HK Telco Offers Free 'Net Access, Expects Loss

Unlike competitors Wharf Cable, Hutchison Telecom and Asia Online which are giving away "free" PCs to attract subscribers, CTI (also known as City Telecom) is bringing no-cost dial-up Internet access to Hong Kong through its Internet service provider arm, CTInets.

According to the company, for users who register before mid-August, CTInets will provide a lifetime free Internet connection, covering dial-up Web access, e-mail accounts and customer support. Paid subscribers will have access to additional services, including personal home pages, NetMeeting real-time chat and international Internet roaming.

"We are in a Catch 22 scenario -- no one is really willing to invest in Web publishing as there isn't a critical mass who surf the 'Net frequently. On the other hand, without rich content, people won't spend much time on the Internet," said CTI Chairman Ricky Wong.

"We are behind Singapore and Japan in this respect. This campaign should be able to boost the local subscriber figure," Wong said.

Through this campaign, CTInets aims to nearly double its subscriber base -- adding another 100,000 subscribers to the current 120,000, and increasing its market share by 14 percent to 31 percent, said Wong.

Expecting to incur a loss of HK$20 million (US$2.6 million) to HK$30 million to cover new hardware and connection lines, Wong said the company hopes to recover the investment by two means.

CTI is planning to launch its fixed microwave telephone network in the first half of next year. The company hopes to leverage its current subscriber base from international direct dial (IDD) and Internet access and convert those subscribers into patrons of the new telephone services, Wong said.

Secondly, CTInets will be publishing more content on its Web site, aiming to gain revenue from paid content and advertisements. Currently, Web advertising makes up less than 5 percent of CTInets' income. The company plans to debut its first paid content service by the first week of August. Though details of the new content publishing service were not disclosed, Wong said it will be the first service of its kind in Asia.

The biggest hurdle for CTInets' initiative to lure Web advertising dollars appears to be that there is not yet a critical mass of Hong Kong people who visit the 'Net regularly enough to make promotion on the Web an effective tool to boost sales. Wong acknowledges that, noting that the desired critical mass should be in the range of 1 million to 1.5 million. Currently, the number of Internet users in Hong Kong is less than 700,000, said Wong. "It's too early to talk about advertising income now," he said.

According to Wong, the response to the free service has been better than expected. "There have been about 3,000 to 4,000 registrations daily since our announcement last week," said Wong, who expects even higher demand once advertisements are launched this week.

On the question of when CTInets is expecting to break even with the free service, Wong said he has no clue. "It is not a traditional trade," he said. "No one is able to predict return on investment in the Internet world. If he does, it's not well-grounded. However, we have the belief that we are going to succeed."

"Two keys to the winners on the Internet are to be the first in offering a new service, and gathering a critical mass on your side," he said. "We firmly believe that in the next one or two years, the Internet will become a mainstream medium in Hong Kong, just like TV and the print."

Wong said that today CTInets' users on average spend about 15 hours per month on the 'Net. With the new subscribers, who presumably will be more casual users who want to get a taste of the Internet, that average should drop.

CTInets is also planning to launch its wireless broadband services in the first half of next year. The company aims to install its microwave antennas on users' building and cover about 75 percent of Hong Kong's population within one year. Initially, it plans to provide 2M bits-per-second connectivity at a price of less than HK$200 per month and users will not be required to pay PNETS (Public Non-Exclusive Telecommunications Services) charges.

CTInets has incurred a loss of about HK$15 million since its launch last August, according to Wong. That loss was covered by profits made from CTI's IDD service, he said.

Last month, New World Telephone filed a legal case against CTI, demanding over HK$96 million in a breach of contract claim related to New World's provision of IDD connectivity for CTI's IDD service. Wong said he had approached New World about the case but failed to get a response, so he considered the case to be nonsense. Cable and Wireless HKT also supplies IDD connectivity to CTI, Wong said.

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