HONG KONG—The Hong Kong mobile market is set for a transformation, with four third-generation (3G) mobile virtual network operators (MVNOs) established, based on the requirements of Hong Kong’s four 3G license holders. The first 3G MVNO services are set to begin at the end of 2002.
China Unicom, the mainland’s second-largest mobile operator, has concerned local operators by becoming an MVNO, but a spokesman calmed fears by explaining that the purpose is not to compete in the local market, but to provide better roaming services between Hong Kong and China.
However, ABN Amro telecom analyst Joe Locke estimated that roaming alone could represent up to 10 percent of mobile revenues, adding: “It would be bad news for local mobile operators if China Unicom aggressively pursued business in Hong Kong.”
This is unlikely, as Hong Kong is a small market by Chinese standards, added Locke.
Trident Telecom Ventures, a new company set up by local telecom executive Francis Wong, was the first to get an MVNO license and already offers GSM services using real-time billing against prepaid services. The basic service includes caller identification (ID), unified messaging, and e-mail, with no extra charges, on unregistered accounts. Trident runs a Mobile Intelligent Network to the CAMEL Phase 2 European Telecommunications Standards Institute (ETSI) standardand owns network elements such as a mobile switch, home location register and short message service (SMS) center.
Trident plans to provide co-branded services to market segments, such as ethnic and foreign operators, and has already signed an agreement with the Trade Development Council to provide mobile phones to Hong Kong’s 13 million annual visitors, especially the 400,000 who attend exhibitions and conferences.
Shell Hong Kong signed a 50:50 joint venture deal with 3G licensee Sunday Communications to introduce a mobile-phone service aimed primarily at the motoring market. Shell is the only MVNO so far that has announced the carrier from which it is leasing service. The government does not require MVNOs to declare from which operators they buy capacity.
Shell owns 60 gas stations in Hong Kong. “We are very impressed by Shell’s … vision of offering tailored mobile communications services to motorists. Our partnership with Shell provides a great deal of synergy to Sunday’s commitment to deliver innovative and competitive wireless communications services,” said Bruce Hicks, Sunday’s group managing director.
The fourth MVNO is China Motion Telecom, a diversified Hong Kong-based company with strong Chinese connections, with assets that include a large regional backbone network, expertise in unified messaging services, and hundreds of telecom shops in China and Hong Kong. This company has signed a memorandum of understanding (MOU) with Ericsson to provide a turnkey solution from back end to handsets, with the capability to provide a broad variety of services.
Completion of 3G auctions
The MVNOs are launching based on 3G license requirements imposed by telecom regulator Office of the Telecommunications Authority (OFTA), which awarded four 3G licenses in October, all to existing second-generation (2G) operators—Hutchison, SmarTone, Hong Kong CSL and Sunday. OFTA’s complex hybrid licensing scheme, comprising prequalification plus a multi-stage auction based on royalty percentages, was devised when 3G seemed like a license to print money. During the actual event, it all seemed like absurd overkill, with only four applicants for the four licenses offered. The auction, a couple of weeks after 11 September, 2001, simply confirmed that operators would pay the minimum 5-percent revenue as royalties.
Each licensee was given two paired bands of 14.8 megahertz and one unpaired band of 5 megahertz in the 1900 MHz to 2200 MHz range. At the third-phase auction, the four companies’ bids summed between US$1,280 and US$307,680 for the benefit of selecting their preferred frequency bands, and the winner was Hutchison 3G HK, followed by Hong Kong CSL, SmarTone 3G, and Sunday.
The 3G licensees must make between 30 percent and 50 percent of their capacity available to non-affiliated MVNOs.
The applicants were supposed to arrange with their banks to provide performance bonds in respect of the next five years’ minimum royalty payments, which have been set at US$6.41 million yearly for each operator. Sunday did not provide a performance bond in time, but offered instead a cash payment of US$32 million to cover the spectrum use fee for the first five years after licensing.
The government made it clear that maximizing revenue is not the aim of issuing the four licenses, but the total yield expected over the 15-year life of the licenses, at current value, is expected to be about US$243.6 million.
An extension of three years has been granted to the three existing companies operating in the 800 MHz to 900 MHz range. This brings the expiry of their licenses close to the 2006 expiry date of the country’s personal communications services (PCS) licenses that operate in the 1.7 GHz to 1.9 GHz range. An industry consultation will be held around 2004 to 2005 to determine arrangements for 2G licenses after they expire.
Hutchison’s investment in 3G licenses dwarfs its Hong Kong competitors. The company has spent about HK$50 billion (US$6.41 billion) on its European 3G licenses, and it has about 4,000 people working on 3G networks, more than half in the United Kingdom, plus 1,000 in Italy and several hundred in Hong Kong. Handsets, infrastructure, systems integration and content applications are all under trial. The company plans to launch a 3G network in the United Kingdom in the fourth quarter of 2002, closely followed by Italy and then Hong Kong.
Hutchison shares fell by more than a quarter over the year to February, due to skepticism about whether 3G returns could justify the large investment. However, Hutchison’s credibility is boosted by DoCoMo’s 25.37-percent stake in the operator, especially as DoCoMo, after its i-mode triumph and early 3G launch in Tokyo, is said to be currently targeting Asian markets.
Sunday announced an innovative tariff plan beginning last December in which customers would have to pay for calls from the beginning of a ringing tone. OFTA jumped on the operator, and the tariff was promptly cancelled.
Most Asians love short messaging services (SMS), but Hong Kong had been a black spot, with operators failing to agree on interoperability standards. On 3December, all six 2G operators, facilitated by OFTA, launched a long-awaited interoperator SMS offering. The six mobile operators saw SMS text traffic soar to a peak of 770,000 messages per day during the Christmas holiday.
Unfortunately, SMS is still not cheap. According to Yossi Shabat, vice president of Comverse, which provides software for cross-network text transmissions, a one-minute voice call averages about a quarter of the price of a message. GW
