Telecom news from the Financial Times:
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WEDNESDAY DECEMBER 30 1998 Telecoms
Deregulation stirs up HK telecoms
Groups are jockeying for position as the territory's international direct dial market is opened to competition, writes Louise Lucas
With barely a week to go before one of Hong Kong's last big private monopolies is cracked open, activity and price cutting within the telecommunications sector is frenetic.
Local and international telecoms operators are jockeying for position ahead of January 1, when the territory's lucrative international direct dial (IDD) market is thrown open. Eager not to miss a trick, participants have been signing alliances, slashing tariffs and advertising heavily.
Alliances between global players have been signed by New T&T and New World Telephone.
These new alliances, the groups say, will enable them to deliver seamless services when they launch their international simple resales (ISR) services next year.
ISR, where operators lease and sell on existing capacity, is the first phase of Hong Kong's deregulation. From January 1, operators will be able to build their own infrastructure.
New T&T's partnership is with Global One - which groups Deutsche Telekom, France Telecom and Sprint of the US - and this will help it deliver calls by ISR. Overall costs to the company are set to fall by some 20 per cent, according to Stephen Ng, New T&T chairman.
Price cutting on mobile services has also come sharply into focus. Earlier this month, Hutchison Telecom, the biggest of Hongkong Telecom's rivals, slashed its mobile tariffs by 83 per cent. On the same day, SmarTone, the third biggest mobile operator, launched a new deal of 1,000 minutes for HK$388 (US$50) a month.
However at Hongkong Telecom the pace of change has been rather more sedate. IDD services last year accounted for just under half of total turnover.
Attempts to cut costs, already under way for a number of years, ran aground in September when the company's 13,500 employees balked at a proposed 10 per cent salary cut. A compromise to link the 13th money pay - a traditional although not obligatory "bonus" paid in Hong Kong - to profitability was also rejected by staff.
Efforts to expand other areas of profitability to replace IDD have also been problematic. Geographically, Hongkong Telecom has achieved little more than a whisper of a promise and a few consultancy-style deals in China, its natural expansion market.
Nor has it made any purchases in south-east Asia, despite signalling its intention to do so at the start of the region's financial crisis.
While British Telecommunications has scooped up significant stakes in LG of South Korea and Binariang of Malaysia, Hongkong Telecom only went as far as to acquire a Hong Kong-based mobile phone company. But that has shed subscribers since the acquisition.
Analysts attribute Hongkong Telecom's abortive acquisition trail to parent Cable and Wireless of the UK, which is loathe to see benefits of an acquisition accrue solely to its subsidiary.
Cable and Wireless set out stringent criteria for majority stakes in any acquisition, sought 50:50 partnerships and "basically restricted Hongkong Telecom from making any meaningful investments", says Dylan Tinker, regional telecoms analyst at Jardine Fleming Securities.
In contrast, Hongkong Telecom has taken more proactive strides in Hong Kong. The company's decision four years ago to create more broadband capacity - which can be used for more network-intensive services such as internet and TV - means 75 per cent of Hong Kong's 1.8m households are now wired up and ready to receive, among other future services, digital TV.
However, this forward planning has done little to boost short-term revenues. This year's pioneering launch of video-on-demand is unlikely to break even in the next two years, analysts say.
Indeed, as profits begin to flow from newer areas the pressures on traditional sectors will intensify.
Mobile phones are coming under renewed attack with the aggressive price-cutting measures announced by Hutchison and SmarTone. "They [Hongkong Telecom] face the same problem on mobile that they have on IDD: they have resisted lowering prices to gain market share, and now it's going to catch up with them," says Mr Tinker.
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