Summary
Hong Kong’s world-class telecommunications infrastructure serves as a strategic advantage for its position as a leading commercial and financial center in Asia. In Hong Kong’s fast-paced entrepreneurial environment, demand for wireless broadband is growing rapidly to support the business community’s need for quick and ubiquitous information. By April 2009, Hong Kong’s 3G subscribers exceeded 3 million (43% penetration rate) with total mobile data usage growing at an eye-popping rate of 400% over last year. Given this trend, Hong Kong represents a market ready to embrace the next generation of “Long-Term Evolution” (LTE) broadband wireless technology. Industry observers estimate that Hong Kong wireless service providers will invest over US$450 million to upgrade their wireless broadband infrastructure over the next 5 years, creating substantial business opportunities for U.S. suppliers of wireless broadband equipment and services.
Market Demand
Hong Kong has one of the most sophisticated telecommunications infrastructures in the world. This infrastructure is crucial to Hong Kong’s competitiveness as a leading regional commercial and financial hub. Like many other places around the world, Hong Kong’s communications and data transmissions are increasingly going wireless, and Hong Kong residents have a strong and growing demand for wireless broadband.
Over 80% of Hong Kong’s downtown area is covered by Wi-Fi, 3G, and 3.5G and the number of 3G subscribers has exceeded 3 million, representing 43% of Hong Kong’s total population. All four 3G operators CSL, SmarTone, Hutchison and PCCW have deployed 3G/3.5G services utilizing High Speed Downlink Packet Access (HSDPA) technology, which supports downloads at speeds up to 7.2 Mbps, enabling users to enjoy faster and higher quality data services such as Web browsing, streaming media, online gaming, video calling, and mobile TV services. In March 2009, one of the 3G operators, CSL Limited, deployed the new Evolved High Speed Packet Access (HSPA+) technology, which provides data transmission speeds of up to 21 Mbps, and enables users to enjoy bandwidth-hungry content such as high definition movies anywhere and anytime.
Due to the continuous improvement in the quality of wireless access and the increasingly attractive data packages offered by service providers, the volume of mobile data usage in Hong Kong has experienced explosive growth. According to statistics published by the Office of the Telecommunications Authority Hong Kong, total mobile data usage increased from 46 million MB in April 2008 to 233 million MB in April 2009, growth of 400% in one year! With this type of growth in the market for wireless broadband, Hong Kong’s telecommunications companies are ready to embrace the next generation of broadband wireless technology to enable them to deliver connections at speeds of up to 100Mbps.
Like many other cities in the world, there was a heated debate in choosing between Wimax and LTE as the next generation wireless technology in Hong Kong. WiMax (IEEE 802.16) is comprised of a wireless tower-based distribution system, and is capable of providing users 70 to 100 mbps within a 50km of range from its towers. This range can encompass full cities and wilderness areas, providing blanket wireless Internet access for an entire city. WiMax is scheduled to roll out at least a year before LTE. In the other camp is LTE, the future descendant of today’s 3G networks, which will match WiMax for speed and will use equipment similar to that used in the current 3G infrastructure.
The competition in Hong Kong resulted in a landslide victory for LTE for the following three reasons:
1. Less Capital Investment: When 3G first rolled out in Hong Kong in 2004, the major telecommunications operators in Hong Kong Smartone, CSL, Hutchinson, and Sunday (acquired by PCCW in 2005) all purchased staggeringly expensive licenses to offer 3G service (upwards of US$32 million for the first five years and increasingly higher costs thereafter). As a cosmopolitan city craving new technology, many Hong Kong residents enthusiastically jumped onto the 3G bandwagon. The number of 3G subscribers has grown from 640,000 in December 2004 to 2.8 million in December 2008. When WiMax technology came onto the scene, the telecommunications companies were still trying to recover from their huge 3G license investments and also from the fallout of the global financial crisis. As a result, even though Wimax offered the advantages of being available at least a year earlier than LTE while offering the same bandwidth, the Hong Kong service providers had to reject WiMax because they simply could not afford the investment.
2. Less familiarity with WiMax: The telecom companies’ familiarity and stable experience with LTE’s predecessor, 3G, made them feel more comfortable choosing a more familiar technology than taking a gamble with a huge investment on developing a new infrastructure based on a new and unfamiliar technology platform.
3. Hong Kong’s High Population Density Offset WiMax’s Competitive Advantage: Due to its larger range, WiMax is considered to be much more competitive in suburban or rural areas, especially where 3G networks have not yet been established and cable broadband has been too expensive to build. Hong Kong, however, is the third most densely populated place in the world, with even its faraway suburbs boasting 40-floor apartment buildings. Such population density has made it economical for telecom service providers to invest in developing cable broadband or 3G networks to cover the entire territory.
The lack of interest for WiMax technology was made clear and concrete in January 2009 when the Office of the Telecommunications Authority (OFTA) of the Hong Kong Government hosted an auction of radio spectrum licenses for the provision of broadband wireless access services. WiMax and LTE were the two technologies available for bidding. No companies bid for the WiMax-compatible 2.3GHZ spectrum, while in contrast, three companies, (Genius Brand, CSL, and China Mobile) bid successfully on 30MHZ of LTE-compatible spectrum in the 2.5-2.6GHZ bands. CSL paid approximately US$ 67.4 million, China Mobile paid US$66.7 million, and Genius Brand paid US$64 million. Since Genius Brand is a joint venture between PCCW and Hutchison Telecommunications, it means that four of Hong Kong’s major telecommunications service providers paid almost US$200 million to be in the 4G arena using LTE technology. The outcome of this auction sends a clear message that LTE will be Hong Kong’s next generation wireless technology.
Industry players also estimated that the three licensed 4G operators will invest a total of US$450 million in the next 4-5 years to build their 4G infrastructure or upgrade their existing 3G infrastructure. License terms require licensees cover a minimum of 50% of the population within five years. Of the three wireless broadband license holders, China Mobile is the only one that does not have a 3G license, making it likely that the company will invest more heavily in the LTE infrastructure.
Although many LTE equipment vendors are scheduled for commercial rollout in 2010, Hong Kong’s service providers will likely take a slow and cautious approach LTE deployment prior to 2012. This caution is partly due to the global economic downturn making the rolling out a new network problematic, and partly because the existing 3G/3.5G networks are gaining momentum and operators are trying to squeeze as much revenue out of these networks as possible to recoup the huge amounts they paid for their 3G spectrum licenses back in 2004. In addition, Hong Kong is perceived to lacks a “killer 4G application” that will change people’s lifestyles and drive demand for even higher bandwidth connections and mobile tools. They believe that the current offerings of 3G and 3.5G smart phones already suffice for the current set of killers applications such as e-mail, basic website access, and viewing multi-media content. In addition, laptops and netbooks, even if it not within the range of the 8,507 public Wi-Fi access points spread throughout the city, are still capable of accessing Internet anywhere with a 3.5G HSDPA USB plug (which is only four times slower than high-speed cable Internet). Therefore, the industry is looking for a must-have application that will drive the demand for high-speed mobile devices before the tidal wave of 4G/LTE will wash away the slower, then-outdated competition. Several possible future killer applications include highly interactive eLearning, health guides, and mobile TV. Regardless of whether any killer applications are introduced, all 4G license holders will be required to provide 50% coverage within the first five years of the license term, thus creating substantial business opportunities for U.S. LTE equipment and service providers in the coming years.
By Fanny Chau
