Spark forges deeper links with Huawei to piggyback on Chinese R&D

Spark New Zealand has got closer to Chinese telecommunications vendor Huawei Technologies in an expanded deal to accelerate the roll-out of mobile services and upgrade the local carrier's XT network.

The two companies last week signed a memorandum of understanding, witnessed by Prime Minister John Key and Chinese Premier Xi Jinping in Auckland, which will let Huawei tailor technologies for Spark, using the Chinese firm's mammoth spend on research and development.

Huawei won Spark's contract to build a long-term evolution (LTE) network, commonly known as 4G, which is expected to drive revenue growth for the telecommunications company as it transforms into a data services retailer.

A poll of some 600 delegates at a telecommunications conference in Shanghai last week said the biggest benefits from LTE was a boost in average revenue per user (ARPU), which they largely expected would rise by about 20 percent.

An increase of that order would lift Spark's ARPU to $36.12 per month from the $30.10 rate it reported in the six months ended June 30.

Eric Xu, Huawei's rotating chief executive, told the global mobile broadband forum last week good user experience will likely transform into greater revenue and should be central to telecommunications carriers' services.

"Looking into the future, user experience of networks is going to be the productive force and the primary force," Xu said.

Spark chief operating officer David Havercroft said the local company has already developed a number of new customer and business products since working with Huawei, "particularly in the rapidly growing area of mobility."

The latest deal was one several commercial partnerships announced during the Chinese premier's visit to New Zealand, and Spark has already made Huawei's carrier aggregation available on six of its 4G sites, which combines mobile spectrum bands allowing for greater speeds on a user's device.

Shares of Spark, formerly known as Telecom Corp, fell 0.6 percent to $3.17, and have climbed 38 percent this year. The stock is rated an average 'hold' based on 10 analyst recommendations compiled by Reuters, with a median price target of $2.83.

Spark has also started work replacing equipment on its XT network with Huawei's single radio access network (SRAN), which is expected to boost performance for users.

The botched launch of Spark's $574 million XT mobile network in 2009 cost several executives their jobs and forced the telecommunications company to stump up $15 million, though it managed to claw back about $62 million from the network's architect Alcatel-Lucent over the following five years.

Huawei New Zealand chief executive Jason Wu said the SRAN technology has "proven a huge benefit globally with layering of technologies in a single hardware package delivering huge cost savings, improved performance and a much simpler upgrade path."

The closer relationship with Huawei means Spark will be able to latch on the Chinese company's heavy investment in R&D, which topped US$5.4 billion in 2013, or about 14 percent of its total revenue.

Huawei is already working on the next iteration of mobile technology, known as '5G', which is expected to focus increasingly on machine-to-machine connections rather than people-to-people.

Since entering the New Zealand market in late 2005, Huawei has grown its annual revenue to $131.8 million in the 2013 calendar year for a net profit of $4.1 million. That's up from annual earnings of $3.3 million on sales of $114.1 million in 2012.

(Paul McBeth travelled to China courtesy of Huawei Technologies, which sponsored the global mobile broadband forum)