BMI View: Mobile market growth stalled in 2014 and consequently BMI does not believe that there is much scope for organic growth i n the Hong Kong mobile market. However, the recent spectrum auction will boost 4G usage as data usage is expected to be one of the key drivers for Hong Kong's telecoms sector over the next few years. This is also likely to reflect on the increasing revenues of the operators. The Hong Kong government is actively promoting the territory as a regional hub for data centres, and BMI believes Hong Kong has the right characteristics to attract data centre investments .
Latest data from the OFCA showed there were 17.372mn mobile subscribers at the end of 2014, up 1.0% over the year. We forecast 18.889mn mobile subscribers by the end of our five-year forecast in 2019, a 251.7% penetration rate.
Based on full year data from the regulator for broadband subscribers, we forecast the number of broadband internet subscriptions to reach 2.665mn by 2019, a 35.5% penetration rate.
Hong Kong remains in fourth position in BMI's Asia Pacific Telecoms Risk/Reward Index, with a telecoms rating score of 62.6, slightly lower than the previous quarter.
Key Trends And Developments
BMI's forecasts that China Mobile will secure the lion's share of the 1,900-2,100MHz spectrum at auction in late 2014 came true. China Mobile purchased two lots of 2.1 GHz spectrum in December 2014. However, purchasing two blocks instead of three indicates that China Mobile does not seek to aggressively expand its 3G market share and thus will not look to aggressively cut prices for 3G when it acquires 2.1GHz spectrum in 2016. The additional resources would help it to improve its quality of service by augmenting its 4G hybrid network and gain market share. SmarTone and Hutchison Telephone Company Limited (HTCL) also acquired some spectrum. Hutchinson and SmarTone have commented that they plan to refarm their acquired 2,100MHz spectrum for 4G purposes
In May 2014, Hong Kong Telecom (HKT) finalised a USD2.245bn deal to reacquire mobile network operator CSL, which makes the incumbent the clear leader in Hong Kong's highly competitive and saturated market and augments its ability to offer comprehensive converged fixed-mobile services to consumers and businesses. HKT's principal shareholder, PCCW Ltd, was expected to hold a market share of around 31% out of a total subscription base of 17.445mn post-acquisition. The deal was approved by the regulator Office of the Communications Authority (OFCA) in May 2014 on condition that the merged entity divests a total of 29.6MHz of their combined 3G spectrum, not by renewing the assignment of and not bidding for additional spectrum that is due to be auctioned in October 2016.
The PCCW-owned incumbent telephone company will launch its NETVIGATOR 10G passive optical network (PON) service to selected customers under a pilot scheme beginning early in 2015; a commercial launch is expected by Q315. Services will be delivered over the operator's extensive fibre-to-the-home (FTTH) network, which had 504,000 subscribers at the end of 2014, or 32% of a total broadband user base of 1.567mn. BMI considers HKT's deployment of 10Gbps broadband services to be motivated by the desire to increase the monetisation opportunities within a relatively small user base that has ceased to grow. With higher speeds, the operator can demand higher prices and justify its investment in infrastructure and digital content. The increased threat posed by rival HKBN and OTT applications is a further driver.