IDD price cuts benefit those who talk the talk endlessly

PUBLISHED : Thursday, 21 April, 2005, 12:00am
UPDATED : Thursday, 21 April, 2005, 12:00am

Ask telecoms executives what they think of flat-rate pricing for international direct dialling (IDD) calls and you will barely elicit a reply, neither harrumph nor hurrah. This is a business that has long been in decline - a fact many realised long ago - and 'all you can speak' pricing plans were inevitable.

So there was little consternation or hand-wringing about what to do when Hutchison Global Communications (HGC) fired the latest shot in the IDD price war, unveiling on Monday its $38 monthly fixed rate for calls to 23 countries.

Hong Kong Broadband Network (HKBN) and Wharf T&T quickly responded with similar tariffs of their own. For the facilities-based carriers, IDD has become a value-added service in a portfolio that must now include television and broadband connectivity as well as voice.

To understand what has made flat-rate pricing possible, look to the wholesale market. Calls to popular destinations such as the mainland, United States, Australia and Canada have all reached similar price points of between 1.1 US cents and 1.5 US cents per minute.

'Wholesale prices have dropped to the point that cost differentials along various routes are now very narrow. This allows telecoms operators to offer a flat monthly rate package with unlimited calls over these various popular routes,' a director at one mainland-backed IDD wholesaler said.

HGC chief executive Peter Wong King-fai said per-minute pricing plans had become complicated, with a multitude of prefix codes competing for a place in the consumer's memory. Why not just simplify with a flat rate?

'The cost of IDD has reached the state where it's possible to do that,' Mr Wong said, bristling at the suggestion he had sparked a tariff war. 'The intention is not to start a price war. The intention is to pass on some of the [wholesale] savings to our customers and at the same time grab some market share.'

Industry analysts seemed to treat the latest price cut with little interest, with some devoting no more than a paragraph to the subject in their notes.

True, under HGC's new plan, high-usage callers who spend $300 per month (at 20 cents per minute) can slash their bill to just $38 - a savings of 87 per cent. But this assumes one spends 25 hours per month on the phone.

The point? Per-minute fees are already so low that flat rates will make a difference only to the chattiest users - business customers who are not likely to care anyway.

Hong Kong phone users spend about 6.1 million hours per month making long-distance calls - less than one hour per resident.

Mr Wong, however, said flat-rate pricing could spur consumers to make more IDD calls, just as lower fees had done in the past.

'We got a lot of new registrations [yesterday]. It's very encouraging,' he said, declining to reveal any figures.

If there was any surprise to this week's price cut, it was that it came first from HGC and not HKBN, the company which prides itself as the lowest-cost IDD carrier.

The new assertiveness from HGC can be explained by its shifting focus. As it built out its network, HGC primarily concentrated on wholesale business but now it is time to court the mass market.

'Now that we've built our network, we're in an advantageous position,' Mr Wong said.