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UNCLAS SECTION 01 OF 02 COLOMBO 001114 
 
SIPDIS 
 
DEPARTMENT FOR SCA/INSB 
 
E.O. 12958: N/A 
TAGS: CE ECON ETRD EINV EAID CH
SUBJECT: HUAWEI SRI LANKA:  A MAJOR PLAYER WITH AN IRON 
GRIP ON THE MARKET 
 
¶1. (SBU) Summary.  Chinese firms continue to make inroads 
into the Sri Lankan market, including into areas such as 
telecommunications infrastructure.  The Sri Lankan 
telecommunications market has expanded rapidly, and telephone 
companies plan to expand into the newly freed conflict areas 
of the North and East.  Huawei Telecommunications, a Chinese 
owned corporation, has worked diligently to corner the 
telecommunications infrastructure market in Sri Lanka. 
Huawei maintains a 33% sector share of existing 
infrastructure maintenance.  Alcatel-Lucent and Ericcson are 
the two other major competitors, and each has a 33% sector 
share of existing infrastructure maintenance.  Another 
Chinese company ZTE has a tiny 2% marker share.  Huawei Sri 
Lanka is expanding aggressively into the new infrastructure 
market in the North and East, where they own more then 75% 
market share.  Alcatel-Lucent and Ericcson are not major 
players in the new infrastructure market, and they seem 
disinterested in increasing their market share.  End Summary. 
 
 
HUAWEI HAS A STRONG LOCAL PRESENCE 
 
¶2. (SBU) Huawei currently has more than 300 permanent 
employees located in three primary offices in Colombo, Kandy, 
and Galle.  More than 70% of its local staff are Sri Lankans. 
 Huawei supplements its permanent workforce with a large 
number of Sri Lankan sub-contractors and temporary duty 
Huawei engineers from its offices in Bangkok and Kuala 
Lumpur.  Huawei Sri Lanka has a robust marketing arm which 
seems to do a yeoman's jobs obtaining new business for the 
company.  The Huawei General Manager for Marketing and New 
Development recent advised us that Huawei hopes to have more 
than 85% of the new infrastructure market by the beginning of 
2010, as well as a larger share of the existing 
infrastructure maintenance market. 
 
¶3. (SBU) Huawei has adeptly maneuvered itself into the top 
spot in terms of telecommunications infrastructure support in 
Sri Lanka.  No other competitor comes close to matching the 
breadth and width of Huawei's operations in the country. 
Huawei works with all Sri Lankan fixed line and mobile 
service providers.  It has a monopoly on support to Dialog 
Mobile and Mobitel 3G infrastructure and splits 2G 
infrastructure support with Alcatel-Lucent and Ericcson. 
Huawei's largest recent infrastructure project was the 
construction of mobile newcomer Bharati Airtel's network. 
Huawei built 100% of their infrastructure and even built into 
their contract a revenue sharing agreement which sends a 
small percentage of each Airtel call on to its coffers. 
Oddly enough, major competitors Alcatel-Lucent and Ericcson 
seem lackluster about Sri Lanka and there are no indications 
they plan to mount a challenge in the new infrastructure 
sector. 
 
¶4. (SBU) While fixed line and mobile service providers have 
seen their profits dwindle over the past 18 months, Huawei 
has seen record profits as the sector continues to expand its 
infrastructure which also increases the demand for 
maintenance of existing infrastructure.  Huawei has also 
expanded its support to the Code Division Multiple Access 
(CDMA) sector and has entered into relationships to expand 
and maintain infrastructure with CDMA players Sri Lanka 
Telecom, Suntel, and Lankabell. 
 
HUAWEI MOVES INTO THE NORTH AND EAST 
 
¶5.  (SBU)  Huawei is working closely with all major fixed 
line and mobile telecommunications providers to establish 
development plans for northern and eastern Sri Lanka, which 
were conflict zones until the May 2009 end of Sri Lanka,s 
civil war.  Plans for expansion into these areas have been 
submitted to the Sri Lankan Telecommunications Regulatory 
Authority for approval.  Huawei is optimistic it will claim 
the overwhelming majority of new business as well as the 
after the fact maintenance of the networks for the north and 
 
COLOMBO 00001114  002 OF 002 
 
 
east.  Chinese competitor Zhong Xing Telecommunications 
Company (ZTE) is aggressively working to chip away at 
Huawei's advantage in new and existing infrastructure 
although the company has had little success.  ZTE was 
involved in a quality control flap with mobile provider TIGO 
in 2006 which left it with a damaged reputation and less than 
2% of the overall telecommunications infrastructure market in 
Sri Lanka.  Huawei executives do no believe ZTE can challenge 
it for supremacy in vying for new business in the north and 
east. 
 
QUALITY PROBLEMS NOT HINDERING HUAWEI'S BUSINESS GROWTH 
 
¶6. (SBU) Interestingly, in a number of meetings with Sri 
Lankan mobile and CDMA providers, we have been told that 
Huawei equipment is sometimes suspect and the quality of 
their work is often questionable. Quality concerns do not 
seem to be hindering its business model.  Some have 
speculated that Huawei has been assisted by the Chinese 
Embassy, but we could not confirm whether these suspicions 
are well founded. 
 
¶7. (SBU) Huawei is a strong company, and our sense is that 
they have been able to develop their market share through 
normal business practices.  That said, the Chinese Embassy 
has been able to assist through arranging appointments and 
assistance normally provided by an Embassy.  In addition, 
Huawei,s rise has also bee helped by the excellent 
relationship between the Sri Lankan and Chinese government. 
Huawei Sri Lanka's robust business presence and significant 
market-share is in keeping with the Chinese outlook to 
involve itself in all important facets of the marketplace. 
If Chinese involvement in Sri Lanka is indeed strategic, and 
it likely is, Huawei's success is a win-win for China.  End 
Comment. 
FOWLER