The Asian New Economy - Hongkong's 3G
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By JULIE SILBERGER
WASHINGTON, Oct. 18 (UPI) --
When Hong Kong recently held its auction of next-generation wireless licenses, only four telecom companies put in bids -- causing the government to cancel the auction. As a result, the four bidders will get the licenses at a pre-set price for use of the 3G radio spectrum, which is modest by world telecom standards.
The poor showing in Hong Kong followed on the failed auction in Singapore this April, and is widely interpreted as a sign of disillusionment with the potential for third-generation wireless services. Telecom companies in Asia are not going to repeat the mistakes made in Europe, where the industry paid a total of $100 billion in 2000. For the price of 3G licenses, European telecom companies took on huge debt burdens from which some may never recover.
But the low cost of 3G licenses in Asia may be the key factor that promotes success of third-generation wireless in the region. In Hong Kong, the total cost of the four 15-year licenses is estimated at between $250-350 million, or $35-$55 per capita, according to the Wall Street Journal. In Singapore, telecom companies paid about $41 per capita. Contrast this with the U.K. auctions at $32 billion, ($540 per capita); and Germany's auctions at $44 billion ($535 per capita). At these prices, the economics of providing 3G services in Asia are starting to look pretty good.
While third-generation services in Hong Kong are not expected to be launched until 2004 at the earliest, an important issue for carriers will be the cost of building the requisite networks. Of the four license-holders (CSL, Hutchison, SmarTone and Sunday), the smaller two (SmarTone and Sunday) may lack the resources to build networks on their own, and may be forced to partner or consolidate.
Carrier SmarTone has estimated that it will spend at least $200 million over three years to build 3G networks, and expects to break even in 2009. SmarTone is number three in Hong Kong, with about 18 percent of the local wireless market. But the company continues to post a loss on its core wireless business, and shareholder BT (with 20.5 percent of the company) is said to be shopping for another large shareholder to ante up or acquire its stake.
Sunday is number five in the Hong Kong wireless market, with about a 9 percent market share. The company is growing fast, with a successful brand aimed at Hong Kong's youth. It has large ambitions for 3G, expecting to spend about $200 million over a 3-4 year period. But Sunday's annual revenues are projected at about $300 million, and it has barely reached profitability. The company maintains that its cash reserves (and credit line) will be enough to make the investment.
The other two carriers (CSL and Hutchison) share over 50 percent of the Hong Kong wireless market, and they will spend more money, and build networks faster than the two smaller players. They also have plenty of internal funding. Hong Kong CSL is backed by joint venture parents Pacific Century CyberWorks and Australia's Telstra. Hutchison 3G HK Ltd. is a subsidiary of Hutchison Whampoa and is 25 percent owned by Japan's NTT DoCoMo.
Backing from NTT DoCoMo may be a critical advantage for Hutchison, as the Japanese carrier has already been hugely successful in its own country, with its wireless-data iMode service. NTT DoCoMo has just rolled out a trial launch of iMode in 3G, and the results will be closely watched by carriers worldwide. Success of 3G in Japan would put NTT DoCoMo in a strong position to be able to roll out similar services in other countries. And Hong Kong is already a receptive market for Japanese pop culture and consumer gadgets, particularly among trend-conscious youth.
Hong Kong is currently among the top two or three countries worldwide in use of wireless technology. An estimated 80 percent of the population owns a cell-phone. And with average incomes in the range of most first-world countries, the consumer can afford to upgrade. The question is: upgrade to what?
The six mobile phone companies vying for market share in Hong Kong are starting to offer value-added services like simple SMS text messaging and GPRS. Some analysts are predicting that SMS will be the next money-maker for phone companies in Hong Kong, and the bridge technology to prepare consumers for the eventual adoption of 3G. But SMS has been most successful in third-world countries like China or the Philippines, as a cheaper alternative to voice and Internet access. In Hong Kong, price is less of an issue, though the ability to transmit data remotely is catching on in a society that is highly receptive to new technology. The extent to which SMS becomes popular on will partly depend on whether the six carriers will allow data to be exchanged over each others' networks. Currently they are not sharing.
Many of the wireless carriers in Hong Kong are investing in GPRS (also known as 2.5G), enabling mobile phones to download Internet content to the Palm Pilot, and to send messages charged by "packet" of data, rather than by time. But GPRS technology is cumbersome relative to the promise of what 3rd Generation can offer. And if 3G is just a few years away, it is questionable whether consumers will be willing to upgrade en masse to a technology that will quickly become obsolete. 2.5G looks like more of a reality in the United States or Europe, where the costs of 3G licenses and networks are still prohibitive. In Hong Kong (and indeed the rest of Asia) this will be less of an issue.
With the telecom industry caught in a global economic slump, there is much skepticism about the over-hyped promise of 3G. And indeed there remain some major barriers today in the technology for handsets, and in lowering the cost of complex file transmission, like music over the Internet. But if these barriers can be overcome in Japan, it will be only a short time before countries like Hong Kong, Singapore and Korea will follow suit. Third generation will succeed in Asia before it succeeds anywhere else.
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The Asian New Economy is a biweekly feature that examines trends in the New Economy in relation to Asia, which because of its population is potentially of enormous importance for the tech world as a whole. Julie Silberger is an expert on the Asian economy, and is Marketing Director of UPI.
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