Collapse in IDD rates foreseen as HK Telecom monopoly dies

PUBLISHED : Sunday, 03 January, 1999, 12:00am
UPDATED : Sunday, 03 January, 1999, 12:00am

MOVES to cut the cost of dialling abroad are expected this week following last Friday's termination of Hongkong Telecom's international monopoly.

After gaining regulatory approval last week, Telecom may cut rates as early as tomorrow.

Other companies, such as New T&T, have not released a new set of rates but will be watching Telecom closely to see what new deals are made available before moving themselves.

Hutchison has said it will announce new rates later this month.

It is all good news for customers who can look forward to the best call quality for considerably reduced tariffs.

City Telecom (HK), known as CTI, which formerly used callback technology to skirt Telecom's monopoly and offer long-distance services, made a headline grabbing move last week, cutting its rate to the US to 66 cents a minute. It is the cheapest offered price to the US.

Compare that to the $6.80 a minute still charged by Telecom's 001 service.

However, CTI's offer is only for limited times in the middle of the night and has more to do with marketing than a pure profit motive.

Observers said it can only be taking the slimmest of margins charging at that rate.

Telecom runs two international services - 0060, which in the past has used callback, and 001, which was its original international direct dial (IDD) service.

The deregulation that took place on Friday means that 0060 should also now be able to abandon callback and send traffic straight out to its destination.

This means the quality difference between 0060 (or any other operator) and 001 should be very small if at all.

It seems likely, however, that Telecom will cut costs on 0060 and leave 001 alone for the moment, hoping that a residual group of customers will continue using the service out of force of habit.

New T&T now offers two services but it is fusing these into one, reflecting a quality differential that is no longer there.

The North American route is New T&T's most popular at $2.70 to the US at any time of the day.

If the customer talks for 10 minutes or more, that falls to $1.35 a minute.

That seems certain now to be cut further.

MagicTel, which uses Internet-type technology to bring costs down, is offering a rate of $1.50 to the US at any time of the day.

Cellular-phone operator Sunday is offering an all-hours rate of $1.20 a minute to the US.

Looking simply at US prices, however, can be misleading. Other destinations much closer to Hong Kong continue to be priced relatively highly.

MagicTel founder Ryan Hendricks said that because the US was so competitive his plan was to target other routes where prices remain high.

An example of this is the Philippines. MagicTel asks $3.99 a minute, nearly 50 per cent cheaper than Telecom's 0060 budget service.

By comparison Sunday's new tariff to the Philippines is $5.90 a minute.

Salomon Smith Barney analyst Lloyd Fischer said he foresaw a 'massive collapse' in IDD prices.

New T&T marketing director Tony Cheung took a different view, suggesting that new rates reflected the falling costs of the industry and it was unlikely there would be further big reductions.

One route which should see big cuts fairly shortly is to the mainland.

Although not included in this liberalisation, moves will allow prices to tumble. A new wholesale rate has been set by the Government at which Telecom has to sell capacity to the mainland to its rivals.

Calls to Beijing, for example, were previously around $9 a minute. It is likely this could fall to about $5 to $6 a minute.

Andrew Chetham