Hutch’s FTTB price cuts set the dumb-pipe question raging again

By Tony Brown

Sometimes the good people of Hong Kong must wonder what on earth they have done to deserve such a plethora of high-speed broadband offerings (writes Tony Brown, Senior Analyst at Informa Telecoms & Media). At times it must almost be too much, as their cup overflows with cut-rate 100Mbps offerings being forced upon them by market-share-hungry operators.

The latest player in the low-price high-speed-broadband stakes is Hutchison Telecom, which has kicked around in the fixed-broadband market for the past decade, albeit principally in the corporate market, controlling only about 11 per cent of the total fixed-broadband market at end-1Q11.

But Hutchison seems intent on making a bigger impression, cutting the price of its 100Mbps FTTB service from HK$109 ($14) to HK$87 a month – cheaper than anything ever offered by perennial price-cutter Hong Kong Broadband Network (HKBN) – though the price cut can be accessed only via newly introduced vouchers available from supermarkets.

The voucher program also lowers the price of Hutch’s 1Gbps broadband service to HK$142 a month and of its double-play voice/broadband services to HK$112-142 a month, depending on the access speed.

What’s more, in a clear attempt to unsettle market leaders PCCW and HKBN, Hutch has also introduced its new “3Home-Runner Team,” which it says will speed up the installation process for fixed-broadband subscribers, though the fast-hook-up service will initially be available only in selected areas and will be available only until end-September.

The motive behind the move

The move from Hutch is a clear response to HKBN’s decision to cut prices to its own FTTB offerings in early June. HKBN slashed the price of its 1Gbps triple-play offering to HK$158 a month and offered its 200Mbps wifi service in some housing estates for HK$165 a month.

HKBN has previously achieved huge success with its price-cutting strategies, most memorably when it launched its 100Mbps triple-play offering for just HK$99 a month – a promotion that helped it dominate the race for net additions with market leader PCCW, cable operator i-Cable Communications and Hutch.

Although the HK$99 triple-play deal was a boon for HKBN’s subscription growth, it did little for overall ARPU, which dipped alarmingly during the promotional period, ultimately persuading HKBN to revert to its former pricing.

The most interesting thing about the move from Hutch will be to see whether HKBN is tempted to retaliate, perhaps by reintroducing a HK$99 tariff for its 100Mbps triple play in order to protect the gains it made during its own price-cutting exercise.

The aggressive price cutting from Hutch might indeed expose HKBN’s weakest point: the fact that its sole point of attraction is that it offers fast access at low prices – an offering that can be matched without much difficulty in an FTTB-friendly market like Hong Kong by rivals such as Hutch.

Hutch’s decision to cut its 100Mbps price to an effective HK$87 a month – the marketed price is HK$99, but supermarket vouchers cut the price further to HK$87 – shows that the operator is setting its sights on extracting greater value from the HK$10 billion investment in fixed-line infrastructure it has made over the past 15 years.

Hutch has already connected about 8,000 buildings to its FTTB network – with a split of 50/50 between commercial and residential premises – and the company says it can deliver 1Gbps connectivity to about 1.5 million homes in total.

Hutch is already spreading the word that it is not just competing with HKBN but can also take market share from PCCW, principally because it can now offer higher downlink speeds than PCCW.

But for now, at least, the real battle seems to be between Hutch and HKBN, as they fight for price-conscious subscribers, though surely this is a battle that can only benefit subscribers, not the operators themselves.

PCCW above the fray

By contrast, fixed-broadband-market leader PCCW is largely confident that its content-focused strategy is proving its worth by keeping it from being dragged into price wars with subscriber-hungry rivals. PCCW says it has been able to provide significant value to subscribers via its strategy of aggregating high-quality pay TV content, a factor it says helps insulate it from the price wars between HKBN and Hutch at the lower end of the market.

With a much higher overhead, PCCW simply cannot afford to enter a price war with rivals, such as HKBN, that have much lower operating costs, a scenario that has effectively forced PCCW to offer greater value via the content route rather than compete on price alone.

It will be a while before we can determine whether it’s better for an operator to be a content aggregator or a dumb-pipe operator – a tag that HKBN wears proudly. But the latest price cuts in Hong Kong suggest that PCCW might be feeling slightly pleased with itself at this stage of the game.