Hong Kong Cannot Afford VOIP Development to be Delayed International Competition Threat is Looming.

Transcription

1 For immediate release Hong Kong Cannot Afford VOIP Development to be Delayed International Competition Threat is Looming. (Hong Kong, 13 September 2004) Hong Kong Broadband Network Limited ( HKBN ) believes that any responsible company should not selectively retard innovations such as VOIP and deprive consumers rights for choice and value, solely to protect legacy business concerns. Indeed, as experienced by the development of the Internet industry, such a delay in industry acceptance could lead to severe consequences for our region. Recently, Hong Kong s incumbent telecom operator has issued unsolicited blast s and letters to its captive broadband customers, raising gratuitous concerns over the use of certain Residential VOIP Broadband Phone Services. As the telecom hub of Asia, Hong Kong is renowned for its leadership in the deployment of advanced and new technologies. As Voice-Over-Internet- Protocol (VOIP, see Appendix 1) is a global trend, we urge the Hong Kong telecom industry as a whole to uphold our joint responsibility to propel this technology advancement for the benefit of the Hong Kong community. When the consumer Internet industry took off about 10 years ago, North American markets established the first-mover advantage in terms of mass market rollout and content development, whereas Asian regions lagged behind. Over time, as Asian region ISPs connected to their ISPs counterparts in North America to access their critical mass content, most Asian ISPs had to bear the full connection costs across the Pacific Ocean. Specifically, Asian ISPs had to pay for the landing fee to North America and this practice continues even today. As a result of the region s late start in Internet development, Asian ISPs lacked bargaining power to set fair commercial terms and were forced into these one-way arrangements, thereby affecting their long term profitability. Recently, a high profile Japanese brand-name ISP has retreated from the Hong Kong broadband market due 1 / 10

2 to difficult operating environment. On the contrary, ISPs in North America has been recording substantial returns. The Internet arrangement is directly contrary to the Asian international long-distance industry, which embraced market liberation early. Taking CTI as an example, no matter which country around the world is being connected, the costs are equally shared by the connecting parties. Unfortunately, the unfair treatment in Internet world is now an unchangeable fact, and the heavy asymmetric cost imposed on Asian ISPs has inevitably slowed the development of Internet services in Asian regions. As an active participant in the Hong Kong telecom market, HKBN does not wish the Internet mistake to be repeated in the world of VOIP services. In fact, it is perfectly feasible for a customer in Hong Kong to have access to a service provided by a service provider located outside Hong Kong, said Mr. MH Au, Director-General of Telecommunications of the Office of the Telecommunications Authority 1. This implies that Hong Kong consumers will be able to use VOIP applications and services provided by overseas operators, subject to international numbering resources. Global telecom operators with substantially larger financial, marketing and R&D resources, will be able to offer VOIP services in Hong Kong, i.e. in the VOIP world, there is no physical country boundaries. If Global carriers come to Hong Kong to provide VOIP services, with ability to select international numbering resources, and for international rates as low as HK$0.1 per minute these carriers can dominate the Hong Kong market. To meet this global challenge, the Hong Kong telecom industry must embrace the VOIP progression or run the risk of being left behind. Furthermore, introduction of VOIP services will provide enhanced community benefits. The cost of VOIP is far below that of legacy telephone services and much more flexible in terms of value added services. We estimate that the cost for per legacy telephone service subscriber ranges from HK$4,000 to HK$5,000, compared with VOIP subscriber cost of only HK$500. If allowed to grow, VOIP with its low-cost breakthrough will filter through to significant benefits for the community of Hong Kong as a whole. In addition, VOIP can offer an alternative consumer service choice. Residents in remote areas, currently lack choice for fixed line service, which VOIP can rectify. 1 Presentation by Mr M H Au, Director General of Telecommunications, Hong Kong in the 15 th Biennial Conference of the International Telecommunications Society held in Berlin, Germany on 4-7 September / 10

3 On education of consumers, HKBN fully supports that that all operators are obliged to inform customers on the full pros and cons of VOIP services. As such, our media documents include full disclosure of power requirements and other service limitations; however, is our view, that the informed public should make the end service choice. Mr MH Au, pointed out that But IP technology is bound to cause drastic changes to the operating environment. At HKBN, we share this view of convergence of voice, data and video and accordingly have fully invested in an end-to-end all-ip network that currently services 1.2 mn households with expansion plans to 1.6 mn households or 75% of Hong Kong s total homes. Furthermore, we fully support Mr. MH Au s guidance that network operators should identify new business models They could deliver content, applications and services of higher added-value to the customers to offset declining revenue from conventional services. For the betterment of Hong Kong, HKBN is of the view that the development of VOIP cannot, and should not be retarded. We wish that the Hong Kong industry can work together and embrace this global challenge rather then hide in the comfort of legacy business models. To remain as the telecoms hub of Asia, Hong Kong cannot afford for VOIP to be delayed as International competition for VOIP is looming. -End- For Media enquiries, please contact: Jessie Cheng Tel: (852) Fax: (852) chengcm@ctihk.com For Investor Relations enquiries, please contact: NiQ Lai Tel: (852) Fax: (852) ir@ctihk.com About City Telecom Established in 1992, City Telecom (H.K.) Limited (SEHK : 1137, NASDAQ : CTEL) provides integrated telecommunications services in Hong Kong. CTI's wholly owned subsidiary, Hong Kong Broadband Network Limited (HKBN), has deployed the World s Largest Metro Ethernet network of 1.2 mn homes passed to date, with committed expansion plans to 1.6 mn homes (approximately 75% of total homes in Hong Kong). To date, HKBN has achieved an aggregate Voice, Broadband and Pay-TV base in excess of 465,000 subscriptions. Additional information on City Telecom can be found at 3 / 10

4 Appendix 1: Global VOIP Developments 1. UK s Ofcom released a press statement on 6 September 2004 regarding its affirmative policy approach to VOIP as per quoted section Ofcom s approach is intended to minimise the regulatory burden associated with the creation and delivery of new voice services whilst ensuring that providers benefit from fair and effective competition in the infrastructure markets upon which they will depend. Full press release at 2. Instead of discouraging VOIP progress, the US FCC has a published a consumer factsheet to help educate the public on the full pros and cons of the VOIP services. FCC factsheet is available at 3. In the US, VOIP is rapidly becoming a mass consumer service. AT&T established a new brand CallVantage, ( to promote its VOIP service. AT&T prominently marketed this service in the US during the recent Olympics. Regional Bell Operating Company, Verizon ( is also providing similar service but branded VoiceWing. New upstart, Vonage ( launched consumer VOIP services in April 2002, and now has over 200,000 users. Vonage targets to reach 250,000 to 300,000 users by the end of Yahoo BB in Japan ( exceeded 3.8 million users by end April 04. There are currently over 5 million VoIP users in Japan. 5. Skype ( a global web based VOIP services has seen over 22,000,000 downloads of its freeware service program. It recently introduced SkpeOut a premium service which allows for a PC to cost effectively call any fixed or mobile telephone line in the world. 6. For general VOIP industry updates, pulver.com ( provides an excellent forum for up-to-date industry reviews. 7. Telstra in Australia appears to be taking the attitude that if you can t beat the VoIP service providers, join them. It plan to begin offering residential VoIP services in / 10

5 8. Hanaro, the 2 nd largest ISP and a substantial VOIP provider in South Korea, was approved by the regulator to accept port-in of existing fixed line phone numbers from KT, favoring the development of VoIP service in South Korea. 9. KDDI in Japan plans to move its entire network to IP technology, and introduces a new fixed-line service with tariffs at a flat rate of 20/3 mins for long-distance calls and basic monthly fee 250 below NTT s rate. 5 / 10

6 Appendix 2 : Clarification of Issues Raised on Broadband Phone Service The launch of HKBN s VOIP Broadband Phone Service in Hong Kong has aroused a tremendous response from the industry. However it should be noted that VOIP is not an exclusive service provided by HKBN. Rather, operators around the world have being providing a similar service for years, with millions of households as active customers. In the Hong Kong telecom market, other FTNS operators also provide similar VOIP services, reflecting that such a technology is fast becoming a major trend in telecom development. Compared to the legacy telephone service provided by the incumbent operator, Broadband Phone Service is supported by new technology with more advanced functions and lower cost structure. Ironically, this progression is similar to the incumbent s launch of its broadband TV services which offers advantage over legacy Pay-TV distribution platforms. Historically, other similar technological progression include -- over fax, fax over telex, telex over postal services etc. Specifically, HKBN would like to clarify the following gratuitous concerns planted by the incumbent operator via its unsolicited mass letters and s to its captive broadband subscriber base: 1. The installation of broadband phone is very simple, which the majority of customers can handle on a Do-It-Yourself (DIY) basis. Physically, customers need to connect one port of the telephone adaptor to the modem, with another cable connecting to the computer. The remaining phone port is then connected to a standard telephone set (see Appendix 4). Upon the completion of this simple set-up procedure, the broadband phone is ready for use. HKBN also offers free on-site installation service should this be preferred by customers. 2. The connection of broadband phone is simply making use of a standard telephone plug and Ethernet port fulfilling the generally applied IEEE802.3 standard, which is similar to the off-the-shelf connection of game consoles such as PS2 (Play Station) and Xbox, WiFi wireless LAN or even the set-top box for Now Broadband TV service. It is standard consumer practice to use these applications and add-ons without requesting the ISP for full compatibility testing and certifications. The Broadband Phone service is simply another application. 6 / 10

7 As a responsible licensed broadband service provider, we believe one must offer unencumbered broadband access without any commercial censorship of access or obstacles, so that essential communications and other applications can be put through by customers as intended. To do otherwise, would be an infringement on personal communications rights. 3. If the broadband phone is not in use, it will not occupy any bandwidth. Even if the phone is in use, it will only take up 64 to 110kbps, posing very minor impact on customer s broadband Internet access such that they can still go online, download and perform other applications. To put this bandwidth issue into perspective, NOW Broadband TV provided by the incumbent is also transmitted via broadband, taking up a bandwidth of 4.5Mbps. Therefore, the bandwidth required for transmission of a broadband phone call represents 1/50 th of that for the NOW broadband TV service. We cannot understand why the incumbent s network is capable of transmitting these TV visuals concurrently with broadband access, yet will be materially affected by the Broadband Phone voice signals. 4. Similar to home-use indoor cordless phones or fax machines, the Broadband Phone would not work in case of power outage. However, power outage in Hong Kong is extremely rare, and according to the statistics published by respective power companies, the reliability of power supply is as high as % by Hongkong Electric, representing a 5-minute power outage annually, whereas that of China Light & Power reaches 99.99%, which means there exists on average minutes power outage in a year. According to the information posted on its official website, the reliability of data service of PCCW is only 99.95%, equivalent to a 262-minute service outage in a year the failure probability of telecom network is actually higher that the potential downtime of broadband phone service due to power outage. In addition, the penetration rate of mobile service in Hong Kong is extremely high, so that mobile service would mostly be available for urgencies during power outage. 7 / 10

8 5. In general, Broadband Phone users should inform HKBN in case of relocation or change of service address, for billing or other administrative purposes. In addition, this allows HKBN to provide customer s location information to the relevant organization or governmental departments during emergencies. None-the-less, HKBN has listed clearly the limitations for our Broadband Phone service in our public marketing materials such as service suspension during power outage, showing that we respect consumers rights for being fully informed, before making their own purchase decisions. 8 / 10

9 Appendix 3 : Broadband Phone Set-Up HKBN Broadband Phone Adaptor Any Analog Telephone and/or fax Internet HKBN All-IP Network Broadband service device for other ISPs (e.g. ADSL modem from PCCW Netvigator) Telephony Network 9 / 10

10 Appendix 4: Obligation-Free Try It Yourself Offer Action is the only way to verify the truth, said the former Chinese leader, Mr. Mao Zedong. In our view, the best way to confront gratuitous rumors being planted into the market, is to let the benefits of our Broadband Phone Service speak for itself, hence our Obligation-Free Try It Yourself Offer. In short, we will let consumers be the Jury. 1. Who is eligible for the Obligation-Free Try It Yourself Offer? Anyone who can provide the original copy of the letter or a print-out of the with subject What You Need to Know about Residential VoIP Broadband Phone Services, is eligible for registration of the Try It Yourself Offer. 2. How many people will be allowed for registration? The registration is open to 3,000 registrants, strictly on a first come, first served basis. Offer ends on 30 September Obligation Free Offer. Successful registrants will be offered free Broadband Phone service for consecutive six months for basic telephone line, including four value-added services -- caller display, call waiting, conference call and call forward. This plan is completely contract-free such that consumers can terminate the service at any time. So long as the telephone adaptor is returned to HKBN anytime within the trial period, there will be absolutely no penalty charges. Upon completion of the free trial period, customers will be entitled to contract-free Broadband Phone service, at HK$68 per month. 4. HK$100 Extra Cash Coupon Incentive. Yes! -- as an added incentive, when the user accumulates 100 minutes airtime (for both incoming and outgoing calls), they will be entitled to an extra HK$100 cash coupon in the specified supermarket. 10 / 10