Shenzhen-based ZTE Corp has sold the Telecommunication Co of Iran (TCI), Iran’s largest telecom firm, a powerful surveillance system capable of monitoring landline, mobile and internet communications. The system was part of a €98.6 million contract for networking equipment. Government-controlled TCI has a near monopoly on Iran’s landline phone services and much of Iran’s internet traffic is required to flow through its network. ZTE documents reveal the deal includes hardware and software from some of America’s best-known tech companies, including Microsoft, Hewlett-Packard, Oracle, Cisco Systems, Dell, Juniper Networks and Symantec. ZTE has partnerships with some of the U.S. firms. As the U.S. has imposed sanctions on Iran, the hard- and software from U.S. companies was not supposed to be sold to Iran. ZTE Spokesman Li Erjian said his firm only sold standard equipment to Iran. “Our main focus for business in Iran is to provide standard communications and network solutions for commercial use to help upgrade their network.” Subsequently, ZTE announced it was no longer seeking to expand in Iran. “Due to local issues in Iran and its complicated relationship with the international community, ZTE has restricted its business practices in the country,” it said. ZTE Corp’s full-year profit fell 37% to CNY2.06 billion in 2011, from a restated CNY3.25 billion a year earlier. Research and development (R&D) costs rose to CNY8.5 billion from CNY7.1 billion a year earlier, ZTE said. The company posted a 48% drop in fourth-quarter net profit, the third straight quarter fall, dented by weak telecom spending in Europe and narrower margins on handset sales. Net profit slid to CNY991 million from CNY1.89 billion a year ago.

Lenovo is expected to more than double domestic sales of its smartphones in the next 12 months as it focuses on mid-priced handsets. The firm forecast to sell about 13 million smartphones in the year to next March, up from an estimated 6.2 million this year, according to a recent report by Bernstein Research. “Lenovo is betting big on mid-range smartphones in the USD100 to USD200 average selling price range, a segment we expect will see explosive growth,” Bernstein Research Senior Analyst Alberto Moel said. Lenovo’s mobile internet and digital home business unit contributed about USD570 million of the firm’s total USD8.4 billion revenue in the quarter to December. Chief Executive Yang Yuanqing said last month that he believed the mobile internet business would become a growth engine for the group. Lenovo’s competitors in the mid-rage smartphone market include Huawei Technologies, ZTE, Coolpad-maker Yulong Computer Telecommunication Scientific (Shenzhen), Shanghai-based SIM Technology, Beijing Tianyu Communication, TCL Communication, and new entrant Xiaomi Technology. “We estimate that the segment will grow from about 18 million units last year to 70 million units in 2016, accounting for most of the smartphone growth in China,” Moel said. “We forecast the total revenue in this segment will rise from about USD3 billion last year to over USD10 billion in 2016.” According to Strategy Analytics and Bernstein Research, 84 million smartphones were sold in China last year. Most handsets were priced between CNY1,200 and CNY1,900, with those in the premium range priced above CNY1,900. Nokia, Samsung and Apple remained China’s top-three smartphone brands last year, with a combined market share of about 60%, followed by ZTE and Huawei, with a combined 15% market share. Lenovo, which ranked 10th among the smartphone brands last year, sold most of its handsets through China Unicom. In the quarter to December, Lenovo sold 3 million smartphones and 3.5 million 2G phones, the South China Morning Post reports.

Australia has banned Chinese technology giant Huawei from bidding to help build a nationwide high-speed internet network. Australian Prime Minister Julia Gillard said the move was among “prudent decisions” to ensure the planned network functions properly. The company rejected suggestions it might be a security risk and said it had won the trust of global telecoms carriers. Huawei said it was disappointed at the decision. It has operated in Australia since 2004 and already works with the country’s major telecoms carriers. Australia plans to build a fiber-optic network to provide high-speed internet access to 90% of the country’s homes. Huawei said it is building similar networks in Britain, New Zealand, Singapore, Malaysia and other countries. Huawei has offered to limit all employees on the broadband project to security-cleared Australian citizens, open up its software code, and  undergo a full audit of security measures. The office of Australian Attorney General Nicola Roxon’ declined to comment on why Huawei was banned from bidding. It was not the first time Huawei was banned by a foreign government over alleged security concerns and its perceived ties with the military. In 2006, the company and its rival ZTE were banned by India from its lucrative markets on security grounds. Beijing eventually persuaded New Delhi to lift the restrictions. In 2010, Huawei announced a USD2 billion investment to set up its biggest overseas research and development center in India.

China will overtake the United States as the world’s largest e-commerce market next year, when its annual online sales hit CNY1.5 trillion, according to global consultancy Bain & Company. At that point, online sales in China would represent as much as 7% of the country’s total retail sales, versus a 3% share of the total last year. Growth in online sales would be fueled by an expected increase of more than 60% in the total number of online shoppers and a projected 40% or more surge in their spending, Bain said. Currently, consumer-to-consumer (C2C) shopping portals such as Taobao.com take 80% of China’s online market share, compared with the 20% by business-to-consumer (B2C) sites. “An explosive B2C growth is under way, fueling the expansion of China’s entire e-commerce industry,” said Serge Hoffmann, Partner at Bain and author of the report. “Many big traditional retail names are gearing up to seize the opportunity, including Wal-Mart,” which took a controlling stake in Shanghai-based shopping website Yihaodian.com. A survey conducted by Bain found that more and more Chinese shoppers are shifting online for the sake of convenience and variety, although price is still the primary motivator. Around 19% of 600 respondents said convenience was the most important reason for them to purchase goods on the internet, and 15% pointed to variety as the major reason. According to the survey, the most popular categories for first-time online buyers are electronics, apparel, and groceries. Around 40% of online shoppers in first- and second-tier cities plan to increase their spending this year. Nearly half of the respondents decide where to shop online largely based on word-of-mouth recommendations and search engine results. Despite increasing competition, Taobao.com is still one of the fast-growing players. The site is using its 370-million-user base to feed traffic to Tmall, its entry in the B2C market, which it hopes to build into China’s largest B2C site, the South China Morning Post reports.

Youku, China’ largest video site, is planning a merge with Tudou to establish a new company, Youku Tudou, based on a stock-for-stock transaction. Youku will have a 71.5% stake in the new company and Tudou will take the rest. The merger is expected to be completed in the third quarter of this year. Independent industry watcher Xie Wen said: “It is a clever move for both sides to reduce the cost of competition and further expand their advantages in the sector.” Victor Koo, Founder, Chairman and CEO of Youku, said: “Youku Tudou Inc will establish a clear and dominant leadership position in China’s online video sector and the combination will lead to improvement in the industry sector.” Koo will become CEO and Chairman of the new company, and Gary Wang, Founder, Chairman and CEO of Tudou, will take a position on the board. The merger is valued at USD1.04 billion, according to Thomson Reuters, making it the biggest Chinese internet deal by stock swap on record. The two sides have long engaged in conflicts over content. The merger will be a blow to smaller competitors in the market, including Sohu and Tencent’s video divisions. At the end of last year, Youku had a 21.8% share of the market and Tudou 13.7%, Analysys International said. Online video sites are still trying to turn a profit despite remarkable growth in advertising income. Both Youku and Tudou were still in the red as of the fourth quarter last year, the Shanghai Daily reports. Tudou reported a net loss of CNY511.2 million last year, and Youku reported a net loss of CNY172.1 million. Youku said its fourth-quarter net loss had widened 32% from the same period a year earlier to CNY49.6 million. Revenues doubled to CNY303.9 million in the quarter. On March 1, Tudou reported a CNY148.9 million net loss for the fourth quarter on a 70% jump in revenue. Last year, online video advertising revenues in China grew 123% to CNY4.84 billion, but the pace of growth is forecast to slow to 83.9% this year and to 33.6% in 2014, according to Analysys. Zhang Fan, Online Video Expert with Analysys, said: “The deal will hugely reduce the copyright cost pressure for them.” Tudou will retain its brand and separate website as its content and users differ from Youku. Tudou has a stronger focus on user-generated content and social networking, similar to YouTube, the Financial Times added. “But the merger is just the first step. They have similar user groups, but Tudou is more grass roots and has more self-generated content. They will have to deepen cooperation or the merger will be meaningless,” said Xie Wen, former Yahoo China President. The number of internet users who watch videos online reached 325 million as of December 31, according to the China Internet Network Information Center (CINIC).