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BROADBAND AS A COMMODITY:HONG KONG, CHINA INTERNET CASE STUDY
May 2003
I n t e r n a t i o n a l T e l e c o m m u n i c a t i o n U n i o n
ii
Michael Minges prepared this report. Tim Kelly drafted the mobile section. NathalieDelmas was responsible for formatting and production. The report is based on fieldresearch carried out from 3 to 6 December 2002 as well as articles and reports notedin the document. The assistance of the Office of the Telecommunication Authority,particularly M. H. Au and Sara Lam, was indispensable and highly appreciated. Equally,the report would not have been possible without the cooperation of the Census andStatistics Department, Hong Kong Broadband Network, i-Cable and Pacific CenturyCyberworks. The report benefited from comments both within and outside ITU. WithinITU, Vanessa Gray, Esperanza Magpantay, Taylor Reynolds and Gary Sacks remarkedon the report. Externally, M. H. Au, Fion Fung, Yiu-choi Siu and Benjamin Tong providedvaluable observations.
The report is one of a series examining the Internet in different economies around theworld. Additional information is available on ITU�s Internet Case Study web page at<www.itu.int/ITU-D/ict/cs/>.
The report may not necessarily reflect the opinions of ITU, its members or theGovernment of Hong Kong Special Administrative Region of the People�s Republic ofChina.
The title refers to the evolution of broadband Internet access in Hong Kong such thatit is increasingly perceived as a basic commodity.
© ITU 2003
NOTE: FOR BREVITY, THE HONG KONG SPECIAL ADMINISTRATIVEREGION OF THE PEOPLE�S REPUBLIC OF CHINA IS REFERRED TO ASHONG KONG IN THE REPORT.
iii
Contents
1. Introduction....................................................................... 11.1 Background ............................................................................ 1
1.2 Methodology ........................................................................... 1
2. Pervasiveness .................................................................... 3
3. Geographic dispersion ....................................................... 8
4. Sector absorption............................................................. 104.1 Education ............................................................................. 10
4.2 Government ......................................................................... 10
4.3 Health .................................................................................. 10
4.4 Business .............................................................................. 10
5. Connectivity infrastructure .............................................. 125.1 International and national backbone ........................................ 12
5.2 Local exchange ..................................................................... 12
5.3 Local access .......................................................................... 13
5.4 Mobile .................................................................................. 16
6. Organizational infrastructure ........................................... 20
7. Sophistication .................................................................. 25
8. Conclusions ...................................................................... 28
Annex 1: List of meetings........................................................ 31
Annex 2: Acronyms ................................................................. 32
Annex 3: Bibliography ............................................................. 33
Figures
Tables
4.1 Government computerization ................................................ 10
4.2 Penetration and usage of information technology in the
business sector ............................................................... 11
5.1 Broadband coverage in Hong Kong ......................................... 14
6.1 Hong Kong's telecommunication and regulatory timeline ........... 20
6.2 Hong Kong's broadband operators .......................................... 22
iv
2.1 Internet penetration in advanced Asia-Pacific economies .............3
2.2 Hong Kong's Internet history ...................................................4
2.3 Hong Kong's Digital Divide ......................................................5
3.1 Map of Hong Kong ..................................................................8
3.2 Where we use the Internet ......................................................8
5.1 Hong Kong's international bandwidth ...................................... 12
5.2 Reach international Internet backbone.................................... 13
5.3 Hong Kong Internet Exchange ............................................... 14
5.4 Broadband trends in Hong Kong ............................................. 15
5.5 Broadband coverage and subscribers ...................................... 16
5.6 Hong Kong: The world's most competitive mobile market? ........ 16
6.1 Broadband pricing ................................................................ 23
7.1 Heavy users ........................................................................ 25
7.2 What the Internet is used for ................................................. 26
7.3 Government online............................................................... 26
8.1 Hawking broadband ............................................................. 28
8.2 State of Internet in Hong Kong .............................................. 29
Boxes
1.1 Abundant information .............................................................2
2.1 English language, Hong Kong and the Internet ..........................6
3.1 Community Cyber point ..........................................................9
5.1 Hong Kong's 3G licensing process .......................................... 17
1
1. Introduction
1. Introduction
1.1 Background
Promotion of the Internet hasbecome a top priority in manyeconomies around the world. Someare now moving beyond basicInternet access to promoting high-speed broadband infrastructure andnetworks. The deployment ofbroadband infrastructure isincreasingly perceived as importantfor overall economic and socialdevelopment. According to theChairman of Singapore’s informationand communication technologyregulatory agency:
“Broadband is a defining technologyof our age. In the future, no nationcan claim to be of developed statuswithout good broadband access.”1
Central to broadband development aremass-market technologies for end useraccess. In that respect, theInternational Telecommunication Union(ITU), the United Nations specializedagency for telecommunications, hasembarked on a series of case studiesresearching the development of theInternet. This study looks at thedevelopment of the Internet andparticularly broadband access in theHong Kong Special AdministrativeRegion of the People’s Republic of China(hereafter referred to as Hong Kong).
1.2 Methodology
The Mosaic Group2 has developed aframework for characterizing the stateof the Internet in an economy. Theyconsider six factors, each of which hasfive values ranging from zero (non-
existent) to four (highly developed).The factors are as follows:
• pervasiveness: a measurebased on users per capita and thedegree to which non-techniciansare using the Internet.
• geographic dispersion: ameasure of the concentration ofthe Internet, from none or asingle city to nationwideavailability.
• sector absorption: a measureof the degree of utilization of theInternet in the education,commercial, health care andpublic sectors.
• connectivity infrastructure: ameasure based on internationaland domestic backbonebandwidth, exchange points, anduser access methods.
• organizational infrastructure:a measure based on the state ofthe Internet Service Providerindustry and market conditions.
• sophistication of use: ameasure characterizing usagefrom conventional to highlysophisticated and drivinginnovation.
This framework is used to assess thesituation in Hong Kong with aparticular focus on broadband Internetaccess.
2
Hong Kong, China Internet Case Study
1 IDA. “More than 950’000 Singaporeans Now Use Broadband to Enhance Their Internet Experience.” MediaRelease. 11 April 2002. Available on the IDA website at www.ida.gov.sg
2 <mosaic.unomaha.edu/gdi.html>.
3 Data are available from the Telecom Facts section on the OFTA web site at:http://www.ofta.gov.hk/frameset/home_index_eng.html
4 For an overview of C&SD’s ICT statistics activities see Amy Sui-sum Yu. “Latest Developments in IT&TStatistics in Hong Kong, China.” 3rd World Telecommunication/ICT Indicators Meeting. Geneva, Switzerland.15 - 17 January 2003. http://www.itu.int/ITU-D/ict/WICT02/doc/pdf/Doc35_E.pdf
Box 1.1: Abundant information
One of the advantages of studying a market like HongKong is the large amount of timely and relevant statisticsavailable for the information and communicationtechnology sector. This assists policy making by allowingHong Kong to be benchmarked against other leadingeconomies in terms of ICT. The data are to becommended for they follow international standards andunlike some other economies, statistics from HongKong are transparent and clear. In addition, HongKong is at the forefront of disseminating new statisticsoften before other economies have started collectingthem. Sources include:
• The Office of the Telecommunication Authority(OFTA), the telecommunication industryregulator, publishes a variety of statistics on itsweb site.3 These include monthly statistics onthe number of fixed and mobile telephone andInternet subscriptions (disaggregated by dial-up and broadband). OFTA also disseminatesdata on voice and Internet traffic as well astwice yearly updates on Hong Kong’sinternational Internet bandwidth. OFTA is oneof the world’s leading telecommunicationregulators in terms of the timeliness andrelevance of the statistics it disseminates.
• Since all of Hong Kong’s maintelecommunication operators are publiclytraded, they publish data relating to theirbusinesses on an annual basis. Most also publishsemi-annual interim or quarterly reports. Inaddition to financial data, these reports alsocontain operational data and enhance the abilityto analyze Hong Kong’s ICT sector, particularlyfrom a market share perspective.
• Hong Kong’s government statistical office, theCensus and Statistics Department (C&SD),carries out regular annual surveys on theusage of information and communicationtechnology in households and businesses.4
The surveys provide an essential supplementto the administrative records available fromOFTA and market participants. Annual datainclude the number of Internet users,households with PCs and Internet access andbusinesses with Internet access. Of specialnote is the Hong Kong as an InformationSociety report issued in September 2002 thatunifies data from a number of sources togauge the development and impact ofinformation technology in Hong Kong.
Box Figure 1.1: ICT Statistics
Data & Statistics section of OFTA web site and Hong Kong asan Information Society publication from the C&SD
Source: ITU adapted from OFTA, C&SD.
3
2. Pervasiveness
Pervasiveness is rated at level 4,Pervasive.
A survey carried out between May-July2002 by Hong Kong’s Census andStatistics Department (C&SD) foundthat almost half the population(48.2 per cent) over the age of ten—2.9 million people—had used theInternet in the previous twelvemonths.1 In terms of households,1.1 million or 52.5 per cent had anInternet connection. Hong Kong hasthe thirteenth highest Internetpenetration in the world and the fifthhighest in the Asia-Pacific region (seeFigure 2.1).
A number of factors have contributedto Hong Kong’s level of Internet usage.It has had over a decade of experiencewith the Internet (see Figure 2.2).Hong Kong connected to the Internetin September 1991 when a 64 kbpscircuit was established between theChinese University of Hong Kong andthe United States. It was also one ofthe first economies to launchbroadband services in May 1998.
2. Pervasiveness
Figure 2.1: Internet penetration in advanced Asia-Pacific economies
Note: In left chart, Internet users taken as a percentage of the entire population. In right chart, * = 2001.Source: ITU World Telecommunication Indicators Database.
Another factor is wealth. In terms ofincome, Hong Kong is the 12 th
wealthiest economy in the world witha per capita Gross National Product ofUS$ 25’920 in 2001.2 It is the secondrichest in the Asia-Pacific region, afterJapan. Economic barriers to Internetaccess in Hong Kong are few. Themedian monthly household income inHong Kong in 2001 was HK$ 18’705(US$ 2’398). At that income, entry-level dial-up and broadband Internetsubscription plans would onlyconsume 0.2 per cent and 1.1 per centof monthly income respectively.Virtually all of Hong Kong’s householdscould afford a dial-up Internetsubscription and three-quarters couldafford broadband (assuming monthlyexpenditure on Internet access shouldbe less than two per cent of monthlyincome). These assumptions areconfirmed by survey data where onlysix per cent of Hong Kong’s homes saidthat cost was a reason for not having aPersonal Computer (PC). Of householdswith a PC, only ten per cent stated thatthe monthly charge was a reason fornot having Internet access.
48.4%
42.7%
37.2%
43.1%
44.9%
48.0%
55.2%Korea (Rep.)
New Zealand
Singapore
Japan
Hong Kong
Australia
Taiwan, China
Internet users as % of population, 2002
57.0%
53.0%
51.3%
48.1%
37.4%
52.5%
51.9%
Singapore*
Taiwan, China
Hong Kong
Australia
Korea (Rep.)
Japan*
New Zealand*
Households with Internet connection, %, 2002
4
Hong Kong, China Internet Case Study
Like any other economy, Hong Konghas its own digital divide. Availabilityand use of PCs and the Internet isdependent on age, income andeducation (see Figure 2.3). Educationis fundamental with 93 per cent ofstudents above the age of ten onlineas are 89 per cent of those with acollege degree. These two groupsaccount for 56 per cent of all Internetusers in Hong Kong. Household PCpenetration is approaching saturationwith only five per cent of those withouta PC saying they plan to buy one.There are some interesting aspects
Figure 2.2: Hong Kong's Internet history
Source: ITU.
surrounding the data offering hope ofreducing the divide. One is thatreasons for not obtaining a PC orInternet access are not primarilyeconomic but linked to awareness andneed. Another interesting point is thatsome nine per cent of Hong Kong’sInternet users do not have secondaryor higher education suggesting thatlimited education need not be a barrierto Internet use. There is no genderdivide in Hong Kong with males andfemales each accounting for about halfof Internet users (50.5 and 49.5 percent respectively).
43.3
38.7
27.8
18.2
12.310.0
7.8
4.12.8
1.40.90.1
14.0
9.3
5.9
0.50.2
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Dec-02
Connection to
Internet,
September 1991First commerical ISPs,
late 1993
ADSL launched
May 1998
Cable modem
launched, March
2000
Hong Kong: Internet users, broadband subscribers per 100 inhabitants
Internet users per
100 inhabitants
Broadband subscribers
per 100 inhabitants
5
2. Pervasiveness
Figure 2.3: Hong Kong's Digital Divide
Note: Charts referring to Internet users relates to those aged 10 and over who have used the Internet in the last year.Source: ITU adapted from C&SD.
Definitely
1.5%
Very likely
3.7 %
May / may
not
8.8%Very
unlikely
24.0%
Definitely
not
62.0%
No PC
37.9%
Have PC
62.1%
All households, 2002
Plans to
install PC
54.8
50.9
6.7
6.1
3.4
2.7
No specificapplication
Did not know howto use
Had access inother places
Cost too high
Have plans topurchase
Others
Reasons for not
having a PC at home,
Households without
PCs, 2002, %
Have
Internet
84.7%
No Internet
15.3%
Definitely
not
11.5%
Very
unlikely
34.8%
May / may
not
32.1%
Very likely
16.0%
Definitely
5.7%
Households with PCs, 2002
Plans to obtain Internet
53.1
10.9
10
7.7
6.6
6.2
No need to
use
Have plans to
connect
Too expensive
Avoid children
using
Lack of skills
Have access
elsewhere
Reasons for not
having Internet
access at home,
Households with
PCs without
Internet
connection,
2002,%
89.9
89.2
69.1
48.6
25.0
10.5
1.9
48.2
10 - 14
15 - 24
25 - 34
35 - 44
Overall
45 - 54
55 - 64
>= 65
Rate of Internet
use by age, 2002,
%19.0
68.6
78.1
83.9
87.0
52.5
53.6
< 10'000
Overall
10'000 - 19'999
20'000 - 29'999
30'000 - 39'999
40'000 - 49'999
>= 50'000
Rate of households with Internet access by
monthly income (HK$), 2002, %
14.4
54.3
89.0
48.2
None /
Primary
Overall
Secondary
Tertiary
Rate of Internet
use by
educational
attainment, 2002,
%
93.4
54.1
48.2
16.5
14.2
4.1
Student
Economically
active
Overall
Home-maker
Others
Retired
Rate of Internet use
by economic activity
status, 2002, %
6
Hong Kong, China Internet Case Study
Box 2.1: English language, Hong Kong and the Internet
Hong Kong became a Special Administrative Regionof the People’s Republic of China on 1 July 1997,after a century and a half of British administration.Despite that long link with the United Kingdom,only 3.2 per cent of Kong Kong’s population speaksEnglish as a first language and less than half (43 percent) speak it at all (see Box Figure 2.1, left). Thisdoes not seem to be a barrier to Internet use andthe rate of household Internet penetration in HongKong is higher than in the United Kingdom (53 and46 per cent respectively). In fact, Hong Kongsurpasses the UK in a number of Internet relatedindicators (e.g., more hours of use, more broadbandsubscriptions).
One reason the Internet is doing well in Hong Kong isgrowing Chinese applications and content. There areChinese versions of major software packages suchas Microsoft Windows, Explorer and Office. The HongKong government portal <www.info.gov.hk> isavailable in Chinese as well as English, the two officiallanguages, as is the Electronic Service Deliverye-citizen portal, <www.esd.gov.hk>. All of the topglobal web sites accessed by Hong Kong’s Internetusers (e.g., Yahoo, MSN, Lycos) have Chineseinterfaces. Another development is Chinesebroadband portals. The incumbent telephonecompany, PCCW, launched a Chinese portal in April
1999 that featured Chinese language search enginesand email. One goal was to attract Chinese-speakingusers from all over the world that would help driveadvertising growth.3The portal has since evolvedinto the broadband portal <www.now.com.hk>.i-Cable, the cable television and cable modemprovider also has a broadband portal, launched inMarch 1999, <www.i-cable.com> (see BoxFigure 2.1, right). Content is aimed at nicheinterests such as horse racing, stocks, gaming andsports. It is the only Cantonese news portal updatedon a 24-hour basis and attracts a lot of traffic frommainland China.
Barriers working with Chinese text are also beingovercome. The Chinese alphabet uses ideographiccharacters where the appearance of the symbol istied to its meaning. Though this can serve as akind of shorthand reducing the number of symbolsthat are needed to represent a word it also resultsin many more characters. The Hong Kong Chinesecharacter set contains 4’818 symbols. The localgovernment has been working to standardizevarious coding sets used to represent Chinese.Though Chinese can be difficult to type, 43 per centof Hong Kong’s population over the age of ten hasknowledge of using Chinese input methods forcomputers.
Box Figure 2.1: Who needs English?
Percentage of Hong Kong population, age five and over, able to speak English,2001 and i-Cable broadband portal
Source: ITU adapted from C&SD, i-Cable.
As usual
language
3%
As
another
language
40%
Not able
57%
Percentage of
population
able to speak
English
7
1 Census and Statistics Department. “Findings of the “Household Survey on Information Technology Usage andPenetration” and the “Annual Survey on Information Technology Usage and Penetration in the BusinessSector” in 2002 released.” Press Release. 5 December 2002.http://www.info.gov.hk/censtatd/eng/press/ops/1202/051202_index.html.
2 http://www.worldbank.org/data/databytopic/GNIPC.pdf.
3 Hongkong Telecom. Annual Report 1999.
2. Pervasiveness
8
Hong Kong, China Internet Case Study
3. Geographic dispersion
Geographic dispersion is rated atlevel 4, Nationwide.
Hong Kong’s land area is relativelysmall, just over 1’100 squarekilometres. Hong Kong’s populationdensity—some 6’000 people persquare kilometre—is the third highestin the world, after Macao, China andMonaco. Hong Kong is essentially onebig city. Some 95 per cent of thepopulation lives in urbanized Kowloon,Hong Kong Island or the new townsin the New Territories (see Figure 3.1).Hong Kong’s inhabited landscape ispredominantly vertical: 95 per cent ofthe population live in apartmentbuildings.
Hong Kong’s compactness makes itextremely easy to cover withcommunication infrastructure. This isborne out by its high level ofcommunication access. It rankssecond in the Asia-Pacific region inoverall telephone density. There istelephone access in 95 per cent ofhouseholds. Over 90 per cent of thepopulation have mobile phones andcoverage is practically total withsignals available down on subways, onthe top of skyscrapers or on the manyferries that traverse its waterways.
Therefore, telephone service ispractically ubiquitous. And sincewherever there is a phone there can beInternet access—either with a PC anda modem or a mobile phone withWireless Access Protocol—Internetaccess is available from virtuallyanyplace. For those who do not haveaccess either because they lack a PC orcannot afford it, the government isproviding free access throughcommunity centres (see Box 3.1).According to government surveys,some 2.2 per cent of the population usethe Internet through these centres(while 4.4 per cent access the Internetthrough cyber cafés).
Figure 3.1: Map of Hong Kong
Source: C&SD.
Figure 3.2: Where we use the Internet
Note: Multiple answers possible.Source: ITU adapted from C&SD.
Location of Internet use, percentage of persons agedten and over who had used Internet at least once a
week in the last year, per cent, Hong Kong,May-July 2002
84
41
19
4
2
3
Home
Work
School
Cyber-café
Government
facilities
Others
Location of Internet use, 2002
9
3. Geographic dispersion
Box 3.1: Community Cyber point
The Cyber Points project was designed to providefree computing facility for the general communityto promote IT awareness. The facilities enable thepublic to:
• Access Government information through theGovernment home pages;
• Through the Universal Free Electronic MailService Scheme, members of the public canuse the facility for e-mail communications;
• Browse other Internet web sites; and
• Access Electronic Service Delivery (ESD) forthose families without personal computers(PCs).
The project was implemented in differentphases to meet users ’ requirements andgovernment pledges. The Phase I project waslaunched to the public on 29 June 1999. 50 PCswere installed in enclosed workstations at
20 different community halls and centres of theHome Affairs Department.
The Phase II project was implemented in threestages. Stage I was completed in April 2000 with50 PCs launched at 21 different community hallsand centres. Stage II was completed in June 2000with 64 PCs launched in 21 different HAD locations.At completion of stage III in October 2001, a totalof 200 Cyber Points PCs was launched in 78 differentHAD locations and non-government organizations.
To provide equal opportunity to different groups ofthe community, the Cyber Points has extended thecomputing facility to the Visually Impaired (VI). Atrial project of installing 28 PCs with specialfurniture, computer hardware and software waslaunched in June 2000 at four different VI agencies.
A Super Cyber Centre with 100 PCs at the CantonRoad Government Offices to provide free IT facilitiesand training programmes to the community hasbeen open in July 2001.
Source: <www.info.gov.hk/digital21/eng/programme/cyberpt.html>.
Box Figure 3.1: Cyber Points, 2002
10
Hong Kong, China Internet Case Study
4. Sector absorption
Sector Absorption is rated at level 3.5,between Common and Widely Used.
4.1 Education
Internet connectivity in Hong Kong’sacademic sector is high. Hong Kong’stertiary sector pioneered the use ofthe Internet. The Chinese Universityof Hong Kong (CUHK) set up the first64 kbps Internet connection inSeptember 1991. The Hong KongAcademic and Research Network(HARNET) links Hong Kong’s eighttertiary institutions. HARNET alsoprovides connections to the HongKong Internet Exchange as well as theInternet2 (STARTAP) in the UnitedStates. All of Hong Kong’s primary andsecondary schools have an Internetconnection and half have directten Mbps fibre access.1
4.2 Government
Government ICT adoption isprogressing rapidly (see Table 4.1).Almost two thirds of governmentemployees have a PC and some 40 percent have access to the Internet. TheInformation Technology ServicesDepartment <www.itsd.gov.hk> of theCommerce, Industry and TechnologyBureau is responsible for coordinatinggovernment computerization.
Table 4.1: Government computerization
Source: <www.itsd.gov.hk/itsd/english/comp/ecomp.htm>.
Government IT Expenditure (2001/2002) HK$ 2’483 (US$ 318) million
Percentage of staff with PC (December 2002) 64.0%
Percentage of staff with Internet access (December 2002) 40.3%
Percentage of staff with internal e-mail access (December 2002) 27.3%
4.3 Health
The Health, Welfare and Food Bureau<www.hwfb.gov.hk > has overallresponsibility for health care in HongKong. One of the most active agenciesinvolved in health informationtechnology is the Hospital Authority(HA) <www.ha.org.hk>. It isresponsible for managing Hong Kong’s44 public hospitals as well as62 outpatient clinics and has almost50’000 staff. HA has some two dozeninformation technology projectsunderway.
All HA hospitals and clinics areconnected to the HA network which isin turn connected to the Internet. Onlyapproved staff is permitted access tothe external Internet, some 6.2 percent of the total. However around halfthe staff (22’000) has access tointernal medical databases via some3’500 workstations.
4.4 Business
Hong Kong is renowned for itsentrepreneurial spirit and governmentcommitment to free markets. In termsof IT adoption, however, the businesssector appears to lag behind otheradvanced economies. Part of the reasonis that the majority of business
11
4. Sector absorption
establishments are small and mediumsized. In addition, the Hong Kongeconomy has been sluggish recently.After ten per cent growth in 2000,Gross Domestic Product (GDP) onlygrew 0.6 per cent in 2001. This causesbusinesses to put off investmentincluding for information technology.
Out of 333’000 businessestablishments covered in agovernment sample survey oninformation technology usage andpenetration in the business sectorconducted in 2002, over half (55 percent) used PCs. Usage is heavilyskewed by size with 95 per cent oflarge business establishments (over100 employees for manufacturingestablishments and over 50 for
Table 4.2: Penetration and usage of information technology in thebusiness sector
Note: (1) As a percentage of all establishments in the industries covered in the annual Surveyof Information Technology Usage and Penetration in the Business Sector. Figures for 2000refer to March-June, while figures for 2001 and 2002 refer to April-June.Source: C&SD.
Percentages
2000 2001 2002
Establishments using personal computers (1) 51.5 49.7 54.5
Establishments with Internet connection (1) 37.3 37.2 44.2
Establishments with Web page/Web site (1) 7.3 10.7 11.8
Business receipts from selling goods, servicesor information through electronic means as a 0.17 0.43 N.A.percentage of the total business receipts
others) using PCs. Over two fifths(44.2 per cent) of companies have aconnection to the Internet. Amongthem, half (50.9 per cent) had abroadband Internet connection. LikePCs, the Internet connection ratevaries by the size of the company with83 per cent of large establishmentshaving a connection. The overwhelmingmajority used the Internet for email orlooking up information. Only 16 per centused it for purchasing products andservices and only 8.3 per cent used itfor making online payments. 11.8 percent of establishments had a web page.The value of electronic commercetransactions in Hong Kong wasHK$ 22’116 (US$ 2’835) million in2001, or 0.43 per cent of total businessreceipts.
1 For more on information technology in schools see the Education Department web page atwww.ited.ed.gov.hk.
12
Hong Kong, China Internet Case Study
5. Connectivity infrastructure
Connectivity Infrastructure is atlevel 4, Immense.
5.1 International and nationalbackbone
According to OFTA, Hong Kong’sinternational Internet connectivity atSeptember 2002 was 8’612Mbps.Hong Kong’s international bandwidthhas grown rapidly over the last fewyears (Figure 5.1, left). One reason isthe liberalization of Hong Kong’sexternal connectivity market sinceJanuary 2000. At December 2002,there were 18 cable-based and sixsatellite facilities operators. A numberof new submarine fibre optic systemsto which Hong Kong is connected havealso been completed over the last fewyears. Hong Kong ranks first in termsof international Internet bandwidthper capita in the Asia-Pacific region(see Figure 5.1, right). Leading ISPshave their own internationalconnectivity, particularly since this isa requirement for connecting to thelocal Internet exchange. One of
Figure 5.1: Hong Kong's international bandwidth
Source: Left chart: ITU estimates, OFTA. Right chart: ITU World Telecommunication Indicator database.
International Internet bandwidth, Hong Kong, Megabits per second, 1991-September 2002 andInternational Internet bandwidth per capita, bits per second, 2001, advanced Asia-Pacific economies
largest international Internet Protocol(IP) backbones is that of Reach, a jointventure of Hong Kong’s incumbenttelecommunication operator PCCWand Australia’s Telstra (seeFigure 5.2). Hong Kong also has adiversity of IP backbone routes, withReach having direct connections tosome twenty countries.
There are several domestic fibre opticbackbone networks owned by licensedfixed telecommunication operators.Hong Kong is fibre rich with morekilometres of fibre optic cable thanroads. These backbones are utilizedby the licensed operator ISPsubsidiaries or leased to other ISPs.The backbones operate inAsynchronous Transfer Mode (ATM)(155 Mbps) as well as pure IPbackbones operating at speeds up toten Gbps.
5.2 Local exchange
Local Internet traffic is exchanged atthe Hong Kong Internet eXchange
639
490
361
323
178
116
933Hong Kong
Singapore
New Zealand
Australia
Taiwan, China
Japan
Korea (Rep.)
International
Internet
bandwidth per
capita, 2001
1 2 6 55 100488
3’076
7’460
8’612
256
kbps
64
kbps
64
kbps
91 92 93 94 95 96 97 98 99 00 01 9/02
Hong Kong's international
Internet bandwidth,
Mbps
13
5. Connectivity infrastructure
(HKIX), operated by the InformationTechnology Services Centre of theChinese University of Hong Kong (seeFigure 5.3). It was created in April1995 with two ISPs.1 Presently 60 percent of Hong Kong’s ISPs connect toHKIX (69 directly and 12 indirectly).
5.3 Local access
Local access options include 56 kbpsdial-up, leased lines and broadbandsuch as Asymmetric Digital SubscriberLine (ADSL), cable modem, fibre-to-the-building and Ethernet over twistedpair. Broadband access is progressingrapidly and eclipsing dial-up as theprevalent local access method. Dial-up subscriptions peaked in August2000 and have been declining eversince (see Figure 5.4, top left). The
Figure 5.2: Reach international Internet backbone
March 2002
Source: Reach.
majority of Hong Kong’s householdswith Internet access report they nowconnect via broadband (seeFigure 5.4, top right). Over half ofbusiness establishments report abroadband subscription. Businesshave converted from leased lines tobroadband at a stunning rate. Internetleased line subscriptions peaked inDecember 2000 at 11’527. ByDecember 2002, there were just3’439 leased line connections versus70’623 office broadband subscriptions.There were 989’115 broadbandInternet connections at December 2002or 14.6 per cent of the population (seeFigure 5.4, bottom left). Hong Kong hadthe second highest broadband Internetpenetration in the world atDecember 2002 (see Figure 5.4,bottom right).
14
Hong Kong, China Internet Case Study
Figure 5.3: Hong Kong Internet Exchange
Source: HKIX.
Table 5.1: Broadband coverage in Hong Kong
Status of network coverage of main broadband providers at June 2002
Technology Homes Coverage Subscribers Notepassed
ADSL 2’000’700 95% 487’000 Within 4 km of exchange. Including102’000 wholesale ADSL subscribers.
Fixed wireless / 950’000 45% 130’000 Refers to HKBN network. Data atEthernet over August 31, 2002copper
Cable modem 1’780’000 85% 192’000 Refers to i-Cable network.
Source: ITU adapted from broadband operator data.
15
Figure 5.4: Broadband trends in Hong Kong
Source: ITU adapted from OFTA, C&SD and industry reports.
One reason for Hong Kong’s rapidbroadband adoption is its compact sizeand existing level of in-building wiring.ADSL passes 95 per cent of homesand other broadband technologies arerapidly increasing their coverage. Ingeneral, the provision of broadbandsimply involves connecting a backboneconnection to an apartment or officebuilding and then using the existingcopper or coaxial cable in-buildingwiring. Backbone connections areeither fibre optic or Local MultipointDistribution System (LMDS)
technology operating in the 25 –31 GHz band. The latter provides apoint-to-point connection between theantenna placed on top of buildings andhubs. Transmission speed rangesbetween 10 – 100 Mbps. In additionto utilization of existing in-buildingwiring some operators are installingtheir own copper twisted pair wiringand using Ethernet over twisted pairprotocol. This makes use of a PC’sEthernet LAN port rather than an ADSLor cable modem. Speeds of up toten Mbps (symmetrical) are possible.
-
50
100
150
200
250
300
350
400
450
8/00 12/00 4/01 8/01 12/01 4/02 8/02 12/02
Internet subscriber
growth in Hong Kong,
August 2000 = 100
Broadband
Dial-up
68.2
33.7
Broadband Dial-up
Hong Kong households with Internet access by
means of connection, 2002, %
Note: Multiple answers allowed
5. Connectivity infrastructure
11 32
392
623
989
0.2 0.5
5.9
9.3
14.6
1998 1999 2000 2001 2002
Hong Kong broadband subscriptions, 000s
Per 100
inhabitants
21.3
11.5
8.6
8.6
8.4
8.1
7.7
6.6
6.5
14.6
Korea (Rep.)
Hong Kong
Canada
Iceland
Denmark
Belgium
Taiwan, China
Sweden
Austria
Netherlands
Top 10
economies by
broadband
penetration,
2002
16
Hong Kong, China Internet Case Study
Figure 5.5: Broadband coverage and subscribers
Source: ITU adapted from operator data.
5.4 Mobile
5.4.1 Mobile market structure
The Hong Kong government has longfollowed a pro-competitive policy formobile communications. By 1987,three licenses for analogue mobileservice had been issued. In 1992,SmarTone obtained the fourth licenseand began offering digital GSMservice. In 1996, OFTA issued anothersix l icenses for PersonalCommunication Service (PCS), whichin the case of Hong Kong refers to GSM
Figure 5.6: Hong Kong: The world's most competitive mobile market?
Note: * Data for 2002 is at October. All other data in right chart is for year-end.Source: ITU adapted from operators reports, OFTA.
Mobile market shares, June 2002 and mobile subscribers,1995-2002, in Hong Kong
in the 1.7/1.8 GHz band. Thistriggered another round of fiercecompetition. After a period of mergersand alliances, there are now six mobileoperators holding eleven analogue andsecond generation mobile licenses,and a further four third generation(3G) licences. With a population of just6.7 million people, it may not be anexaggeration to claim that Hong Konghas the most competitive mobilemarket in the world. Figure 5.6 (leftchart) shows the market share ofthese six operators, namely CSL,
Hutchison
30%
SmarTone
17%CSL
17%
Peoples
14%
Sunday
10%
New
World
12%
Hong Kong
mobile market
June 2002
Subscribers:
5.827 million
Total households2.1 million
ADSL2 million, 95%
Cable modem1.8 m, 85%
LMDS0.95 million
45%
Total households2.1 million
ADSL2 million, 95%
Broadband coverage, Hong Kong, June 2002
Cable modem1.8 m, 85%
LMDS0.95 million
45%
Other
1%
ADSL
59%
LMDS /
Ethernet
16%
Cable
modem
24%
Distribution of broadband subscribers
Hong Kong, June 2002
Total = 816'200
Analogue
Activated
Pre-paid
Other Pre-
paid
0
1
2
3
4
5
6
7
1995 1996 1997 1998 1999 2000 2001 2002
Mobile subscribers, Hong Kong, million
Digital (800/900 MHz)
PCS (1.7/1.8 GHz)
Percentage and number of households covered by different broadband technologies and distributionof broadband subscribers by technology, June 2002
17
Hutchison, New World, Peoples,SmarTone and Sunday. None of theoperators is able to dominate themarket due to the high subscriberchurn that has been facilitated bymobile number portability. Figure 5.6(right chart) shows the evolution ofthe different waves of mobiletechnology.
5.4.2 Mobile data
In the ITU’s 2002 Internet for a MobileGeneration report2, a Mobile/Internetindex ranked some 200 economies interms of 26 variables. The variableswere chosen because they werethought to be good predictors of thelikely adoption of the mobile Internet.Hong Kong was ranked first, with ascore of 65.9 out of a maximum of100. It is ahead of other regionaleconomies such as the Republic of
Korea (7th), Singapore (13th), Japan(20th) and China (67th). Hong Kongachieves top ranking because of itsexisting strength both in second-generation mobile penetration (forwhich it is fifth in the world) andbroadband Internet (for which it isplaced second, globally, behind theRepublic of Korea).
The ITU’s Mobile/Internet index is ameasure of the likelihood to adopt themobile Internet rather than thecurrent situation. Indeed, in terms ofactual adoption, Hong Kong is someway behind the regional and globalleaders, Japan and the Republic ofKorea. Hong Kong completed itslicensing process for 3G inSeptember 2001, some 15 monthslater that Japan (see Box 5.1).Nevertheless, the late start did have
Box 5.1: Hong Kong's 3G licensing process
Hong Kong not only has one of the highest fixedtelephone densities in Asia, but also one of the highestmobile densities in the world. At December 2002,Hong Kong’s mobile penetration was 91.2 per cent,fifth in the world. This high level of mobile use makesit a promising environment for 3G.
Hong Kong carried out its 3G licensing processsomewhat differently than other economies. Theregulator, OFTA, opted for a hybrid process consistingof a pre-qualification phase followed by spectrumauctioning. The process took place in several stages,with applications invited from operators using any ofthe family of IMT-2000 standards, subject tocompatibility with existing standards. Furthermore,OFTA decided to allow existing 2G operators, whethersuccessful or not in obtaining 3G spectrum, to useany IMT-2000 standard within their assigned 2Gfrequency bands for 3G services, when equipmentbecomes commercially available. Rather than a purelyfee-paying system, royalty payments, with a scheduleof minimum payments, were introduced by OFTA, inorder to minimize the financial burden on operators.As a concession to the difficult operating environment,OFTA announced in October 2002 a waiver for thefirst-year’s payment of performance bonds by thelicensed operators.
The results of the process were announced inSeptember 2001, with 3G licences awarded to foursuccessful bidders: Hong Kong CSL Limited (nowfully-owned by Telstra Corporation of Australia);Hutchison 3G HK (joint-owned by HutchisonWhampoa and NTT DoCoMo); SmarTone 3G andSunday 3G. The winners bid HK$ 4.1 (US$ 0.5)
million for the licenses. In addition they must eachpay a royalty for spectrum utilization over the next15 years amounting to five per cent of revenuesubject to a minimum fee. Thus the minimumamount they must pay is HK$ 1’307 (US$ 168)million each. Under the regulatory framework ofopen network access, the 3G licensees are requiredto allocate at least 30 per cent of their capacity foruse by Mobile Virtual Network Operators (MVNOs)and/or content and service providers. Also inOctober 2001, OFTA published its guidelines for theapplication of Public Non-ExclusiveTelecommunications Service (PNETS) licences andinvited applications from potential MVNOs. OFTAhas thus sought to ensure that competition beenhanced and the market be kept as vibrant andbalanced as possible. By the end of December 2002,six companies had obtained MVNO licences in HongKong, with the majority being mainland owned.They are currently using 2G technology for serviceprovision, with plans to migrate to 3G technologyonce the networks are ready.
As of the end of December 2002, only 170’931 ofHong Kong’s 6.2 million mobile subscribers (2.7 percent) were 2.5G users, in the sense that they hadsubscribed to a particular service plan (e.g., GPRSor CDMA IS-95B) or used the service at least oncein the last month. Like many economies, HongKong’s experience with mobile Internet to date hasnot lived up to high expectations. However it ishoped that with the faster speeds and greaterfunctionality introduced by 3G, this will change.According to OFTA, “Hong Kong is well positionedto be a world centre of 3G innovation.”3
5. Connectivity infrastructure
18
Hong Kong, China Internet Case Study
the advantage that Hong Kong’spolicy-makers were able to learn fromthe experiences of other countries.4
The majority of revenue from mobiledata services comes not from GPRSbut rather from humble SMS services.In December 2002, Hong Kong’smobile users received 71 million SMSmessages, or an average of three perweek for every subscriber. Volume isgrowing by around three per cent permonth. As an example of how “push”media, via SMS, is being used ratherthan the “pull” of web-browsing, takethe UK Premiership football serviceoffered by Orange HK (Hutchison). Fora fee of HK$ five per match (around65 US cents) subscribers can receiveall the live news of starting line-ups,goals scored and red cards issueddelivered via an SMS-alert service.
The popularity of SMS augurs well forMultimedia Messaging Systems(MMS), which were introduced by CSLon 28 March 2001, the first Asianoperator to do so. MMS operates on aGPRS platform. At the opening specialoffer prices, the MMS handsets weresold at HK$ 3’088 (approximatelyUS$ 400) or HK$ 3’988 (US$ 510) fora handset with a mobile camera.Charges for content ranged fromHK$ three for a stock quote service toHK$ 15 for greetings cards and comics.Introductory offer GPRS servicepackages were charged at a monthlyfee of HK$ 149, with two megabytes ofdata usage, subsequently charged atHK$ 0.16 per kilobyte, or HK$ 49, withone megabyte of usage, subsequentlycharged at HK$ 0.2 per kilobyte. Thisvolume-based tariff structure issomewhat different from theper-message pricing structuresadopted elsewhere in the world. InDecember 2002, Hong Kong’s sixoperators made arrangements for the
interconnection of MMS traffic, greatlyexpanding the potential market.
5.4.3 Wireless LAN
The main rival to mobile Internetaccess via 2.5G and 3G networks isaccess from wireless local areanetworks (WLAN) using technologiessuch as “WiFi” (IEEE 802.11b). Theincumbent fixed-line operator, PCCW,has installed around 150 hotspotsaround the territory, including at theinternational airport, and Pacific Coffeeand Haagen Dazs ice cream shops. Theservice was free up to the end of 2002,and now costs HK$ three (around 40 UScents) per ten minutes. i-Cable, thecable television operator which alsoprovides Internet access via cablemodem, has over 1’500 hotspotscovering major shopping malls.
PCCW markets the service principallyto customers of its NETVIGATORbroadband service. This is significant,because it shows that PCCW has takenthe conscious decision to associateWLAN with broadband rather thanmobile.5 In Hong Kong, there is notthe tradition of carrying portablecomputers to work that existselsewhere, so there is perhaps not yetthe demand for WLAN services on themove in Hong Kong. But this couldchange, especially with the increasingpopularity of personal digitalassistants (PDAs).
In August 2002, OFTA issued aconsultation paper regarding thelicensing of public WLAN services.6
After considering the views from theindustry, OFTA decided to create theclass licence as proposed, which cameinto effect on 21 February 2003.Under the class licence, no licence feeneeds to be paid and operators ofpublic WLAN services simply need toregister with OFTA.
19
1 For background on the establishment of HKIX, see Che-Hoo Cheng. “Internet eXchange for Local Traffic:Hong Kong’s Experience.” http://www.isoc.org/isoc/whatis/conferences/inet/96/proceedings/h1/h1_3.htm.The HKIX web site is at www.hkix.net.
2 The summary of the report is available at: www.itu.int/mobileinternet.
3 OFTA. “TA Announces Results of Third Phase Auction for 3G Mobile Service Licensing.” Press Release.26 September 2002. http://www.ofta.gov.hk/press_rel/2001/sept_2001.html#1.
4 “In Hong Kong the allocation of 3G licenses has avoided the mistakes of Europe and their consequences.”John Ure. “Deconstructing 3G and reconstructing telecoms.” Telecommunications Policy. No. 27 (2003)187-206.
5 This decision was made easier by the sale of its remaining ownership in mobile operator CSL to Australia’sTelstra in July 2002.
6 The consultation paper is available at:http://www.ofta.gov.hk/report-paper-guide/paper/consultation/cp20020802.pdf.
5. Connectivity infrastructure
20
Hong Kong, China Internet Case Study
6. Organizational infrastructure
The Organizational infrastructureis at level 4, Robust.
There is an industry regulator—theOffice of the TelecommunicationAuthority (OFTA)—and market entryconditions are clear and transparent.1
OFTA was established in July 1993 asan independent governmentdepartment, funded mainly by licensefees. A license is required to providetelecommunication services in HongKong. The type of license depends on
the nature of the service to beprovided. The incumbent fixed linemonopoly ended in July 1995 when15-year Fixed TelecommunicationNetwork Services (FTNS) licenseswere awarded to three newoperators.2 The number of licenseswas initially limited to allow the newentrants time to recoup theirinvestment. However, as ofJanuary 2003, there are no longer anyrestrictions on the number of FTNSlicenses.
Table 6.1: Hong Kong's telecommunication and regulatory timeline
1871
1873
1877
1925
1984
1988
Sep-91
1995
Mar-98
May-99
Jan-99
Jan-00
Aug-00
Jan-02
First submarine telegraph cable laid.
Forerunner company of Cable & Wireless (Hong Kong) formed to operate international services.
Telephone service introduced.
Hong Kong Telephone Company (HKTC) incorporated as a private company in 1925 to acquire partof the business of China and Japan Telephone and Electric Company Limited, which had operatedHong Kong’s first public telephone services since 1882. In the same year, HKTC was awarded thesole right to provide Hong Kong’s local telephone services for 50 years. This right was subsequentlyextended to 1995.
Cable & Wireless acquires HKTC.
HKTC and Cable & Wireless (Hong Kong) formally merge into Hongkong Telecom.
The Chinese University of Hong Kong establishes the first Internet connection.
Following the expiration of HKTC’s monopoly on fixed-line telephone services, OFTA issued a non-exclusive license to HKTC and three other companies to provide fixed telecommunications networkservices on a competitive basis. The licenses are valid until 2010 and were renewable for a periodof 15 years at the discretion of OFTA.
HKTC surrendered its exclusive license to provide all external telecommunications facilities inHong Kong.
OFTA extends moratorium on the granting of additional FTNS licenses to 31 December 2003.Announces it would begin granting licenses for wireless local fixed telecommunication networkservices, effective in January 2000 and license Hong Kong Cable Television Limited to providetelecommunications services using cable modem technology over its hybrid fibre coaxial cabletelevision network.
Resale of external telecommunication services liberalized.
Markets for external facilities-based competition, wireless FTNS and telecom service using cabletelevision network opened.
PCCW acquires Cable & Wireless HKT (former Hong Kong Telecommunications Limited) forHK$225,000 million.
OFTA announces details to fully liberalize the FTNS market from 1 January 2003.
Source: ITU adapted from OFTA, PCCW.
21
Commercial Internet services started in1993. There were 258 registeredInternet Service Providers (ISPs) atDecember 2001. It is estimated thatbetween 135-141 are actually inservice.3 ISPs require a Public Non-Exclusive Telecommunication Service(PNETS) license that costs HK$ 750(US$ 96) per year and is renewableannually. In addition, if ISPs provideservices that require access to sitesoutside of Hong Kong, they must obtainan External TelecommunicationServices license which costs HK$ 750per year. The value of the ISP marketwas put at HK$ 3’326 (US$ 426) millionin 2000, the latest year for which dataare available.4
OFTA issued a statement on broadbandinterconnection in November 2000,following two earlier rounds of industryconsultations.5 The statement laid outground rules for how broadbandinterconnection should work in theevent that commercial negotiations fail.The statement defined broadband asspeeds higher than 144 kbps. HongKong has two types of telecom-munication network interconnection.Type 1 refers to interconnection amongnetwork switches. In regards tobroadband, Type 1 interconnection isnot legally mandatory. However,because all of Hong Kong’s major ISPsexchange traffic through the HKIX localInternet exchange this has not been anissue. Type 2 interconnection refers toallowing access to subscriber premiseslines (i.e., “local loop unbundling”). Thisis particularly relevant for broadbandwhere access to the local loop isconsidered a bottleneck. The reason isthat virtually all of Hong Kong’spopulation lives and works in high-riseapartments and offices, most of whichalready have internal wiring. The spaceavailable for adding new wiring andsupporting equipment is constrainedwhich makes it difficult for new operatorsto add new local lines. The OFTAstatement called for all in-building copperand coaxial cable being made availablefor interconnection after February 2001.Though the statement did not establish aconcrete formula for interconnectionrates, it clarified numerous points andimplied that OFTA was ready to interveneif market forces failed.
At December 2002, Hong Kong’s ISPsserved 1’371’705 dial-up, 3’439leased line and 989’115 broadbandInternet subscribers. The high numberof dial-up subscribers is misleading.Both dial-up subscriptions and traffichave been in sharp decline since theend of the year 2000. Furthermore,the dial-up figure is inflated from freesubscriptions that are no longer orrarely used. Surveys of residential andbusiness users show that a majorityuse broadband to access the Internet.The average revenue per user (ARPU)for broadband is more than twice thatof dial-up.
There are 15 companies providingretai l broadband services (seeTable 6.2). These include the fourfixed l ine operators, f ive f ixedwireless operators, the cabletelevision company and five ISPresellers. The market is particularlyconcentrated for broadband wherethe three main infrastructure-basedproviders account for 90 per cent ofthe market. The three majorfacilities-based broadband providersare:
• PCCW, the incumbenttelecommunication operator. Itlaunched Hong Kong’s firstbroadband service, a 1.5 MbpsADSL product, in May 1998. AtDecember 2002, it reported424’000 subscribers. PCCW alsowholesales ADSL lines to ISPs(135’000 at December 2002).PCCW reported US$ 76 million ofretail consumer broadbandrevenue for the first half of 2002.PCCW also had 264’000 dial-upsubscribers at June 2002.PCCW’s 3.35 mill ion fixedtelephone lines in serviceaccounted for 87 per cent of theHong Kong total at June 2002.
• i-Cable, the cable televisioncompany. i-Cable obtained a12-year exclusive license toprovide cable television servicesin June 1993. It launched itscable television network fourmonths later in October. In March1999, it introduced dial-upInternet service. In January
6. Organizational infrastructure
22
Hong Kong, China Internet Case Study
2000, it was awarded an FTNSlicense allowing it to providebroadband Internet service overits cable television network andbegan converting its network to bi-directional capacity to supportInternet access. At December 2002,it had 605’000 Pay TV subscribersand 225’000 cable modemsubscribers. i-Cable reported a profiton its broadband operations during2002 with revenues of HK$ 450(US$ 58) million.
• Hong Kong BroadbandNetwork, a subsidiary of CityTelecom. Established in 1992,City Telecom is an externaltelecommunications servicesprovider in Hong Kong, focusingon the internationaltelecommunications market. Itestablished a subsidiary, HongKong Broadband Network(HKBN) that was awarded aWireless FTNS license in February2000. HKBN uses wireless
Table 6.2: Hong Kong's broadband operators
Operator Techno- Speed Note Web sitelogy
1 PCCW ADSL 1.5/3/6 Mbps down, Fixed FTNS license www.pccw.com512 kbps up (incumbent operator).
Reported 424'000 broadbandsubscribers at December 2002.
2 HGC Ethernet 10 Mbps Symmetric Fixed FTNS license. www.hgc.com.hk
3 New World Ethernet 2 Mbps Symmetric Fixed FTNS license. www.newworldtel.com
4 Wharf Ethernet 2/4 Mbps Symmetric Fixed FTNS license. www.wharfnewtt.comNew T&T
5 i-Cable Cable 8 Mbps Symmetric Cable TV fixed FTNS license. www.i-cable.commodem Reported 225'000 broadband
subscribers at December 2002.
6 HKBN LMDS/ 10 Mbps Symmetric Wireless FTNS license. www.hkbn.com.hkEthernet Reported 160'000 broadband
subscribers at January 2003.
7 SmarTone LMDS/ 1.5 Mbps Wireless FTNS license. www.ismart.netBroadband Ethernet
8 CPCNet LMDS/ 1.5/3 Mbps Wireless FTNS license through www.cpcnet-hk.comEthernet purchase of PSINet Hong Kong.
9 Eastar LMDS/ 3/6 Mbps Wireless FTNS license. Reported www.hendersoncyber.comEthernet 800 broadband subscribers at
September 2002.
10 Hua Nan-Teligent
11 HKNet ADSL ISP owned by NTT of Japan. www.hknet.com
12 Pacific ADSL Hong Kong's oldest ISP, owned www.hk.super.netSupernet by Pacific Internet of Singapore.
Reported 7'600 broadbandsubscribers at September 2002.
13 So-net ADSL ISP owned by Sony of Japan. www.so-net.com.hk
14 Netfront ADSL ISP www.netfront.net
15 Cyber ADSL ISP www.cyberec.comExpress
Source: ITU adapted from operators data.
23
technologies such as LMDS toprovide fixed network services inHong Kong. It installs its own in-building blockwiring to provideservice to customers. HKBN wasupgraded as a wireline basedFTNS licensee in April 2002. Thisupgrade allows HKBN to developits own fibre-based backbone tosupplement the existing wirelessbackbone in densely populatedareas. As of January 31, 2003,its network covered 440 officesand 2’800 apartment buildingswith approximately 1.2 millionhouseholds and160’000 broadband subscribers.It reported broadband revenuesof HK$ 239 (US$ 31) millionduring its fiscal year ending31 August 2002.
At first glance, broadband pricing inHong Kong does not appear to beparticularly cheap, especially incomparison with dial-up. Free dial-upsubscriptions are widely available.However, users have to pay two HongKong cents per minute (15.4 US centsper hour) for telephone network
access.6 Dial-up Internet access ischeaper until 207 hours of use permonth is reached, at which time cablemodem access becomes cheaper. Thepoint at which broadband accessbecomes cheaper than dial-upgenerally occurs at a lower number ofmonthly hours in most othereconomies. However, the increasinglycompetitive broadband market hasdrastically reduced prices. Oneinteresting method of sell ingbroadband is through street stallswhere hawkers offer plans at belowlist price if subscribers are willing tosign on for a long-term contract. Thus,there is often a big difference betweenpublished tariffs and what the servicecan actually be obtained for. Forexample, PCCW offers an ADSL planfor HK$ 298 (US$ 38) that officiallyonly includes 100 hours per month. Ifsubscribers sign up for 18 months,they get unlimited access. HKBN offersunlimited broadband Internet accessto residential customers at an evenmore competitive rate of HK$ 148(US$ 19) if subscribers sign up for12 months. Furthermore, it is arguedthat the main benefit of broadband is
Figure 6.1: Broadband pricing
Price of dial-up and broadband Internet access per hour of use, Hong Kong, December 2002, HK$and monthly price of unlimited ADSL access, advanced Asia-Pacific economies, December 2002
0
50
100
150
200
250
300
350
400
450
25 50 75 100 125 150 175 200 225 250
Hours per month
ADSL
Cable modemDial-up
Dial-up plus phone line
rental
HK$
207
157 249
115
Note: The left chart identifies broadband “crossover” points, the number of monthly hours of Internetaccess at which it becomes cheaper to use broadband rather than dial-up. For example, after 207 hoursof use, it is cheaper to switch from dial-up to a cable modem broadband subscription. “Dial-up plus phoneline rental” shows the price of dial-up access and the price of having a second line. The right chart isbased on lowest priced unlimited access plan with at least 512 kbps download speed.Source: ITU adapted from operator reports.
6. Organizational infrastructure
3541
36
51
38
116
43
12 1520 22 27
68
151
Hong
Kong
New
Zealand
Japan Korea
(Rep.)
Taiwan,
China
Australia Sing-
apore
Monthly fee
Price per Mbps
ADSL pricing, Dec. 2002, US$
24
Hong Kong, China Internet Case Study
1 OFTA has received the Best Asian Regulator award three times. Seewww.ofta.gov.hk/whats_new/best_asian_regulator.html.
2 Hong Kong Telecom also had a 25-year exclusive license for international services that was due to expire in2006. This was terminated 8 years early March 1998. The government paid a cash compensation ofHK$ 6.7 billion (US$ 859 million), far less than the estimated HK$ 17 (US$ 2.2) billion in consumer benefitsaccruing from the early termination of the license.
3 According to Netcraft <www.netcraft.com>, an English Internet consultancy, there were 141 ISPs inoperation in Hong Kong at December 2001. The local Internet exchange, HKIX, reported that the 81 ISPsconnected represent 60 per cent of market (thus 135 ISPs in total).
4 It should be noted that in addition to registration and connection services, the figure includes web hostingand other unspecified Internet related services. Revenue from “Basic connection services” wasHK$ 1’524 (US$ 195) million. See Census and Statistics Department. Hong Kong as an Information Society.2002 Edition. September 2002.
5 OFTA. Broadband Interconnection. Statement by the Telecommunications Authority of Hong Kong.14 November 2000. http://www.ofta.gov.hk/tas/interconnect/ta20001114.pdf.
6 Ironically, there is no charge for local voice calls but Internet access is charged. This has its roots in the dayswhen Internet use started to become popular in Hong Kong and there were concerns that not charging fortelephone network use would congest the network. It was also felt that those who did not use the Internetwould be subsidizing those who do. As a result the so-called Public Non-Exclusive Telecommunication Service(PNETS) charge was introduced. The rate has been progressively reduced.
that it is always on and does not tieup the telephone line. Thus, the priceof broadband service should also becompared to the cost of having asecond telephone line (HK$ 110 permonth). In that case, broadbandbecomes cheaper than dial-up after115 hours of use per month.
In light of these developments, HongKong’s broadband Internet accesspricing has recently become amongthe cheapest in the region.Furthermore, it offers more value forthe money than any other advancedAsia-Pacific economy in terms ofprice per bandwidth.
25
7. Sophistication
7. Sophistication
Sophistication of Use is at level 3,Transforming.
Hong Kong’s Internet users are amongthe most intense in the world. AJuly 2001 survey ranked Hong Kongsecond globally in terms of monthlyInternet use (see Figure 7.1, left). TheCensus and Statistics Departmentsurvey, carried out between May-July2002, found that 87 per cent of HongKong’s Internet users used the Internetat least once a week. These frequentusers spend 11.3 hours per week online,with about one fifth spending more than20 hours a week (see Figure 7.1, right).This intensity is reflected in Hong Kong’shigh broadband penetration since heavyusers want fast speed.
Though the major purposes for usingthe Internet in Hong Kong areconventional (e.g., communicating withothers, surfing and searching, seeFigure 7.2, left), there are signs thatthe Internet is beginning to be used in
Figure 7.1: Heavy users
Average hours of Internet use per month, July 2001 and number of hours of Internet use per week,Hong Kong, May-July 2002
Note: Right chart refers to Internet users aged ten and over who had used the Internet at least once a week.Source: ITU adapted from Nielsen//NetRatings and C&SD.
ways that are more closely integratedwith peoples’ lives.
One example is using the Internet ratherthan traditional media (e.g., newspapers,radio, television) to stay informed ofcurrent events. Almost half (48 per cent)of Hong Kong’s Internet users read amagazine or newspaper online. Personalfinance is also increasingly carried out onthe Internet. Almost one in five Hong KongInternet user carries out some type ofelectronic business service related topersonal finance (see Figure 7.2, right).However, the rate of actually performingan electronic commerce transaction onlineis low (8.6 per cent). Part of the reasonmay be that people in Hong Kong arenever far away from shops. Threequarters of those Internet users who havenot carried out electronic commercetransactions state the reason is becausethey do not have the need. Security ismuch less of a concern with 19 per centstating that as a reason for notperforming electronic commerce
< 15%
5 - < 1021% 1 - < 5
31%
> 2019%10 - < 20
24%
Hours of Internet use per week, Hong Kong, 2002
Average =
11.3 hours
per week
19:20
9:27
8:48
8:04
7:41
6:59
12:12
Korea (Rep.)
Hong Kong
Japan
Singapore
Taiwan, China
Australia
New Zealand
Hours of Internet
use per month,
July 2001
26
Hong Kong, China Internet Case Study
Figure 7.2: What the Internet is used for
Major purposes of using the Internet and type of electronic business services used via Internet, %, 2002, Hong Kong
Source: ITU adapted from C&SD.
transactions online. Around five percent of Internet users use on-linebanking. Hong Kong’s largest bank,HSBC, reported it had 340’000 onlinebanking customers in June 2002. Ithas launched a service enablingcustomers to pay over 100 types ofbil ls online (e.g., telephone,insurance, electricity, taxes).
The government has made majorefforts to encourage the population to
interact with it online. The governmentportal at www.info.gov.hk provides alarge amount of information about thepublic administration in both Chineseand English. The governmentlaunched the Electronic ServiceDelivery (ESD) portal inDecember 2000. The ESD website isone of world’s first bil ingualgovernment portals, providing over110 services online. The ESD portalwon the Stockholm Challenge Award
76
75
60
48
33
22
19
Communication with others
Browsing web pages
Searching for information
Reading magazine / newspaper
Digital entertainment
Download software
Electronic business services
Hong Kong,
major
purpose of
using
Internet, %,
6.5
5.3
5.3
5.2
3.1
1.2
3.0
Searching for information on
goods / services
Searching for financial
information (e.g., stock prices)
Searching for job vacancies
Using online banking
Making reservation / booking
tickets
Purchasing / ordering goods
and services
Trading stock
Hong Kong,types of
electronicbusinessservicesused, %
Figure 7.3: Government online
Source: ITU adapted from C&SD.
ESD
website
10.6%Other
gov't.
sites
74.1%
Yes
18.1%No
81.9%
Both
15.3%
Channel of using online
gov't. services
Percentage distribution of Hong Kong
population aged 15 and over by whether had
used online government services in last year 16.2
8.0
7.0
3.3
2.6
2.5
2.1
1.8
86.8Enquiry
Job seeking
Financial management
Booking venues
Purchase publications
License application
Appointment booking
Registration
Change of personal particulars
Persons aged 15 and
over who had used
online government
services by type of
online government
services used, %
27
in 2001 under the category of PublicServices and Democracy. Free accessto ESD is available at some4’800 public facil it ies includinglibraries, post offices and communitycentres and there are also 70 ESDkiosks. Around 40 per cent of HongKong’s population over the age of15 are aware of the ESD (up from28.7 per cent in 2000). Over one third(36.3 per cent) of Internet usersaccess government web sites to obtaininformation and ten per cent access
government web sites to pay bills orsubmit forms such as taxes or licenserenewals online.
There are signs that Hong Kong’s risingbroadband penetration is beginning tobe reflected in the types of applicationsthat are used. One third of Internetusers had accessed online entertainmentin 2002, including over half of thosebetween the ages of 10-24. This includesonline gaming, music streaming andwatching videos.
7. Sophistication
28
Hong Kong, China Internet Case Study
8. Conclusions
There are three key factors affectingbroadband take-up in Hong Kong:
• As competition has intensified,prices have dropped sharply,particularly over the last year orso. In any case, Hong Kong’srelatively high per capita incomeminimizes cost as a major barrier.
• Availability of broadband is high,a reflection of Hong Kong’scompact urban geography andvertical habitation. If someonewants broadband, they canobtain it reasonably quickly.ADSL covers 95 per cent of thehouseholds and cable modem isavailable in 85 per cent of homes.
• Usage is intense with thefrequent users (defined as thosewho had used Internet at leastonce a week) spending 11 hoursa week on the Internet.According to a non-governmentsurvey, Hong Kong ranks secondin the world in terms of thenumber of hours the averageuser is on the Internet. Thisheavy usage drives demand forfast, always-on Internetconnections. A related factor isthat Hong Kong has beenconnected to the Internet since1991, which has allowed it tobuild up a base of savvysophisticated users.
While some factors for Hong Kong’sbroadband explosion are tied to itsunique situation (compact size, longperiod of time connected to theInternet), one factor that is replicablefor other economies is the high levelof competition. It is unlikely that thereis this degree of broadbandcompetition anywhere else in theworld. There are 15 retail broadbandproviders in Hong Kong, resulting inintense competition for potentialcustomers. As one broadband provider
notes: “Competition is expected to bekeener this year as the marketplaceapproaches commoditisation.”1 Thiscommoditisation is reflected in standsset up in the street to hawk broadbandInternet access as if it was apples ororanges. In order to entice potentialusers, providers offer everything fromtoasters to stereo equipment. In HongKong, broadband is no longerperceived as a luxury but a mass-market product. As a result, it is nolonger a question of if users will getbroadband but when. At currenttrends, virtually all of Hong Kong’sInternet subscriptions will bebroadband by the year 2005.
This rapid conversion to broadbandhas two implications. One istechnological, the second social.Technically, the increasing penetrationof broadband implies that the majorityof Hong Kong’s telecommunicationtraffic is IP-based. One wonders how
Figure 8.1: Hawking broadband
Source: Michael Minges.
Broadband street sellers, near Wanchai Computer Centre,December 2002
29
8. Conclusions
much longer it makes sense tomaintain two different networks—thetelephone network based on circuitswitched technology and a secondbased on packet switched IP. At acertain point—perhaps 2005 whenPCCW will have a fully IP network—the crossover to a packet datatelecommunication network may takeplace. But for that to happen, muchmore work needs to be done in thearea of provisioning IP-based voiceservices and providing IP-basedterminal equipment (e.g., telephonesets).
The second implication revolvesaround the use to which broadbandnetworks are put. Though broadbandapplications are available in HongKong, for the most part they are
entertainment-based. Even for thoseapplications, only one third of HongKong’s users are using them. For themost part, usage of the Internet inHong Kong revolves around themundane—email, surfing web sites,etc.—with broadband mainly attractivebecause of its convenience (e.g.,faster speed, not tying up thetelephone line, always on). A snapshotof Hong Kong’s e-readiness, asreflected in a widely used framework,shows that one of the few areas it doesnot obtain the highest ranking issophistication of usage (seeFigure 8.2). Much more work is neededto develop broadband applications andto entice users to use them. Once thathappens, then Hong Kong will havetransitioned from a broadband marketto a broadband society.
Figure 8.2: State of Internet in Hong Kong
Dimension Value
Pervasiveness 4.0
Geographic Dispersion 4.0
Sectoral Absorption 3.5
Connectivity Infrastructure 4.0
Organizational Infrastructure 4.0
Sophistication of Use 3.0
TOTAL 22.5
Note: The higher the value, the better. 0 = lowest, 4 = highest.Source: ITU.
December 2002
0
1
2
3
4Pervasiveness
Dispersion
Absorption
Connectivity
Organizational
Sophistication
1 i-Cable Communications Limited. Annual Report 2001.
31
Annex 1: List of meetings
Annexes
Date Organization Persons
Tuesday, 3 December 2002
10:00 am
i-Cable Mr. Garmen K. Y. Chan, Vice President, External Affairs
Mr. Benjamin Tong, Executive Director,
Multimedia Services
3:00 pm i-Cable Ms. Cherie Lam, External Affairs Officer
Wednesday, 4 December 2002
10:30 am
PCCW
Mr. Dominic Leung, Executive Vice President, Consumer Marketing and Business Management
Mr. Allen Wong, General Manager, Product Development & Management
Ms. Irene Ho, Assistant Vice President,
Corporate Communications
Thursday, 5 December 2002
9:00 am
Office of the Telecommunications Authority (OFTA)
Mr. M. H. Au, Deputy Director-General
Ms. Sara Lam, Senior Regulatory Affairs Manager
2:00 pm
Hong Kong Broadband Network (HKBN)
Ms. Fion Fung, Director, Business Development, Broadband Network Services
Friday 6 December 2002
10:00 am
Census and Statistics
Department (C&SD)
Mr. Yiu-choi Siu, Senior Statistician, Social Statistics Branch
32
Hong Kong, China Internet Case Study
Annex 2: Acronyms
ADSL Asymmetric Digital Subscriber Line
ARPU Average Revenue Per User
C&SD Census and Statistics Department
ESD Electronic Service Delivery
FTNS Fixed Telecommunication Network Services
GPRS General Packet Radio Service
HK$ Hong Kong Dollar. Conversion rate used in this report is HK$ 7.8 = US$1.
HKBN Hong Kong Broadband Network
HKIX Hong Kong Internet Exchange
IMT-2000 International Mobile Telecommunication
IP Internet Protocol
LMDS Local Multipoint Distribution System
Mbps Megabits per second
MMS Multimedia Messaging Systems
MVNO Mobile Virtual Network Operator
OFTA Office of the Telecommunication Authority
PCCW Pacific Century Cyber Works
PDA Personnal Digital Assistant
SMS Short Message Service
WLAN Wireless Local Area Network
33
Annex 3: Bibliography
Census and Statistics Department. Thematic Household Survey. Report No. 10. InformationTechnology Usage and Penetration. December 2002.
Census and Statistics Department. Hong Kong as an Information Society. September 2002.
Census and Statistics Department. Report on 2002 Annual Survey on Information TechnologyUsage and Penetration in the Business Sector. November 2002.
City Telecom. Annual Report 2002. November 2002.
i-Cable Communications Limited. 2002 Interim Report.
i-Cable Communications Limited. 2001 Annual Report.
Hongkong Telecom. Annual Report. Various years.
PCCW. Annual Report. Various years.
Benjamin Tong. Cable Broadband Development Study. Presentation to ITU. 3 December 2002
Annexes
