems to be permanently skewed against Qwest".  The key question is what is next for Qwest.  The company might target assests that giants Verizon and SBC might be forced to sell to mitigate government concerns that the mergers will be detrimental to competition.  Other alternatives include going after companies selling services to businesses, pursuing a merger with Sprint or becoming itself an acquisition target.   more »

Om Malik had an interesting piece on the ascent of Huawei, particularly on the coattails of the impressive win in the BT 21 CN RFP sweepstakes.  Huawei was one of the underdogs in the access piece (most folks had expected Alcatel and Marconi to be the winners in this category instead of Huawei and Fujitsu) and in the optical portion of the BT tender. 

Undoubtedly, the selection of Huawei in the two segments of the BT network (access and optical transport) clearly signals a validation of the quality of their portfolio, along with the ability to support a large European operator.  But the bigger questions to be asked are: 1- Does this victory also indicate a growing long-term presence of low-cost Chinese suppliers into Tier 1 accounts? and 2- Does the win also trigger a negative trend for all major non-Chinese suppliers (such as Cisco, Ericsson, Juniper, Lucent, Nortel, etc.)? 

The answer to the first question is definitely yes, but a more interesting consideration is that thus far, Huawei was picked for areas that have already been commoditized due to very high competitive pressures.  These low-margin LOBs include broadband access and optical networking (as in the 21 CN case).  However, other areas such as softswitching, network intelligence and routing are apparently safe thus far.  However, that is how most new entrants in a market begin attacking the bases of older, more established vendors - first with the low-margin products, and then, moving up the value chain.  So while the presence of Huawei in long-haul transport implies a potential margin erosion of vendors such as Ciena, the other vendors will be watching this development closely - because they know they can be next.

The second question is a bit more challenging, as other carriers might start asking: "If Huawei's gear was good enough for BT, then why can't it work for us?" - and traditional vendors really need to get a good handle on that question.  If more telcos start buying Huawei equipment, then Western vendors would really be faced with an uneven playing field, given the price differentials (due to the artificially undervalued Yuan) and the massive loan guarantees and subsidies being given to Huawei by the Chinese government (to the tune of US$ 10 billion).  This will not mix well with the already fragile telecom sector.  So what can these vendors do?  Lobby for Embraer-style subsidies (ed.note: Embraer is the Brazilian plane maker which receives a great deal of incentives from the Brazilian government)?  Press the WTO, their governments and other authorities to put pressure on the Chinese to float the Yuan?  Move up the value chain and focus on services and software/applications?  Partner with these players?  These are challenging questions, and their ramifications are even more complex.  But the one clear result of this increased competitive threat is margin erosion and lower pricing: carriers are getting to be very good at playing vendors off each other. 

Vendors such as Huawei, UT Starcom, and ZTE, among others are buying assets (CommWorks, and now even perhaps Marconi), partnering (3Com) and now winning bids in major tier 1 accounts (such as BT).  Their threat to North American and European vendors is real and has finally arrived.  They represent formidable competitors that have great resources (human and capital) at their disposal.  So we better start getting used to the idea of including Huawei in the potential winners list, even for carrier RFPs on this side of the Atlantic.

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