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New Year Special Features '99

  • [Industry Forecast '99] Hong Kong ISP Merger Sparks Monopoly Fear
  • 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.
    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.


    Dial-Up Customers of Major ISPs in Hong Kong
    HKNet 75,000
    CTI 60,000
    HK Supernet30,000
    Asiaonline 30,000

    Notes: *Owned by IMS. All figures are estimates.

    (Keith Chan, Asia Biztech Hong Kong Editor)

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    Updated: Mon Jan 4 22:25:52 1999 PDT