Analysis: telecommunications
subscriber offerings.
“In 2016, we expect
competition in the residential
broadband market to remain
intense,” says Tsz Wang Tam,
equity research analyst at DBS.
Tam reckons residential
broadband subscribers in
Hong Kong will grow this
year due to an increase in the
number of households, and
telecommunications giants
will be racing to rope them
in. HKBN, with its aggressive
pricing strategies, is poised
to dominate the market
share growth game. The
telecommunications firm should
continue to offer cheaper deals
than its competitors, which has
allowed it to almost double its
market share to around 29%
in 2015 from 16% in 2008 to
become the second largest
residential broadband operator
in Hong Kong.
Hong Kong’s telcos are slugging it out to gain subscribers
Clash of telco titans: Price
war heats up in Hong Kong
New alliances will be forged and battle lines drawn as competition in the
Hong Kong telecommunications sector remains heated.
T
he gloves will come off
this year, if they have not
already, as Hong Kong
telecommunications companies
look to beat down their rivals
while subscribers look on in
glee. Some operators will be
recruiting allies through cunning
cooperation agreements, while
others will be doling out a barrage
of specially packaged services in
attempt to overwhelm opponents
and impress the subscriber
crowds. If anything, it may be
the subscribers that emerge
victorious in this intensifying
telecommunications scuffle with
analysts anticipating lower-priced,
better-valued broadband and
mobile offers.
Residential broadband brawl
This year, one of the most
contentious arenas in Hong Kong
24 HONG KONG BUSINESS | MAY 2016
As of the first
half of 2015,
HKT still led
the residential
broadband
market with a
55% share, with
HKBN trailing
in second, and
HT and iCable
placing third
and fourth with
9% and 7%
market share,
respectively.
telecommunications will be in
residential broadband. The likes
of Hong Kong Broadband Limited
Network (HKBN) Limited will
continue to wield lower pricing
as a preferred weapon of choice
to cull customers away from
rivals. There will also be a slew
of cooperations between players
that will produce more attractive
Luring customers
As of the first half of 2015, HKT
still led the residential broadband
market with a 55% share, with
HKBN trailing in second, and
HT and iCable placing third and
fourth with 9% and 7% market
share, respectively.
“It strategically offers deep
discounts to lure subs away from
competitors from time to time.
Upon contract renewal, it raises
the tariff back to normal level
which is still lower than that of
its major competitor Hong Kong
Telecommunications (HKT)
Limited,” says Tam of HKBN’s
low-price advantage.
“The incumbent operator HKT
Hong Kong residential broadband market share (1H15)
Source: HKT, HKBN, HT, i-Cable, DBS Vickers
Analysis: telecommunications
focuses on stable profitability and
cash flow, and therefore has less
flexibility to undercut HKBN’s
pricing,” he adds.
HKBN will also gain market
share momentum from its
cooperation with Letv, drawing
in fans from HKT broadband and
NOW TV service package users.
More of such cooperations should
enter the pipeline now that players
have seen their value.
“We expect to see more
cooperations between fixed-line
players and over-the-top (OTT)
multi-media content providers,
providing alternatives for existing
pay-TV and broadband users.
HKBN, a pure broadband operator,
is likely to benefit from gaining
market share from existing
integrated players such as HKT and
i-Cable in the next few years,” says
Tam. HKBN expects its subscriber
growth to be concentrated in
the second half of 2016 during
which its partnership with Letv on
English Premier League content
becomes more relevant as the next
football season starts, says Wen
Du, analyst at Barclays after an
analyst briefing.
Surging subscribers
In fact, HKBN management
forecasts a doubling of its
subscriber additions to around
120,000 in 2016, up from 62,000
net adds in 2015 and 32,000 in
2014, mainly due to the Letv
collaboration. Tam says HKBN
is in talks with other local and
foreign OTT multi-media
content providers in addition
to the cooperation with Letv.
Other players are also exploring
HK telcos- residential broadband
subscriber share (%)
Source: OFCA, Company data, Barclays Research
HKBN
management
forecasts a
doubling of
its subscriber
additions to
around 120,000
in 2016, up from
62,000 net adds
in 2015.
Industry Trends - Mobile (2012-2019)
Source: Operators, BMI
cooperations. Late last year,
Hutchison Telecom (HT) signed
a memorandum of understanding
with Letv that will enable more
collaboration between the
two companies. Tam reckons
HT’s 3Home Broadband wll be
another platform to distribute
Letv’s services, including the EPL
broadcasting, and products.
Also, Netflix launched its
multimedia content service in
Hong Kong last January as part of
a larger global expansion, and Tam
believes the popular provider of
streaming movies and TV shows
will partner with local fixed-line
operators to distribute its service.
Eventually the type of
collaborations in the Hong Kong
telecommunications sector will
become more diverse and complex.
“We expect cooperations to
grow beyond simple distribution
between fixed-line operators
and OTT players,” says Tam, and
identified online shopping, content
production and payment service as
prime targets for collaboration.
advantage and will help it maintain
its market positions of over 50% in
both the broadband and fixedline segments, says Gloria Tsuen,
analyst at Moody’s Investors
Service.
“HKT Limited’s broadband
service will continue to benefit
from PCCW’s IPTV service as
the latter will give customers a
strong incentive to subscribe
to its broadband service, while
HKT Limited’s broadband service
provides PCCW’s IPTV business
with direct access to customers,”
says Tsuen. In the same vein,
Tsuen reckons HKT Limited is
well positioned to take advantage
of the growth in smartphone and
tablet users, given the integration
of its mobile and Wi­Fi wireless
platforms with the fiber­based fixed
broadband networks. “Its backhaul
capacity in the broadband business
will allow the company to deal
with the rising demand for data
from mobile users and control its
capital expenditure effectively,” she
says.
Relying on sheer size
While HKBN basks in the
boons of its Letv cooperation
and hounds HKT through its
aggressive pricing, the incumbent
residential broadband market
leader will rely on its sheer size
and synergistic offerings to keep
competitors at bay. Together
with PCCW, HKT Limited is
the only telecommunications
operator that can offer fixed­line
voice, broadband, mobile and
IPTV services, which gives HKT
Limited a significant competitive
Mobile market saturation
While price wars will flare up
in the Hong Kong residential
broadband market, the mobile
market will be marred with a more
pronounced subscriber drought.
BMI Research have downgraded
their mobile sector outlook, given
the high mobile market saturation
and decline in total subscriber
numbers in 2015. It further notes
that the contraction in the prepaid
market, which had been expanding
until early 2015, highlights the
over-penetrated market.
HONG KONG BUSINESS | MAY 2016 25