22 Aug 2016
Telecommunications Industry in Hong Kong
- Hong Kong's role as a leading business centre in the Asia-Pacific region owes much to its advanced telecommunications infrastructure, which facilitates domestic and international communications by voice or data. The role of telecommunications is especially vital to Hong Kong's competitiveness in the age of electronic commerce. In 2014, the industry of information and communications generated HK$ 77.8 billion (US$ 10.0 billion) of value added, contributing to 3.5% of GDP.
- Digital 21 is the blueprint for Hong Kong’s information and communication technology (ICT) development. In the fourth update of the Digital 21 in 2014, the Hong Kong government proposed a series of initiatives under the theme of "Smarter Hong Kong, Smarter Living", setting out the framework to leverage new technologies, such as cloud computing, big data analytics, wireless technology and Internet of Things etc.
- In the Global Information Technology Report 2016 by the World Economic Forum, Hong Kong ranks third in Asia (12th in the world) in the Network Readiness Index, indicating Hong Kong’s advanced position in telecommunication infrastructure, regulatory environment, and business readiness of using information technology.
- Hong Kong's telecommunications industry is totally privately owned and faces no restriction on foreign investment, with all services open for competition. The advanced technology and quality services of Hong Kong's telecommunications sector attract multinational companies, such as AT&T and Verizon, to set up their regional operations in Hong Kong.
- To increase land supply for science and technology development, the government has allocated about two hectares of land in Tseung Kwan O to develop a high-tier data centre. The first site was sold in October 2013, with the second site expected to be up for bidding in 2016. These two sites will provide a total gross floor area of about 100,000 sqm.
Local Fixed Telecommunications Network Services (FTNS): The FTNS market has been fully liberalised since 1 January 2003, with no pre-set limit on the number of licences issued, nor specific requirement on network rollout or investment. As at May 2016, there were 25 local fixed network operators in Hong Kong.
Mobile Services: As at May 2016, there were four mobile network operators. In March 2016, the number of mobile service subscribers reached 16.7 million, representing one of the highest penetration rates in the world at about 228%. Among these subscribers, 14.7 million were 3/4G service customers.
Broadband Services: As at May 2016, there were 217 Internet Service Providers (ISPs) licensed to provide broadband services. As at March 2016, more than 2.35 million customers had used broadband services with speed up to 10 Gbps (Gigabits per second). In the residential market, 84% of the households use broadband service. Internationally, Hong Kong's broadband penetration rate is among the highest in the world.
The International Direct Dialling (IDD): International Direct Dialing (IDD) service to most countries and regions of the world is available. In 2015, the volume of outgoing and incoming traffic for telephone calls was 8,351 million minutes and 2,002 million minutes respectively. IDD costs have gone down significantly since 1999, when fixed-line operators were allowed to offer non-exclusive international services.
Satellite: As at May 2016, there were 42 licensees permitted to operate either external cable or non-cable based facilities for the provision of external communication services in Hong Kong, with more than 220 satellite earth station antennas in operation. Hong Kong adopts an open sky policy in regulating the provision of satellite services. Hong Kong provides dedicated relay services for multinational companies, international press agencies and TV channels to downlink or uplink their satellite signals over the Asia Pacific region.
Submarine Cable: Hong Kong is connected to a number of submarine cable systems, including:
- The Okinawa-Luzon-Hong Kong system connects Hong Kong to the Philippines, Japan and North America.
- The Asia Pacific Cable (APC) system links Hong Kong to Malaysia, Singapore, Taiwan and Japan.
- The Thailand-Vietnam-Hong Kong (TVH) system connects Hong Kong to Thailand and Vietnam.
- The Asian Pacific Cable Network (APCN) system connects Hong Kong to Taiwan, Korea, Japan, Thailand, the Philippines, Malaysia, Singapore, Indonesia and Australia.
- The Fibre-optic Link Around the Globe (FLAG) connects Hong Kong to Thailand, Shanghai, South Korea, Japan and other countries around the world.
- The SEA-ME-WE-3 cable connects Hong Kong to various countries in South East Asia, Middle East and the Western Europe.
- The Asian Pacific Cable Network 2 (APCN2) connects Hong Kong to the Chinese Mainland, Taiwan, Korea, Japan and other Asian countries.
- C2C Network connects Hong Kong to the Philippines, Taiwan and Singapore.
- The Asia America Gateway (AAG) connects Southeast Asia and North America, via Hong Kong, Guam and Hawaii.
- The East Asia Crossing (EAC) connects Hong Kong with Japan, South Korea, Taiwan, the Chinese mainland, Singapore and the Philippines.
- The North Asia Cable System (NACS) connects Hong Kong with Japan and Taiwan.
- The Reach North Asia Loop (RNAL) connects Hong Kong with Taiwan, Korea and Japan.
- The Trans Pacific Cable (TPC-1 & TPC-2) connects Hong Kong with Vietnam, the Philippines, Japan, Taiwan, Singapore, South Korea, Guam and Hawaii.
- The VSNL SG HK JP Guam connects Hong Kong with Singapore, Japan and Guam.
The main form of cross-border exports of telecommunications services is through incoming calls from another country, in the form of revenue collected for the service of completing the call.
Other export incomes are derived from:
- offering roaming services to overseas mobile phone users;
- selling satellite transponder capacities to other telecommunications operators, broadcasting and multinational corporations to meet their regional communications, broadcasting and international communications needs;
- consultancy services (e.g. technology transfer and training programmes) to overseas customers; and
- telecommunications services provided to travellers to Hong Kong.
With the opening up of the telecommunications market in most countries, many Hong Kong operators have gained a foothold in the overseas markets, particularly in the mobile telephone sector. For example, Hutchison Telecom has 3G operations in different regions and countries (e.g. the UK, Denmark, Italy, Sweden, Ireland, Israel, Macau, Australia and Austria). Many other operators have invested in the development of telecommunications networks in Asia, including India, Indonesia, the Philippines, Sri Lanka, Taiwan and Vietnam.
The bulk of Hong Kong's international call traffic is now with the Chinese mainland. International private leased circuits are offered to several mainland gateway cities, while some operators provide roaming services to mobile phone and pager users when they are on the mainland.
Industry Development and Market Outlook
Local industry developments
As of end-June 2008, mandatory type II interconnection policy had been withdrawn. Type II interconnection is a regulatory tool widely deployed in the world, requiring the incumbent fixed network operator (“FNO”) to open up its copper-based customer access network (CAN) to new entrants so that the latter may provide competing service to customers in the start-up phase when their own self-built CANs are not as extensive as the incumbent’s. As at March 2015, over 86% of local households have the choice of more than one FNO.
The increasing use of data services such as instant messaging and mobile internet services among the younger generations helps stimulate the mobile data usage in Hong Kong. As at March 2016, local mobile data usage recorded a remarkable surge to 20,557 Terabytes (1Tb=1,000Gb). This represents a growth of 1.18 times in the mobile data usage over the same period in 2015 and 1.58 times over the same period in 2014.
The current digital terrestrial television (DTT) network coverage stands at around 99%, on a par with that of the analogue TV broadcasting. As of December 2015, take-up rate of DTT is close to 85% of total number of households in Hong Kong.
WiFi access is increasingly widespread in Hong Kong. As at May 2016, there were more than 43,000 public WiFi hot spots in Hong Kong. Since the Hong Kong government launched the Government WiFi programme in 2007, there were free public WiFi services in 603 government premises as at May 2016.
Macro-trends in the industry
Worldwide mobile data bandwidth usage continues to grow as the mobile phone increasingly integrates into users’ daily life. Services and functions that can be done through the mobile phone include payment, receiving news, exchanging files, music, and movies and trading. Driven by the increased affordability of smart gadgets and more extensive network coverage, "going wireless" continues to gain momentum in the global consumer market. According to the GSM Association, mobile broadband connections (i.e. 3G and 4G technologies) is estimated to increase from 39% at the end of 2014, to account for 69% of the global connections by 2020.
With the deployment of the 4G technologies such as the Long Term Evolution (LTE) and other advanced technologies progressively by the four mobile network operators, namely CSL, China Mobile, Hutchison and SmarTone, consumers can enjoy even higher speed of mobile data services up to 375 Mbps.
The expansion of 3G/4G networks drives up the demand for video telephony, sharing and messaging services over mobile networks. According to ABI Research, in 2011, there were fewer than 47 million consumers using such services, but the take up rate is expected to grow to 390 million in 2016. ABI Research also forecast that the global mobile application and service revenues will rise to nearly US$430 billion in 2021 from an estimated US$350 billion in 2016.
The China market
According to the Ministry of Industry and Information Technology (MIIT), total fixed investment in the telecommunications sector reached RMB 453.9 billion as at end-2015, up 13.7%. Total industry revenue reached RMB 1,125.1 billion, up 0.8%.
As at end-2015, the number of mobile phone users in China increased by 1.2% to 1.31 billion (about 95.5 subscribers per 100 persons) while fixed line phone subscribers dropped by 7.2% to 231 million (or 16.9 subscribers per 100 persons).
Since the issuance of 4G licences in 2013 and the launch of 4G services in 2014, 4G usage has been rising fast in China. As at December 2015, there were more than 386 million and 399 million 4G and 3G users respectively, accounting for 29.6% and 30.5% of mobile phone subscriptions.
Strong pricing advantage and improving quality of services has helped raise the competitiveness of Chinese telecom vendors, such as ZTE Corp. and Huawei Technology. According to the World Intellectual Property Organisation (WIPO) in 2014, Huawei and ZTE were ranked as first and third globally in terms of the number of international patent applications.
The Mainland-Hong Kong Closer Economic Partnership Arrangement (CEPA)
Under CEPA, qualified Hong Kong service suppliers (HKSS) are allowed to set up joint-venture enterprises on the Chinese mainland from 1 October 2003, providing 5 types of value-added telecommunications services without geographic restriction. These services include Internet data centre services, store and forward services, call centre services, Internet access services (i.e. ISP) and content services (i.e. ICP). Hong Kong services suppliers’ shareholding in the joint venture should not exceed 50%.
From January 2008, HKSS are allowed additionally to provide mainland-IP-based Virtual Private Network (VPN) services as defined in the Telecommunications Business Classification in the form of a joint venture, with the Hong Kong partner holding a stake of not more than 50%.
Taking effect in October 2009, HKSS can distribute in Guangdong Province fixed and mobile telephone service cards which can only be used in Hong Kong. Mobile satellite phone service cards, however, are explicitly excluded.
According to CEPA Supplement IX, HKSS are allowed to set up wholly owned companies or equity joint ventures in providing offshore call centre services in Dongguan and Zhuhai Cities of Guangdong Province on a pilot basis, with no limitation on the equity ratio of the Hong Kong side.
Under CEPA Supplement X, which will take effect from January 2014, HKSS are allowed to set up joint-venture enterprises in Guangdong Province to provide online data processing and transaction processing services (yet confined to e-commerce business websites only). HKSS’s shareholding should not exceed 55%. Further, contractual service providers employed by HKSS are allowed to provide this type of services on the mainland in the mode of movement of natural persons.
In December 2014, the Agreement between the Mainland and Hong Kong on Achieving Basic Liberalisation of Trade in Services in Guangdong (i.e. the Guangdong Agreement) was signed for implementation from March 2015. Under the Guangdong Agreement, HKSS are allowed to set up joint ventures or wholly-owned enterprises to provide multi-party communications, store and forward services, call centre services, Internet access and content services in Guangdong. This was then followed in December 2015 by the Agreement on Trade in Services (“ATIS”) to extend the coverage of the 2014 agreement from Guangdong to the rest of the mainland.
Unlike the Supplements which adopted a positive-list approach to introducing liberalisation measures, the two latest CEPA agreements adopt a hybrid approach to granting preferential access to Hong Kong using both positive and negative lists. The ATIS was implemented from June 2016.
As at the end of July 2016, there were 53 approved HKSS in the sector of value-added telecommunications services.