Asian broadband: is there a business out there yet? - Cover Story

Telecom Asia, Oct, 2003

Whatever the future of broadband might be, Asia is the place it's surely being written. From near-saturation of Korea to the fast growth of China, if has markets in every stage of evolution.

The one common thread is that operators in all these markets are looking for applications beyond connectivity: Wi-Fi roaming, IP TV, VoIP, games and security packages are all part of the mix.

But in a tough and often over-competitive business, the new services are not necessarily bringing home the bacon.

Research house Ovum points out that DSL deployment can reverse the long-term decline in ARPU "but [carriers] should not expect high margins."

The plus for telcos is that the mass takeup of broadband is changing the way people behave online.

Hong Kong users--of whom 60% have access to Broadband--are spending 21 hours per month online, according to Peter Steyn of Neilsen Netratings. A year ago, that was 16 hours. "Broadband has a huge impact on customers' behavior," he says. P2P downloads, video and audio streamings and Internet radio are the big improvers.

The problem with broadband, though, is that it is flexible, scalable and highly efficient: 111 times more efficient than private network options, per megabit per second, according to the ITU.

So while large carriers are focusing on residential customers and apps, smaller competitors are chasing the business market. The combination of IP and DSL could be a lethal one yet for incumbents.

HONG KONG

Turning on the TV

For those who believe broadband is about entertainment, Hong Kong is the place to watch. The territory, which for the past eight years had a single pay TV provider, now has four--three of them offering content over broadband IP architecture.

Hong Kong certainly has the conditions. As well as hosting an incumbent telco, a cable TV network and three other fixed line networks, it also has a mandatory unbundling regime.

As a result, broadband competition has become as furious as the territory's notorious mobile sector.

This has moved Jack So, the new chief of the incumbent, PCCW, to complain that the environment is deterring investment. In any case, it has launched a 23-channel pay TV service with a decoder that sends the signal from the PC to the TV set.

It signed up medium-strength Hollywood content such as the MGM Movie Channel without the need for the usual minimum subscriber guarantees. Instead, customers pay from between HK$15-$70 a month each for the channels they want.

Janice Lee, vice president for broadband services marketing, says the service was for "both" revenue extension and customer retention. Down the track, the company is hoping to position it as a wholesale platform it can sell to other pay TV providers.

Competition is equally intense on the broadband access side. PCCW is pitching its 3 Mbps package for an average HK$176 ($22.60) against the HK$171 bundle from Sony-backed So-net, while New World Telecom's Ethernet service goes from HK$36-$168, and Wharf Cable, the cable TV company, is selling an average HK$210.

--Robert Clark

JAPAN

DSL warms the seat for fiber

Yahoo!BB has served as a primary driver for putting Japan's broadband market growth into high gear. While a relatively late entrant, its high-visibility marketing and customer sign-up campaigns, coupled with aggressive pricing and service subsidy strategies, has given the carrier a subscriber base of over 2.9 million DSL subscribers--over 33% of the market--in less than two years of operation. This has given Japan's fast Internet population a much needed boost. At only 5.6 million ADSL subscribers at the end of 2002, and 7 million broadband subscribers total, Japan's penetration rates were around 5% of the population--less than a third of regional broadband superstar Korea. Now, that gap is closing--industry estimates place total broadband accounts at over 10 million at the end of July, with over 8.5 million ADSL accounts.

But it hasn't come cheap. The Yankee Group estimates that Yahoo!BB spends 20,000 yen ($172) on marketing and provisioning for every new customer--or roughly five months' revenues, at current ARPU levels. Yahoo!BB's parent, Softbank, has been posting successive lasses as a result, with the company unable to give guidance on when it expects to be profitable, apart from Softbank president Masayoshi Son's statement last month that it's "just a matter of time." However, even market analysts aren't quite so sure of that.

As competition in Japan has erupted in the past year, customers are now routinely offered faster speeds, and lower costs. An ADSL subscriber in Japan today enjoys download speeds of over 25 Mbps, at a subscription rate of roughly $25/month. While Yahoo!BB pioneered this aggressive approach, it has now been matched by the rest of the industry--in particular incumbents NTT East and West.

DSL service growth is increasingly being challenged by fiber-to-the-home (FTTH) service offers. Industry observers have noticed a flattening of ADSL subscriptions in Japan, to between 350,000 and 400,000 per month, while FTTH subscriptions are estimated to have grown to over 50,000 monthly.