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| [Industry Forecast '99] Hong Kong ISP Merger Sparks Monopoly Fear
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January 5, 1999 (HONG KONG) -- Hong Kong Internet service providers expressed
their regrets over the Dec. 23 approval by the Telecommunications Authority
(TA) of the merger of two of Hong Kong's largest ISPs.
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In a statement made immediately after the decision, the Hong Kong Internet
Service Providers Association (HKISPA) said the deal is "against the
interests of consumers and the industry, and contrary to the stated
pro-competition and pro-consumer policy of the government."
Earlier, Hong Kong Telecom-IMS Ltd. (IMS), a subsidiary of the Hong Kong
Telecom Group, announced its intention to purchase the Internet-related
business of Hong Kong Star Internet Ltd. (HKStar). IMS is currently
Hong Kong's largest ISP, with an estimated 210,000 dial-up customers,
while HKStar is the second-largest with some 150,000. The deal will
bring IMS a market share of more than 60 percent.
According to OFTA, Hong Kong had 655,000 Internet users as in June 1998,
but industry sources estimate that the market of dial-up users is only
around 600,000.
Most ISPs are furious, as they were given only two weeks to voice their
opinions before the decision. Charles Mok, Secretary of HKISPA, said
the consultation period was too short and the industry simply did not
have enough time to prepare documents to support their objections to
the deal. He is also doubtful whether OFTA had enough time to study
the impact of the deal.
Mok said the deal will seriously affect ISP business in Hong Kong. He
said with the large customer base, IMS can easily wipe out other smaller
ISPs by using various pricing strategies.
He said this will not only limit the choice of customers, but also affect
the businesses of contents providers, networking suppliers, e-commerce
companies and others as they will be bound to do business with IMS.
The large customer base is also expected to allow Hong Kong Telecom,
which is already Hong Kong's largest telecom provider, to extend its
influence to other telecom services.
To survive, Mok said ISPs should put less resources on access services
and instead explore new business opportunities such as Internet consultancy,
voice/data integration or Web site hosting and design. At present, most
ISPs derived their revenues mainly from access services.
Mok, who is also general manager of HKNet Co., Ltd., said his company
recently installed an asynchronous transfer mode (ATM) switch that allows
the use of an ATM backbone network to the United States. This is also
the first international ATM link among local ISPs. In addition to the
increased bandwidth, the new connection is expected to open up new business
opportunities for HKNet such as multimedia services, Voice over IP,
video conferencing and virtual private networks.
Even with the merger aside, Hong Kong's ISPs are likely to face increasing
competition from traditional telecom companies in the coming year. In
recent months, some telecom companies have launched Internet access
services and bundled them with their existing telecom services.
For example, Citi Telecom (HK) Ltd. offered free email accounts to its
IDD users, while Hutchison Telecom Ltd. launched ISP services and free
Internet access to some mobile phone service customers. Hong Kong Telecom
also came up with a service plan that bundles mobile phone services
with IMS's Internet access as a combined package. Mok said this trend
is unavoidable, and to stay competitive, he said HKNet is likely to
come up with a similar plan jointly with a telecom provider.
Despite all the uncertainty, Mok expects the Internet access market to
continue to grow at a high rate in the coming year, but the profit margin
will be reduced further. At present, most ISPs offer generous gifts
to attract new customers. For monthly fee prepayments of around HK$600
(US$80), subscribers can expect to get a free printer or 56K modem that
carries the same, if not higher price.
Mok expects his dial-up customers to double in 1999, as the government
is vigorously promoting use of the Internet among students, and as more
localized information is available on the Web. He forecasted that e-commerce
will be the fastest-growing sector in the coming year, but the growth
of online shopping will remain low due mainly to the relatively small
size of the market.
The small market size has also restricted the growth of Internet advertising,
as the hit rates are unlikely to attract big advertisers.
Table
Dial-Up Customers of Major ISPs in Hong Kong
| ISP | Customers |
| IMS | 210,000 |
| HKStar* | 150,000 |
| HKNet | 75,000 |
| CTI | 60,000 |
| HK Supernet | 30,000 |
| Asiaonline | 30,000 |
Notes: *Owned by IMS. All figures are estimates.
(Keith Chan, Asia Biztech Hong Kong Editor)
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