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Hong Kong’s fixed incumbent PCCW re-entered the mobile market - after leaving three years ago - by purchasing 60 percent of Sunday Communications. This is significant step towards achieving PCCW’s eventual ambitions to be the first-to-market with a converged, fully IP-based platform in Hong Kong and offering a “Quadruple Play” of fixed-voice, mobile-voice, broadband and IPTV service. This move towards offering mobility on top of its triple play bundle reflects further consolidation in the communications market and offers several opportunities for convergence vendors as other competitors move to catch-up.
Sunday Communications is not only the smallest of the four 3G licensees in Hong Kong, but it is also the smallest mobile operator with about 10% market share. Yet, its size may have been the largest attraction to PCCW, who will likely expand its own NOW brand to include mobility. The relatively weak brand recognition of Sunday will help PCCW as it moves mobile services under the NOW brand. Another benefit of PCCW’s purchase is the ability to roll-out 3G services now and not have to wait for WiMax and other fixed-mobile technologies. At US$1.16bn, PCCW was able to enter the mobile segment without having to spend an expected CAPEX at almost US$2.5bn in incremental amounts through 2014.
Re-entering the mobile market is a strategic imperative for PCCW. As triple play services in Hong Kong become more common, PCCW’s NOW Broadband TV service’s triple play offering must increase to further differentiate itself from the competition. With this acquisition, PCCW will be able to bundle mobile services withs its NOW service, and its Quadruple Play offering will once again be a first-to-market service. The rapid speed of innovation will boost PCCW’s image, much like Japan’s Yahoo! BB and Spain’s Telefonica Group first-to-market services improved the brand and kept revenues high.
In Japan, Yahoo! BB offered new services at an average rate of three per year, reinforcing customers’ perception that Yahoo! BB is on the front-end of technology and thus providing the much sought after value proposition. In effect, Yahoo! BB’s success lies in its ability to limit revenue erosion in a mature market by its constant renewal process. For PCCW, instead of new services being introduced regularly, it can reinforce a first-move advantage by bundling mobile services together with its already successful NOW brand service of voice, broadband access and broadband TV. Through bundling, customer churn is reduced and the ability to cross subsidize different service segments will provide PCCW with additional weaponry to target niche customers.
The convergence equipment opportunity will be led by PCCW as it has already announced its plans for migration to a full IP network. Convergence will likely gain momentum, especially when the regulatory body, OFTA, introduces a Fixed-Mobile convergence framework in the near future. What is also interesting is convergence vendor opportunities are not merely limited to IP based vendors. Other triple play providers, such as Hutchison/Galaxy and I-Cable, will be looking at the benefits of fiber to meet its service demands. This change in downstream market allows vendors to look for opportunities in a matured market, where the focus will now turn to efficiency gains in network operations.
The full text of this article is available as part of Pyramid Research’s Asia-Pacific Perspective publication available in our online store.
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