ZTE ‘threw us under a bus’

ZTE Mzanzi has accused its partner, China’s ZTE, of “throwing it under a bus” when it terminated agreements with the local, black-controlled company. It’s also accused it of colluding with competitor Huawei.

TechCentral broke the news on Thursday that ZTE had cancelled all of its contractual agreements with ZTE Mzanzi after the latter won an interim high court interdict stopping Telkom from embarking on a multibillion-rand network modernisation project with chosen partners Huawei and Alcatel-Lucent.

In court papers seeking an urgent court interdict against ZTE to stop it from cancelling the agreements, Mzanzi accuses the Chinese company of “colluding” with Huawei, ZTE’s main Chinese rival, and with Telkom and telecommunications equipment manufacturer Alcatel-Lucent, to its detriment. It also accuses Telkom of refusing to comply with the earlier court interdict.

The Competition Commission has now also been drawn into the case after Mzanzi said it was being pressured to abandon its case against Telkom because of what it calls a “noncompete agreement” between ZTE and Huawei. It has also accused ZTE of using “intimidation tactics” and attempting to cancel the agreements between the parties “unlawfully”.

Asked to comment on Mzanzi’s accusations of collusion, a Huawei spokesman says only: “In accordance with our company policy, Huawei does not comment on contractual issues regarding our clients.”

And ZTE SA CEO Cris Fuentes disputes Mzanzi’s claims, saying ZTE has acted entirely lawfully in cancelling the agreements with Mzanzi and walking away from the joint venture. He also denies the allegations of collusion.

But Mzanzi says ZTE cannot terminate the agreements between the companies because the shareholders’ agreement can’t be unilaterally cancelled. Also, Mzanzi and its 60% black empowerment shareholder, 8Mile Investments, “did not commit any breach of the provisions of the shareholders’ agreement”. Nor did Mzanzi “commit any breach justifying cancellation” of the agreements, it says.

In a letter from its attorneys to Telkom’s attorneys, Mzanzi alleges there is “clandestine collusion by Telkom, ZTE Hong Kong, ZTE SA and Huawei” against the company. “The collusion is intended to ‘springboard’ ZTE SA to secure future business with Telkom, as presently ZTE SA is not doing business with Telkom. Huawei is being protected by the collusion as it is in the best interests of a politically powerful Indian family which has Telkom eating out of its hands.”

Mzanzi does not name the family in the letter sent by its attorneys. Nor does it elaborate on the accusations. ZTE Mzanzi CEO Tumi Magasa has declined to comment on the latest developments, saying ZTE is “our partner and we would not like to battle this out in the media”.

Telkom’s attorneys, in response, say: “Our client has previously denied ‘collusion’ as alleged by you and your client. We do not intend responding to your further comments … but reserve the right to do so should it be necessary.”

In response, Mzanzi’s attorneys write: “There is definitely ‘collusion’ and every attempt not to comply with the court order, by your client [Telkom] and others.”

In its notice of motion to the high court seeking the urgent interdict, Mzanzi says ZTE has “literally thrown [Mzanzi and 8Mile] ‘under the bus’ by purporting to evade the obligations of [ZTE] to comply with the provisions” of the agreements,” Mzanzi says in its notice of motion to the high court. “[Mzanzi] will not be able to generate any further income [or] pay its substantial running costs, much to the detriment of its employees.”

Mzanzi wants the “status quo to be preserved” pending the finalisation of arbitration hearings. It accuses ZTE of wishing to be “judge and executioner” by “refusing to comply with [its] obligations” in terms of the agreements between the parties.

In addition, it says it will be “adversely prejudiced as it will lose out on commercial opportunities forever or at least the next 10 years as the opportunities, particularly from Telkom, Sentech and Broadband Infraco, will be taken up by players who will develop leverage and advantage in that market”.

“The estimated potential revenue loss could be R30bn.”

The dispute between the companies flared up when Mzanzi won an urgent interdict against Telkom, stopping the fixed-line operator from continuing with work to deploy a next-generation broadband network, offering higher speeds to consumers and businesses, in a project that could be worth as much as R13bn over five years. The first, three-year phase of the contract is reportedly worth R5bn.

Mzanzi was formed in 2010 specifically to provide ZTE products and services to companies such as Telkom, Sentech and Broadband Infraco. ZTE owns 40% of the company’s equity, while 8Mile Investments, whose shareholders include Magasa and former North-West premier Popo Molefe, owns the majority 60% stake.

In its notice of motion to the high court, the company says the shareholders’ agreement stipulates that disputes of this nature have to be settled through arbitration and under the rules of the International Chamber of Commerce.

The court papers filed this week by Mzanzi show just how far the relationship between the two companies has broken down. In correspondence from Bowman Gilfillan, ZTE SA’s attorneys, the Chinese-owned company alleges that the “fractured relationship” between the parties “has now reached such a state that there is an unmistakable and negative impact on the ability of ZTE Mzanzi to conduct its business in a proper manner”.

The letter from Bowman Gilfillan says a decision by Mzanzi to lodge a complaint with the Competition Commission, in which it accuses ZTE of “contravening the Competition Act” has further “exacerbated” the situation.

In the correspondence, ZTE contends that the allegations contained in the letter to the commission are “false and misleading”. It says that “such conduct shows a complete lack of bona fides on the part of [Mzanzi] and it confirms [ZTE’s] belief that there is no possibility whatsoever of any continuing relationship”.

In response, Langa Attorneys, acting for Mzanzi, says the company is “not being treated with respect”. It denies in detail most of ZTE’s claims and says the company will “continue to operate [its] business on the basis that the contractual relationship and agreements with [ZTE] are still binding and enforceable”.

In turn, Bowman Gilfillan says ZTE is prepared to meet with Mzanzi but “only to discuss the dissolution of the relationship between them [as] any discussion on an ongoing business relationship would be fruitless”.

ZTE is expected to file its answering affidavit on Friday. It’s anticipated that the high court will hear argument next Tuesday, 15 May.  — (c) NewsCentral Media