2008 Asia - Telecoms, Mobile and Broadband in Hong Kong and Macau

Hong Kong, a Special Administrative Region (SAR) of China, takes pride in the way it has built one of the most sophisticated telecommunications markets in the world. Hong Kong’s regulator, the Office of the Telecommunications Authority, has played a major role in developing the telecom sector. The country has put in place substantial infrastructure which supports one of the world’s highest penetrations of mobile phones and telephone services. For the country overview, see chapter 1, page 1.

By early 2008, the territory had more than 3.8 million fixed telephone lines in service, giving a 95% fixed-line household penetration rate and 53% fixed-line population penetration rate, among the highest in Asia as well as in the world. As a result of open competition in the local FTNS market and government’s withdrawal of its mandatory Type II interconnection policy, over 80% of residential households are able to enjoy an alternative choice of local fixed network operators. Furthermore, PCCW has a universal service obligation to provide a continuous basic service, including the provision of public switched voice telephone services anywhere in Hong Kong in a reasonable period of time.

Hong Kong has moved quickly in providing around 75% of all households with access to broadband connectivity. This has been accompanied by rapid growth in the Internet market. Broadband Internet subscriptions well and truly surpassed dial-up subscriptions by end-2005. There were in excess of 4.8 million Internet users in the territory, gaining access using either dial-up or broadband, going into 2008. The number of broadband subscribers represented about 67% of the total Internet subscriber base, supported by a large number of ISPs. By December 2007, according to OFTA, Hong Kong’s Internet subscriber base consisted of 1.88 million broadband subscribers and 960,000 dial-up subscribers. Broadband ARPU levels were increasing, as operators benefited from lower churn and higher revenue due to good quality content. For more information, see chapter 1.6, page 35

Going into 2008, based on OFTA data, there were an amazing 10.588 million mobile subscribers, representing an impressive penetration of over 152%. This included over 2.7 million 2.5G and 3G subscribers. This penetration level puts Hong Kong in a tussle with Macau for first place in the Asian mobile market (both now well ahead of previous leader, Taiwan). This is remarkable considering that Hong Kong not only has the highest density of fixed telephone lines in the region but also that local calls on the fixed network are free. An ongoing price war cut mobile phone air-time rates to levels where operators became increasingly reliant on provision of non-voice value-added services to maintain margins; this, in turn, made 2.5G and 3G services of considerable importance.

Macau, a SAR of China, remains very low profile compared with its bustling sister SAR, Hong Kong. It has however quietly built itself a strong modern telecoms infrastructure. While fixed lines reached an effective saturation point a few years ago, the country’s mobile market has been growing strongly and had become one of the most highly penetrated in the world - 151% by the start of 2008. Macau has been busy adopting the Internet and by January 2008, over 94% of all Internet subscriptions were broadband based, mainly using DSL. For the country overview, see chapter 2, page 92.

Key highlights:

• In October 2007 OFTA awarded a 15-year licence to PCCW for the CDMA2000 licence in the 850MHz band. PCCW can provide CDMA 2000 services after 20 November 2008, and will construct the new network during the intervening period.
• After being awarded a 3G licence for WCDMA in 2006, in October 2007 Hutchison (Macau) launched its 3G network deploying WCDMA technology to roll out a 3.6Mb/s HSDPA broadband network. For more information, see chapter 2.10.3.2, page 102.
• In June 2007 China Unicom won a licence to provide services based on the alternative 3G standard CDMA2000 1x EV-DO. The company launched its 3G network in Macau in October 2007.
• In November 2007 HKBN began deploying what it claims to be Hong Kong’s first Gigabit Passive Optical Network. HKBN claimed it had turned traditionally cost prohibitive FttH technology into affordable mass-deployed residential service at a HK$48.50 service fee for its 100Mb/s service, progressing to HK$215 1Gb/s.
• In December 2007 the Telecommunications Authority announced the decision to auction spectrum for the provision of broadband wireless access services in the 2.3-2.4GHz and the 2.5-2.69GHz band by October 2008. Operators are expected to launch services in 2009.
• In a densely packed market that has an estimated 2.3 million TV households, PCCW ended 2007 with 882,000 video subscribers in Hong Kong with a paying base of 628,000. That still put it within striking range of i-Cable, which closed 2007 with 882,000 video subscribers. Besides losing its historic market share edge, i-Cable may also start shedding subscribers. This has PCCW stealing away cable customers in a highly competitive market considered one of the most mature and saturated in the world. For more information, see chapter 1.8, page 55.

Hong Kong Internet, broadband, and telecoms statistics – 2002 - 2007

(Source: BuddeComm based on OFTA, ITU, Point Topic data)

For those needing high level strategic analysis and objective analysis on Hong Kong and Macau, this report is essential reading and provides further information on:

• Updated rules by OFTA governing USF payments for the provision of basic telephone service. PCCW, the only universal service provider, has been compensated under the universal service contribution scheme for the net cost of providing universal service to unprofitable customers. Under the new rules, the compensation can now be shared by telecoms service providers who meet certain criteria. The authority also updated the methodology for calculating the universal service cost. The changes took effect from July 2007.
• An expectation that TD-SCDMA mobile technology developed in China will eventually enter Hong Kong’s market once the Chinese government awards 3G licences. However, TD-SCDMA will face strong competition from other technologies in such mature markets as Hong Kong.
• Approval by the Hong Kong Legislative Council for a multi-million program to provide wireless Internet services in government premises for improving Internet services. Under the program, WiFi facilities are to be set up at about 350 government premises for free use by the public, and will complement other WiFi initiatives in the private sector. There were over 6,500 public WiFi access points by March 2008.
• The announcement of an operational merger between Pacific Internet Hong Kong and Asia Netcom in January 2008.
• HTIL’s completed sale in May 2007, of its 67% stake in Hutchison Essar Ltd in India to UK-based Vodafone Group PLC, thus ending HTIL’s participation in the Indian market.

Data in this report is the latest available at the time of preparation and may not be for the current year.