Hong Kong Telecommunications Report Q3 2008

Hong Kong's position in BMI's Business Environment Ratings fell two places to sixth position, on account of a significant change in its country risk score. Hong Kong registered higher than expected growth in goods exported in Q108, rising by 8.3% year-on-year (y-o-y), against 5.7% y-o-y in Q407.

Behind this growth were higher shipments to Europe and the emerging markets, in particular China due to its booming economic development and robust consumer demand. However, there are also downside risks to exports this year, with Hong Kong a key hub for re-exporting goods from Asia, in particular China, making it reliant on the industrialised nations of the West for much of its trade. In view of this, Hong Kong's external sector remains vulnerable to a slowdown in global growth this year, in particular the US; Hong Kong's second largest export market.

In terms of the country's telecoms growth outlook, there was very little change. OFTA, Hong Kong's telecoms regulatory body, announced there were 10.752mn mobile subscribers at the end of March 2008, representing 163,000 net additions over the quarter. Growth was led largely by developments occurring across the 3G sector, which represented 20.4% of the total in the first quarter of 2008. Leading the 3G market was Hutchison Telecom, which had 1.145mn subscribers or 52.1% market share. Despite its dominance, the operator has been losing market share over the years, with previous years seeing the operator boast a 3G market share of 65.8% in 2006 and 80% share in 2005. A major factor for this has been the emergence of greater competition, among which PCCW Mobile has emerged as a major contender.

PCCW Mobile became the country's only recipient of a CDMA2000 licence, complementing its WCDMA network. The operator provides both 3G technologies and is therefore expected to benefit. In June 2008, PCCW Mobile announced the award of a contract to Huawei Technologies to commence deployment of a CDMA2000 1x EV-DO Rev A network. Its choice of vendor was not only due to the competitive rate it offers compared to its peers, but also on account Huawei's long-established expertise in the CDMA market. The operator has not provided an estimated time frame for the completion of its CDMA network, but it is thought that this could be in late 2008 or possibly early 2009. BMI has for now not altered its 3G outlook, and we estimate that the market will achieve just under 4mn 3G subscribers in 2008, twice the number as reported in 2007. By the end of our forecast period in 2012, we estimate there to be 6.9mn 3G subscribers, representing a penetration rate of 91%.