TThis annual report provides a comprehensive overview of the trends and developments in telecommunications and digital media markets in Hong Kong and Macau. Subjects covered include:

Key Statistics;
Market and Industry Overviews;
Regulatory Environment;
Major Players (fixed and mobile);
Infrastructure;
Mobile Voice and Data Markets;
Internet, including VoIP and IPTV;
Broadband markets;
Convergence and Digital Media.

Executive summary
Hong Kong has developed a reputation as one of the most sophisticated and dynamic telecommunications markets in the world. This Special Administrative Region (SAR) of China has built itself a world-class telecoms infrastructure, supporting a high penetration of mobile phones and telephone services generally.

At the start of 2007, the territory had over 3.8 million fixed telephone lines in service, for a teledensity of around 54% – one of the highest fixed line penetrations in Asia as well as in the world. While the fixed-line market has certainly been levelling off, the mobile market has continued to be a boom sector. According to Office of the Telecommunications Authority (OFTA) data, by April 2007 there were a mind-boggling 9.3 million mobile subscribers in the SAR; this represented a mobile penetration of 135%.

In late 2004, 3G mobile services were launched in Hong Kong by three of the local operators. In the period since launch, these operators have been aggressively promoting their new generation products and by early 2007 the total number of 3G services was approaching 1.5 million. Not surprisingly, new generation mobile services have started reshaping the territory’s mobile market; in fact, when 2.5G and 3G services are taken together there were 2.3 million new generation services in operation in Hong Kong in February 2007.

The infrastructure that has been supporting this continuing growth is impressive. Digitalised since 1995, the territory has been wired with 400,000 kilometres of optical fibre. The territory’s extensive broadband network covers the vast majority of households and provides the basis for a wide range of existing and future telecommunications services. As a result of its extensive infrastructure roll-out, Hong Kong moved quickly to provide more than 90% of households with broadband Internet coverage; around 70% of households had an active broadband service in place by end-2006. The total number of broadband subscribers in Hong Kong has jumped dramatically in the last few years, with the subscriber base expected to hit two million by end-2007.

Hong Kong’s telecoms regulator, OFTA, has plainly signalled its intention to keep reforming and has been promoting its continuing program of market improvement. Since 1998 the government has adopted this strongly proactive attitude to telecommunications and has taken a series of specific steps which were aimed at turning Hong Kong into a regional technology hub. OFTA believes that the successful Hong Kong telecoms market has been due to positive action in respect of licensing procedures and an absence of restrictions on foreign investment. The government’s ‘open sky’ policy has been an example of this proactive approach.

At the same time the regulator has been keen to involve the operators in its reform processes. It does this in various ways, including a formally structured consultation process. In the second half of 2006, Hong Kong’s mobile carriers were urging OFTA to replace the one-way, wholesale charging model that had for decades allowed fixed-line companies to pay nothing for putting calls through onto mobile networks. They urged OFTA to consider a Calling Party Pays (CPP) regime that could balance out the inequities in the one-way interconnection charge levied unilaterally on mobile operators by fixed carriers. [Under CPP, an operator pays the receiving-end network for the cost of conveying the voice call made by its customers.] Industry players say CPP is fair and closest to a user-pays principle. OFTA was in the process of conducting a consultation on the regulatory impact of the convergence between fixed and mobile services. The scope of that study included reviewing the fixed-to-mobile charging principle. For the country overview, see chapter 1, page 1.

Macau
Macau also a SAR of China, has remained very low profile compared with Hong Kong in the development of its telecommunications market. With a similarly strong commitment to providing quality telecommunications-related services, however, Macau has systematically built itself a strong modern telecommunications infrastructure. The result is another highly penetrated telecoms market.

Fixed lines reached a saturation point at a little over 35% teledensity a few years ago. Attention then shifted to focus on the mobile market, where, by early 2006, there were 563,000 mobile subscribers, a penetration of 113%. But it did not stop there. Twelve months later, by April 2007, the number of mobile subscribers had increased to 684,000 and as a result the penetration had reached an amazing 137%. This made Macau the most highly penetrated mobile market in the world at the time.

Rapid growth in the mobile sector can be attributed to the opening of the mobile market to competition in 2001 when two new operators – Hutchison and SmarTone – entered the market. They started to seriously compete with Macau Telecom and, as a result, in a booming market Macau Telecom’s market share dropped to about 46% by April 2007.

Macau has also been quick to adopt Internet in its various forms with strong encouragement from the administration. Broadband Internet access, predominantly making use of Digital Subscriber Line (DSL) technology, has been developing quickly and by April 2007 around 90% of all Internet subscriptions in Macau were broadband based. For the country overview, see chapter 2, page 113.

Key highlights
Hong Kong and Macau both continued to have booming mobile markets; by early 2007, they were the leading mobile markets in Asia in terms of subscriber penetration.
Macau was #1 (in both Asia and the world) with 146% penetration and Hong Kong had 114% (end-2006 figures).
In Hong Kong, 1.5 million 3G customers had been signed up by the operators in just over two years from launch; this represented 16% of the total mobile subscriber base.
The 2005/06 period also saw a surge in Hong Kong’s broadband Internet market with subscriber growth running at an annual rate of around 50%.
Remarkably for a market that has only 2.3 million households, Hong Kong should reach two million broadband Internet subscriptions by end-2007.
Macau’s broadband growth has also been strong, resulting in the almost total replacement of dial-up Internet services; by April 2007, 90% of all Internet subscriptions were broadband.
Hong Kong continued to promote competition in the telecoms market, with the regulator OFTA proposing further reforms.
Mobile penetration – top 15 markets in the world – 2006

Rank Country Penetration
1 Macau 146%
2 Bahrain 140%
3 Luxembourg 138%
4 Italy 135%
5 Lithuania 132%
6 UAE 130%
7 Israel 130%
8 Czech Republic 121%
9 Greece 121%
10 Estonia 119%
11 Sweden 116%
12 UK 116%
13 Austria 116%
14 Spain 114%
15 Hong Kong 114%

Note:*Note: Only economies of significant size included in rankings.

Broadband Internet - Hong Kong and Macau - key market projections - 2007

Key market indicator Hong Kong Macau
Total broadband subscribers 2,000,000 110,000
Annual broadband subscriber growth 10% 20%
Broadband (population) penetration 29% 22%
Broadband as proportion of total Internet subscribers 70% 91%
Residential broadband subscribers 1,750,000 100,000
Proportion of households with broadband connected 75% 64%

1. HONG KONG
1.1 Key statistics
1.2 Telecommunications market
1.2.1 Overview of Hong Kong’s telecom market
1.2.2 Fixed Telecommunications Network Services (FTNS)
1.2.3 International telecommunications services
1.3 Regulatory environment
1.3.1 Overview
1.3.2 Regulatory authority
1.3.3 Survey of effectiveness of competition
1.3.4 Telecom sector liberalisation
1.3.5 Awarding of licences
1.3.6 Telecommunication (Amendment) Ordinance 2000
1.3.7 Telecommunications (Amendment) Bill 2001
1.3.8 Regulatory developments
1.3.9 Proposed ‘Super Regulator’
1.4 Fixed network operators
1.4.1 Mainland connection
1.4.2 Full liberalisation of FTNS market
1.4.3 Fixed network development
1.4.4 Major players in the market
1.5 Telecommunications infrastructure
1.5.1 Overview
1.5.2 National
1.5.3 International
1.6 Broadband and Internet market
1.6.1 Broadband market
1.6.2 Internet market
1.6.3 E-services
1.7 Convergence
1.7.1 Overview of the broadcasting market
1.7.2 Regulatory Issues
1.7.3 Digital TV (DTV)
1.8 Mobile communications
1.8.1 Overview of Hong Kong’s mobile market
1.8.2 Regulatory issues
1.8.3 Mobile Number Portability (MNP)
1.8.4 Spectrum licensing
1.8.5 Personal Communications Services (PCS)
1.8.6 Mobile technologies
1.8.7 Major mobile operators
1.8.8 Mobile voice services
1.8.9 Mobile data services
1.8.10 Wireless data
1.8.11 Mobile Virtual Network Operator (MVNO) services
1.8.12 Mobile content
2. MACAU
2.1 Key statistics
2.2 Telecommunications market
2.2.1 Overview of Macau’s telecom market
2.3 Regulatory environment
2.3.1 The regulator
2.3.2 Liberalisation
2.4 Major player in the market
2.4.1 Compahnia de Telecomunicações de Macau (CTM)
2.5 Telecommunications infrastructure
2.5.1 Domestic and international
2.6 Data market
2.6.1 Data network
2.6.2 Macaupac
2.6.3 Integrated Services Digital Network (ISDN)
2.7 Broadband and Internet market
2.7.1 Broadband market
2.7.2 Internet market
2.8 Convergence
2.8.1 Overview of the broadcasting market
2.8.2 Cable TV
2.8.3 Satellite TV
2.9 Mobile communications
2.9.1 Overview of Macau’s mobile market
2.9.2 Mobile technologies
2.9.3 Mobile operators
3. GLOSSARY OF ABBREVIATIONS


Exhibit 1 – Licensees and date issued
Exhibit 2 – Fixed Telecommunications Network Services (FTNS) licensees – May 2007
Exhibit 3 – The ‘original’ PCCW deal
Exhibit 4 – Major submarine cables with landing points in Hong Kong - 2006
Exhibit 5 – Overview of TV broadcasting licences
Exhibit 6 – Mobile Virtual Network Operator licensees* – 2006




Table 1 – Country statistics Hong Kong – 2006
Table 2 – Telecom revenue and investment statistics – 2005
Table 3 – Telephone network statistics – March 2007
Table 4 – Internet user statistics – March 2007
Table 5 – Broadband statistics – March 2007
Table 6 – Mobile statistics – February 2007
Table 7 – National telecommunications authorities
Table 8 – Fixed telephone lines versus mobile subscriptions and penetration – 1998 - 2007
Table 9 – Number of telecoms licences by category – April 2007
Table 10 – Fixed-line in service and teledensity – 1994 - 2007
Table 11 – Broadband subscribers – 2000 - 2007
Table 12 – Broadband subscribers and annual growth by access – 2006
Table 13 – Broadband subscribers and households - 2006
Table 14 – DSL subscriber growth – 1999 - 2007
Table 15 – Cable modem subscriber growth – 2003 - 2007
Table 16 – i-Cable broadband subscribers – 2000 - 2006
Table 17 – Internet user growth – 1996 - 2007
Table 18 – Internet subscriber growth – 1997 - 2007
Table 19 – Internet subscribers by access type – March 2007
Table 20 – Internet traffic volume (PSTN)* – 1997 - 2006
Table 21 – Internet traffic volume (broadband) – 2000 - 2006
Table 22 – Registered domain names – January 2007
Table 23 – Pacific Internet subscribers by access type – 2004 - 2006
Table 24 – Online trading volumes – 2000 - 2005
Table 25 - Broadcasting service statistics - March 2007
Table 26 - Pay TV subscribers – cable, satellite and ADSL – 2001 - 2006
Table 27 – Mobile subscriber growth – 1995 - 2007
Table 28 – Mobile service revenue – 1992 - 2006
Table 29 – PCS subscriber growth – 1997 - 2006
Table 30 – 3G mobile subscriber growth – 2005 - 2007
Table 31 – Mobile subscribers by operator and annual change – 2006
Table 32 – Operator market share by subscribers – 2003 - 2006
Table 33 – CSL New World subscribers and annual change – 1998 - 2006
Table 34 – New World Mobility subscribers and annual change – 1998 - 2005
Table 35 – Hutchison subscribers and annual change – 1998 - 2006
Table 36 – Peoples subscribers and annual change – 1998 - 2006
Table 37 – SmarTone subscribers and annual change – 1998 - 2006
Table 38 – Sunday subscribers and annual change – 1998 - 2006
Table 39 – Prepaid SIM card growth – 1997 - 2007
Table 40 – Monthly SMS volume – 2002 - 2006
Table 41 – 2.5G subscriber growth – 2002 - 2006
Table 42 – MVNO subscriber growth – 2005 - 2007
Table 43 – Country statistics Macau – 2006
Table 44 – Telephone network statistics – April 2007
Table 45 – Internet user statistics – April 2007
Table 46 – Broadband statistics – April 2007
Table 47 – Mobile statistics – April 2007
Table 48 – National telecommunications authorities
Table 49 – Fixed-line growth and teledensity – 1991 - 2007
Table 50 – Broadband subscribers and households - April 2007
Table 51 – Broadband subscriber growth – 2001 - 2007
Table 52 – DSL subscriber growth – 2001 - 2006
Table 53 – Internet user growth – 1996 - 2007
Table 54 – Internet subscriber growth – 1996 - 2007
Table 55 – Broadcasting statistics - 2006
Table 56 – Mobile subscriber growth – 1990 - 1996; 1998 - 2007
Table 57 – Mobile subscribers by operator and annual change – 2006