HKBN, operator of Hong Kong’s second-largest fixed-line telecommunications network, plans to ramp up the bundling of services to its residential and enterprise users, as market competition intensifies amid the city’s pandemic-hit economy.
That move, which leads a series of initiatives that HKBN announced on Friday, is expected to show how much the company has evolved after completing the integration of its latest major corporate acquisition since 2013, according to a company statement.
In December, HKBN completed its HK$392 million (US$50 million) takeover of information and communications technology services firm Jardine OneSolution (JOS). That followed HKBN’s merger with fixed-line network operator WTT early last year.
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Its other acquisitions include cloud systems integrator I Consulting Group in 2018, the fixed-line broadband network and online marketing operations of New World Telephone Holdings in 2016, and wireless broadband service provider Y5Zone in 2013.
We believe that we are in the top 1 per cent of all companies in Hong Kong because we are in the right space – telecoms
Lai Ni Quiaque, HKBN co-owner and group chief executive
Hong Kong-listed HKBN on Friday reported an 85 per cent increase in revenue to HK$9.4 billion for the 12 months ended August 31, up from HK$5.1 billion in the same period last year, on the back of the increased enterprise business from its integration of WTT and JOS. As of end-August, HKBN serves more than 1 million residential users and 105 enterprise customers.
Profit, however, was down 55 per cent to HK$96.6 million from HK$214.5 million a year earlier. That was mainly because of higher network expenses, cost of sales and other operating expenditure because of the enlarged business scale and increased employee headcount.
The company, which competes against larger rival and market leader HKT in Hong Kong, expects to tackle issues such as delays in customer projects as well as prolonged collection and payments because of the economic slowdown, according to its statement.
Ahead of the firm’s annual results announcement last week, HKBN co-owner and group chief executive Lai Ni Quiaque discussed the company’s efforts to navigate the challenges in its industry with the South China Morning Post. Here are excerpts from that recent interview.
What is HKBN doing to grow business amid this recession-hit economy?
We believe that we are in the top 1 per cent of all companies in Hong Kong because we are in the right space – telecoms. Broadband services, in particular, provide a lifeline to help make the home a better place to live. When you think about it, [the new normal] is not just work from home. It’s everything from home, including learning from home and entertaining from home.
Being in this position comes with certain obligations and responsibilities. That is why a key part of our focus is on how we can give back. Under our “ToughTimesTogether” campaign, we gave away one month of free service to our entire customer base. That’s one-twelfth of our revenue. On top of that, we’ve provided 10,000 disadvantaged families with two full years of service for free.
Everything that we do, whether it’s business or social objectives, we have to have a clearly defined LUCA, which stands for legal unfair competitive advantage. So even when we’re contributing back to society, we have to do it better than anyone else.
Right now, we’re very proactive and busier than ever. If you look at our history, we had record growth during the Sars crisis. We’re also looking at record growth again today in the midst of Covid-19.
Our “Barter & Bundle” arrangement, which we see as a world’s first, has become an important strategy in the current economic environment.
How does the Barter & Bundle arrangement work?
Let’s take a large restaurant group as an example. In the past, they’ve given more business to the incumbent [HKT] even if we offered them a discount. Now we say, “We can help you transform your business, and by the way, you can pay part of your service fees to us in coupons”. Let’s say these are fast-food coupons. We take those coupons and distribute them to our residential and corporate customers as value-added bonus rewards, discount coupons or even stand-alone sales offers.
In the past, we would only talk to a company’s chief information officer regarding our telecoms services. With Barter & Bundle, we now talk to the CEO because we can provide more benefits to their business.
In Causeway Bay, we struck a barter deal with a company that had empty outdoor billboard space. They need telecoms services, but can’t afford to pay, so we took up the billboard space that we would have otherwise paid for.
That makes HKBN more than a telecoms company. We’re also a distribution company because about one in three residential households in Hong Kong have a monthly billing relationship with us. One in two active companies here have a monthly billing relationship with us.
A large part of doing business in Hong Kong involves distribution and logistics costs. We can help a company handle that large cost by going direct to our [residential customer base of ] 1 million households, in which the average household has 2.5 people. So 1 million households represent 2.5 million consumers in the city.
Has this transformation significantly changed the way HKBN operates?
We’re no longer here just to help you save money. Our selling point before as a telecoms provider was to offer a discount to whatever you paid HKT. Today, our aim is to help transform your business. Let us bring your operations to the cloud. Let us increase your digital security. Everything we sell, we eat ourselves.
So we’re focusing on areas where we have a competitive advantage. Business in this Covid-19 environment means change or die. We can help companies make that change.
Remember our big data breach in 2018 [when the personal data of some 380,000 customers were hacked]? We lost several thousands of customers and apologised for that. We have massively transformed our business since and can now help other companies avoid similar mistakes based on the lessons that we’ve learned.
The acquisitions we’ve made over the last few years enable us to do amazing things today, as an integrated telecoms and technology solutions provider, that we couldn’t have done as separate companies.
As you know, our history is strong in the mass residential market. New World was focused on medium-sized companies, WTT handled large companies, while JOS is a systems integrator with operations in Southeast Asia. So these are highly complementary operations.
How are you dealing with the costs of running a bigger operation?
We still spend around HK$700 million a year in capex, including new networks.
In terms of infrastructure, try to walk more than 75 metres without stepping on our manhole cover. If you look closely, you will either step on an HKBN, New World or WTT manhole cover around the city.
From that perspective, we have a more comprehensive network than HKT. In a lot of cases, we have developed more redundancy based on our efforts to combine several networks into one.
We are seeing a great opportunity to refinance the debt we have at lower cost. Despite the current [public health] crisis, banks are flush with cash. Financial institutions are looking for good companies like us to lend to.
So we’re looking to cut the cost of capital because the money we borrowed two or three years ago was at a higher cost. The debt issued by WTT three years ago can be refinanced much cheaper because it’s part of a larger company.
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