Competition in China’s mobile market is coming
Data services fuel profit growth
The Hong Kong mobile services market has maintained its reputation as a liberalized, dynamic and highly competitive environment with five mobile operators and a large number of MVNOs. At the end of 2010, Hong Kong's mobile penetration hit a new record-high of 168%, currently the highest in Asia Pacific and among the highest in the world. With an approximate population of seven million, this represented 11.9 million active subscribers. 2.5G and 3G subscribers make up 52% of the total subscribers.
Hong Kong used to be a voice-centric market where voice was the strongest contributor to mobile operator revenues, contributing 72.7% of total revenues in 2009. However, we have seen a shift in behavior in Hong Kong in terms of data usage as a result of the launch of HSPA.
Competition in the saturated market has pushed the mobile phone voice rate to as low as HK$0.06 per minute ($0.0093), which is lower than other developed markets such as Singapore and Australia. Consequently, mobile broadband has become the new competitive area for most mobile operators. One of the key momentums in 2010 was the high growth of smartphone penetration. For example, smart device penetration for SmarTone has grown from 34% to 48%. As a result, data revenue (including fixed wireless) has grown 41% from 2009 and contributed 46% of the service revenue by end of 2010. The high demand of mobile data pushed ARPU up 7%-16% last year.
The growth of mobile data revenue and ARPU surpassed last year's Frost & Sullivan forecasts. Given the strong growth potential of mobile data, we believe data revenue will overtake voice as early as 2013 in this market for major operators like SmarTone, Hutchison and CSL.
3G spectrum in Hong Kong is ranked the highest cost per capital in APAC. As the focus shifted from mobile voice to mobile data, operators were forced to invest in capacity, networks and more bandwidth. In a recent spectrum auction, SmarTone and Hutchison paid a record price of $244 million for two blocks of 10-MHz spectrum in the 850-MHz band. The biggest winner of the spectrum war is CSL, which with 127.6 MHz of radio spectrum is the market leader.
Mobile operators in Hong Kong are also exploiting new technologies to meet the capacity demand driven by the exponential growth of mobile data traffic. The major 3G players all have HSPA+ networks. In November 2010 CSL launched the world's first commercial 1800/2600-MHz dual-cell HSPA+ /LTE network. This move reinforced CSL's technology leadership position. However, a lack of compatible LTE terminals is likely to undermine the impact to the market. But in the medium to long term, we believe its technology innovative strategy is going to pay off.
Hong Kong also has the highest MVNO penetration in Asia, with nine MVNO licenses. MVNOs have kept up with the pace of market growth. MVNOs account for around one million subscribers, 10% y-o-y growth from 2009. And MVNO subscribers account for 8% of the total subscriber base.
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