HONG KONG -(Dow Jones)- High-speed mobile technology has failed to win enough fans nearly one year after its Hong Kong launch, but that may change in coming months when sole 3G operator Hutchison Whampoa Ltd. (0013.HK) will face competition from two newcomers.
But while raising the popularity of 3G with attractive pricing and packaging, newcomers will also have to deal with a probable dent in earnings as the result of price competition and the continued dominance of existing technologies, analysts said.
"The build out of third generation networks could increase competition," John Bailey, a Standard & Poor's director for corporate & infrastructure ratings said.
"Although Hong Kong aggressively adopts new technology, operators are expected to use tactics such as heavy tariff discounts and subsidized handsets to attract customers, which could affect profitability," Bailey added.
So far, Hutchison Whampoa Ltd.'s (0013.HK) Hutchison 3 Hong Kong is the only 3G service provider in Hong Kong with 124,000 subscribers at the end of July and is still losing money. SmarTone Telecommunications Holdings (0315.HK) is expected to launch its 3G service by the end of the year, and Sunday Communications Ltd. (SDAY), the smallest mobile operator here, will roll out the service in early 2005.
Some 7.7 million people subscribe to mobile services in Hong Kong, representing a penetration rate of 113%. They are served by six mobile network operators, of which four own 3G licenses.
Hutchison has the largest number of subscriber base, serving about a quarter of Hong Kong's population, trailed by SmarTone and Hong Kong CSL Ltd., who vie for the second position.
"It is almost certain that SmarTone and Sunday will see their profit decline next year because of increased 3G spending, both on the network and on pricing competition," Allan Ng, BOCI analyst said.
DBS Vickers analyst Wallace Cheung agrees.
He expects Sunday to slip into losses in 2005 from a projected net profit of HK$28 million this year. For SmarTone, net profit is expected to fall 15% in fiscal year ending June 30, 2005 to HK$400 million and a further 6% in fiscal year ending June 30, 2006.
"When SmarTone and others come online with 3G services, there will be more competition, better pricing, better choices... and this (3G) may in fact take off," Keith Lee, a partner at Preston Gates Ellis, who specializes in the telecommunications sector.
But the 3G operators won't only compete among themselves. The somewhat unstable service with occasional glitches has limitations of its own - like a limited number of handset choices - and competes with other types of advanced high-speed technologies like easily accessible internet broadband services.
Last year, the delayed launch of Hutchison's 3G network was blamed on the late delivery of handsets.
While there is no shortage of 3G handsets in the market now, the lack of variety and appealing appearances is keeping consumers away. 3 Hong Kong currently offers less than 10 models of 3G-enabled handsets, compared with several dozens of 2G and 2.5G handsets available in the market.
Gartner telecom analyst Marcus Sigurdsson said as the majority of mobile phone users buy the service for voice and not data applications that require the more bulky 3G devices, handset appearance is an important factor in driving demand.
"There is no difference for people whose main focus is on voice to use 3G as opposed to 2G and 2.5G. Why would I want a bulky phone when I just want to talk on the phone?" the analyst said.
Apart from voice service 3G also allows users to do video-conferencing, download data and watch live entertainment and news programs.
But the easy and economic accessibility of broadband services in Hong Kong is a major deterrent for consumers considering a subscription to 3G, which charges by the minute for services like downloading data.
Hong Kong has a broadband penetration rate of 55%. Monthly broadband service subscription without time limits costs less than HK$200.
Moreover, Wi-fi, or Wireless Fidelity, a wireless technology that enables Internet connection through a laptop within a the range of a station or hotspot, is common in Hong Kong.
"Why would you as a consumer in an advanced market with a zillion other choices for chatting, interacting and downloading, willingly subscribe to a service that tries to charge you a premium for access to content, when the nearest broadband point, the nearest wi-fi enabled cafe is at most a dozen yards away," said Ross O'Brien, managing director of consulting firm Intercedent Asia Hong Kong.
Observers generally hold different views about the ultimate fate of 3G.
Some believe that 3G is a technology evolution that consumers will adopt in a matter of time, while others think that the technology will coexist with 2G and 2.5G, serving a segment of the market.
"I don't think not adopting 3G is to say that we are technologically behind; I think it is a question of which technology we adopt better to," Preston's Lee said.
For his part, SmarTone executive director Patrick Chan believes several driving factors will help increase the popularity of 3G services among customers, such as network technology maturity, compelling services that meet real customer needs and easy-to-use handsets with quality cameras and screens.
"The mobile industry also has to make a sustained effort in educating customers on the benefits and values that multimedia services, in particular the 3G environment, can bring," he wrote in an e-mail. "SmarTone sees a promising future for mobile multimedia services."
Sunday Communications Group Managing Director Bruce Hicks said new 3G handset models that will come into the market in the next six to nine months, an important factor for the success of the company's 3G launch.
"(Just like) There's the point of time when most people are starting to demand broadband instead of dial-up connections, there's going to be a point of time when people are going to demand 3G technology and not 2G. That's not far away," Hicks said.
-By Julie Wang, Dow Jones Newswires; 852-2802-7002; julie.wang@dowjones.com
-Edited by Costas Paris
(END) Dow Jones Newswires "
Posted to the site on 20th October 2004
Posted to: www.cellular-news.com/story/11204.php