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 Kong.”
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 vendors
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 passed.
“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 says.
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 coverage.
“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 gigabit service.”
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 development. .
“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 mobile services.
“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 moment”.
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 broadband service.
“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