Cellcos in post-3G era

Telecom Asia Staff
17 Mar 2009

With five mobile operators (four 3G operators and one 2G operator) servicing some seven million people and a stunning cellular penetration rate of 164%, Hong Kong is undisputedly one of the toughest markets in the world.

It is a highly competitive market characterized by continuing price competition, handset subsidies and the frequent introduction of innovative new services.

Overall, the market is dominated by 3G operators, with CSL/New World Mobility having the largest subscriber base of 2.6 million, followed by 3 Hong Kong, SmarTone-Vodafone and PCCW.

As of November 2008, Hong Kong had 2.7 million 3G users, accounting for 23% of the total 11.5 million mobile subscribers. This compared to two million 3G users in 2007. As 3G services pick up, cellcos also are experiencing encouraging growth in mobile data services (in terms of both revenues and usage), thanks to the launch of high-speed 3.5G services utilizing HSPA technology and the wide availability of new handsets that come with advanced features and applications.

Data revenues now contribute over 20% of operators' total revenues, as consumers enjoy faster and better quality video-streaming, downloading and web-browsing on mobile devices.

SmarTone-Vodafone, for instance, saw its data revenues accounting for 27% of total revenues for the six month ended December 31, of which two-thirds were generated from non-SMS multimedia services. 3 Hong Kong, the mobile arm of Hutchison Telecom, also saw its data revenue increasing to 21.2% during the quarter ended September, thanks to its high-profile launch of 3G iPhone in July, which also boosted its 3G adoption and sparked a series of price war on mobile data services.

While subscribers and mobile data usage on the way up, Hong Kong cellcos are under increased pressure to maintain profitability. For one, the financial crisis and economic uncertainties are expected to impact operators' bottom line and bring more challenges ahead. This is reflected by recent financial results of SmarTone-Vodafone, which saw its interim profit fall 68% year-on-year to HK$52 million ($6.7 million), due to lower roaming usage and continuing price competition. The company forecasts a further decline in business this year.

Moreover, the credit crunch has also affected the recent 4G spectrum auction (see story on right column).

Bart-Jan Sweers, analyst at Analysys Mason, said despite the achieved prices, the crunch has impacted the lending capability of operators, which in turn may explain the lack of interest from foreign bidders and the consortium formed by competitors Hutchison and PCCW.

While Hong Kong cellcos will be more cautious on their capex, they will continue to upgrade their networks with higher data speeds and increased capacity to meet increased spectrum demand brought bye strong growth in mobile data services. SmarTone, for instance, will upgrade its network speed to 28 Mbps by mid-2009.

4G auction was 'expensive'

CSL, the most aggressive player in the recent bidding, admitted that recent auction of 4G LTE spectrum was 'expensive by international standards', but does not believe it overpaid.

In late January the Hong Kong government raised HK$1.5 billion ($193 million) from its sale of 2.6-GHz frequencies. CSL spent HK$524 million ($67.4 million) for paired 15-MHz LTE spectrum, while China Mobile Hong Kong paid HK$519 million and Genius Brand, a joint venture between Hutchison Mobile and PCCW, paid $498 million.

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