Hong Kong Telecommunications Report Q3 2012

Demand for telecoms services in Hong Kong has been supported by the territory's comparatively high GDP per capita, low tariff rates due to strong competition between operators and continued technological innovations.

However, Hong Kong's growth potential is somewhat limited by its population size.

While its proximity and relationship with China could open up cross-border growth opportunities, China is currently experiencing a slowdown, which is in line with BMI's long-held view.

We have largely retained our forecast scenarios for Hong Kong's mobile, fixed-line and internet industries as well as our expectations for the territory's mobile ARPU levels.

By end-2016, we envisage Hong Kong to have 17.626mn mobile subscribers, up from 15.976mn in 2012.

Prepaid subscriptions, which have overtaken postpaid as the main growth driver, are expected to maintain their growth momentum, especially if the global economy worsens.

Meanwhile, we expect 3.346mn fixed-line subscribers in Hong Kong at the end of 2016, down from 3.483mn in 2012 largely due to fixed-to-mobile migration.

In light of the threat from 4G mobile broadband, fixed broadband subscribers is expect to grow by an average of 4.46% between 2012 and 2016.

SmarTone announced in February 2012 that it will become the territory's first mobile operator to halt unlimited data plans only to quickly retract the decision following public pressure.

Rivals such as CSL New World Mobility and 3 Hong Kong announced that they will continue offering unlimited data with PCCW as the only operator to stop the tariff model in order to comply with the regulator's Fair Usage Policy.

Hong Kong's fixed-line market does not enjoy the same healthy level of competition as the mobile sector.

Despite a growing fixed broadband subscriber base, City Telecom announced in April 2012 that it sold its telecoms assets, which include Hong Kong's second largest broadband provider Hong Kong Broadband Network (HKBN) to US-based private equity firm CVC Capital Partners for HKD5bn.

City Telecom will instead focus on its fledgling multimedia business, for which it acquired a licence in December 2009.

Hong Kong's economy grew at a similar in Q112 compared to Q411, exhibiting little signs of a recovery many were expecting.

We expect weakness to prevail in the coming quarters.

A sharp slowdown in exports, led by an increasingly deteriorating mainland economy, is likely to be the main impediment to growth.

However, private consumption will be buoyed by strong inbound mainland tourism and a relatively resilient labour market.

In all, we are maintaining our real GDP growth forecast for 2012 at 2.2%, against consensus expectations of 3.0%.

Leung Chun-ying won Hong Kong's 2012 Chief Executive Elections yesterday with more than double the votes of previous front-runner and Beijing-favourite Henry Tang.

However, his public support remains low given his purported political leanings and this is likely to be the main source of concern regarding his tenure.

Near term volatility in the business environment is unlikely given that he will have to placate and win over business leaders in order to consolidate support for his administration.