Hong Kong Telecommunications Report Q1 2008

During the quarter, OFTA awarded its fifth 3G licence to PCCW Mobile, and by doing so becomes the only operator in Hong Kong to deploy both GSM-based W-CDMA and CDMA2000 networks. This is likely to add to competition in the 3G sector, which has been building momentum for some time, with the majority of operators stating that their 2G postpaid subscribers are now migrating to 3G postpaid platforms. Leading the sector continues to be Hutchison, with its 3G customer base at the end of June 2007, representing 40% of its total mobile subscriber base, against 30% in the previous year. However, its share of the 3G sector has been falling over the last few years - an 80% share of the market at the end of 2005 was reduced to 65.8% by 2006, and by June 2007 it is thought that its market share accounted for 54.9%, equal to 878,000 3G subscribers; a sign of the intensifying competition.

Demand for additional bandwidth has also been on the rise, as operators seek to attract subscribers on to the networks through a range of internet VAS offerings. PCCW, the market leader across the broadband sector, has noted seeing an increase in demand from consumers for greater bandwidth capable of supporting data-heavy applications, which led to a 'healthy' revenue increase of 6% y-o-y to HKD2.214bn as of H107 in PCCW's local data services. According to the operator, this also resulted in a 45% y-o-y increase in bandwidths sold, which helped to offset the impact from price compression. Pricing for consumer broadband internet access products and services has largely stabilised over the period. PCCW has said that it will look to extend its transmission speeds of 1000Mb/s to as many households as possible, while also looking to introduce a 1250Mb/s service over its networks in order to provide faster broadband speeds during 2008. Over H107, the operator commented on local data revenues rising at a 'healthy pace' of 6% y-o-y to HKD2.214bn.

With the growing popularity of broadband services, demand for internet is expected to slowdown. We have revised our internet forecasts downwards to reflect this, with 3.77mn users reported in 2006. BMI expects growth over this year to rise by 2.1%, ending on 3.85mn, for a penetration rate of 53.4%, a figure that should rise to 58.2% by the end of our forecast period in 2012.