City Telecom moves on its big hairy goal to be Hong
Kong’s largest IP provider
William Yeung: the only operator in Hong Kong to
offer one gigabit a second upstream and downstream —
at a shade under $3.90 a month
William Yeung and his colleagues at City Telecom in Hong
Kong have what they call a big hairy audacious goal —
BHAG for short: to become the biggest IP service provider in
Hong Kong by 2016.
That’s a daring ambition, and City Telecom has
some way to go yet, but it’s making good progress,
says Yeung, who became CEO in November 2008.
"Right now City is the second largest provider in Hong Kong.
And customer numbers are increasing 25% a year."
The company is also increasing revenue by 10% a year, ebitda
by 30% and net profit by 50%, he adds. "In the past two years
we have been performing better than our competitors in Hong
The special administrative region, just across the border
from the southern Chinese technology city of Shenzhen, is
fiercely competitive for telecoms operators — both
fixed and mobile.
Mobile operators in Hong Kong are racing to provide 3G
services and, before too long, 4G in the form of LTE, aiming at
faster and faster data rates.
Fixed operators too are racing to provide more bandwidth and
to pass more homes in Hong Kong’s crowded
cityscape. "Our services are now available to 1.55 million
homes, two thirds of the total," says Yeung. "We are the only
one who can provide one gigabit per second upstream and
downstream." The cost is HK $20.98 a month — a shade
under US $3.90.
Check that: one gig, each way, for $3.90 a month. To
apartment block after apartment block. Why? "Our customers,
they’re doing everything," he says.
The one gig offer is new, and many still opt for the cheaper
100 megabits a second service. "We have this bandwidth
guarantee," says Yeung. "If you can’t get 80
megabits, we will refund the charge. No one else in the world
is doing that."
That’s a two-day refund if the speed drops from
100 to 80 megs on any one day, he explains.
The company, which is quoted on New York’s
Nasdaq exchange, uses Cisco and Alcatel-Lucent as its equipment
It has taken the company ten years to build its optical
fibre network at a gross book cost of $385 million. That
relatively low cost is thanks to Hong Kong’s
extreme density of about 6,000 people per square kilometre
— compared with just 340 in the US.
"Hong Kong is different from the States, with many high-rise
buildings." Families live in apartments of 50-100 square
metres, in tightly packed blocks. The company has installed
fibre and ethernet cable up each block through the ducts and
then along corridors.
"Our cost per home passed is one fifth of what Verizon has
had to pay to install FiOS," says Yeung. He estimates City
Telecom’s costs at around $200 per home
"Unlike most new entrants that heavily rely on leasing
network components from the incumbent, City Telecom is unique
as our fibre network is end-to-end and completely bypasses the
incumbent," says Yeung.
The cost is more than City Telecom’s current
market capitalisation of about $320 million. "The replacement
cost for our network will be much higher today," says Yeung:
ducts in the buildings are crowded now and it would be hugely
expensive for any competitor to repeat the exercise.
"We are now delivering on the numbers — subscriber
growth, profitability, positive free cash flow and paying
dividends — and we believe that the strategic value of
our network will be recognised by the market over time," he
Now City Telecom is aiming to cover more of Hong Kong.
Having built the network around most of the
region’s congested urban area, which occupies only
a small fraction of the total land area of 1,000 square
kilometres, the company is now planning to widen the
"We want to cover another 455,000 homes within two years,
taking us up to more than 90% of Hong Kong properties," says
Yeung. He’s expecting to spend a further $90
million over that period in developing coverage.
The next challenge is to make the one gigabit option more
popular, "when our competitors are still offering 6-8
megabits", he adds. "We want to increase usage of the one
He hopes that will take City Telecom up to a market share of
one third: with the competition, that would make the company
the biggest in the market in terms of IP services.
"City Telecom currently commands only 5% of a $3.6 billion
revenue market," he admits. So there is some way to go. "There
is potential for six-times revenue growth from where we are
today." The company set its BHAG in 2006, "and so far, three
years into the plan, we are well on track".
Yeung — Yeung Chu Kwong is his Chinese name
— has worked in the telecoms industry for 17 years,
including a spell at one of Hong Kong’s leading
mobile operations, Smartone-Vodafone, as director of the
customer division. He joined City Telecom in 2005 as COO,
heading the customer engagement department and network
"We have a very open company culture," says Yeung. The other
side of that is that people are responsible for the profit and
loss of their own department. "They have targets for revenue
generation and cost control." As a reward, they receive a share
of the costs that they save, "and our staff our earning 25-30%
more than the competition", he says.
It’s an efficient company, with 3,000 staff. By
comparison, PCCW — the nearest Hong Kong has to an
incumbent — has some 16,000, though it also offers
"All products are under a single marketing department," says
Yeung. "If we decide on a new product in the morning then we
can launch in the afternoon. For example, the price for our
one-gig service. A few months ago we wanted to make it more
popular, so we set the price at HK $29.98." The decision was
taken, and implemented.
A gap in City Telecom’s product portfolio is
undoubtedly mobile, "for the time being", says Yeung. "In
future we do not rule out any possibility of working with a
mobile operator or of acquiring a mobile licence." But such a
decision has to be taken in the light of any return on
investment, "and I can’t tell you more at this
Yeung does not regard mobile broadband operators such as
PCCW and CSL, Telstra’s subsidiary in Hong Kong,
as complete competitors to City Telecom’s
"Mobile broadband is unstable and expensive," he warns.
"They have a technical handicap, that they are limited by their
backhaul networks. They are only going to increase their
expenses, not reduce them."
Mobile broadband services do have one advantage, he admits:
"They are convenient, but like a sleeping bag is convenient.
You can sleep anywhere, but only in an uncomfortable way."
He makes an unfavourable comparison with CSL’s
pricing: HK $538 a month for its 21 megabits a second NextG
service. That’s CSL’s unlimited local
data usage plan.
What’s next of Yeung’s schedule?
"Right now we want to focus on better developing our network in
Hong Kong. We want to be the largest IP provider in Hong Kong
by 2016. That was a ten-year plan we formed in 2006, when we
were the smallest broadband operator. We told the market then
that we want to be the largest in both customer numbers and
revenue by 2016."
Since then "three years have gone and we are quite confident
— and a little bit arrogant." In those three years
City Telecom has moved into the number-two position.
Will the company achieve its target by 2016? "Well,
we’ve announced 2016 to the public, but internally
we want to achieve this two years earlier. That’s
not something secret," he says.
"We’re turning a dream into a reality. In 2005
we had a dream. Now we have the network and we can turn that
into our advantage." GTB