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COMPETITION between Hong Kong's mobile phone operators is becoming so fierce it might not be long before they start giving away handsets, market analysts say.

  All four leading players have recently come up with rival introductory packages.

  Telecom CSL, operated by Hongkong Telecom, has started a 'buy one, get one free' special offer.

  Pacific Link, the mobile phone arm of First Pacific Co, recently went one further and began offering new customers handsets for a token HK$1.

  Monthly charges were also expected to be drastically reduced, as competition among operators on the global system mobile (GSM) phone network increased, analysts said.

  Linus Cheung Wing-lam, Hongkong Telecom chief executive, recently conceded that competition was tough in this fast-growing market.

      Mobile phone users in Hong Kong numbered more than 737,000 in January, the Office of Telecommunications Authority (OFTA) said. This is 167 times the estimated 4,400 users in 1985.

  Rapid development in the mobile phone market shows no sign of abating, as the introduction of new technologies opens up new opportunities.

  Hong Kong has a market penetration of about 11 per cent of the total population. But lags Australia, which has a penetration of about 20 per cent.

  Analysts said the industry had generally enjoyed profit margins of about 50 per cent. Consequently, they said, companies could afford to offer cheaper packages while still remaining profitable.

  Hutchison Telephone, 65 per cent owned by Hutchison Whampoa, fired the first shot in the present price war in January, launching a price cut on its GSM phones and its new code division multiple access (CDMA) digital network, with unlimited calling.

  Pacific Link, 65 per cent owned by First Pacific, followed in February with a more radical offer of HK$1 a handset (a deposit of HK$3,000 is required and is deductible from bills).

  Telecom CSL, wholly owned by Hongkong Telecom, joined the foray at the beginning of this month with its 'two for the price of one' special offer.

  Bill Newton, senior manager at consultancy Arthur D. Little, said the Hong Kong market was matching a world trend in which mobile phone operators segmented the customer base in a bid to capture the mass market.

  Mr Newton said: 'Mobile phone operators structure the packages to maximise profits and revenues. They do it in line with competitive practices, using popular competitive pricing structures.'   Jardine Fleming Securities regional telecommunications Dylan Tinker said: 'Eventually all of the handsets are going to be free.'   He said that, in time, Hong Kong's mobile users would pay the same average monthly bill - US$50 - as customers in the United States, which was a developed market.

  In Hong Kong, users pay a standing charge of between HK$375 and HK$840 a month for using a handset.

  The market is set to see its next leap forward when the Government decides who it will permit to operate new-style personal communications service (PCS) networks.

  PCS networks are supposedly clearer and more powerful, operating on the 1,400Mhz to 2,200Mhz band, compared with the 880Mhz to 920Mhz band used by conventional cellular phone operators.

    Mr Tinker said he expected that two PCS networks would be established by the second half of this year and offer calls for about 70 cents a minute.

  'The introduction of the PCS licences will force all cellular operators to cut their tariffs,' he said.

  The six PCS licences proposed by the Government have met with criticism from the China government. Mainland officials doubt whether the market can support another six networks. The final go-ahead from the Joint Liaison Group has yet to be announced.

  Mr Tinker said that for a company to win the price war it had to have a capacity to accommodate new low-paying subscribers.

  He said SmarTone - 40 per cent held by Sun Hung Kai Properties - had the capacity to allow a doubling of their customers on their network. SmarTone has claimed to have 170,000 mobile phone customers, or a 23 per cent market share.

  A company official said SmarTone had gained 10,000 new subscribers a month over the past months.

  Mr Tinker said Pacific Link, with about 212,000 subscribers, could fit 25 per cent more customers on to its network, which was based on the US-stand D-Amps.

  However, Pacific Link is considering introducing a third switch that would boost its potential capacity to about 300,000.

  Mr Tinker said Hutchison had a lot of spare capacity, especially if CDMA lived up to its promise of allowing an operator to accommodate twice the number of subscribers as GSM.

  'Hutchison needs a lot of new subscribers and revenue to overwhelm the negative revenue implications of having its old subscribers switch to a lower tariff,' he said.

  Telecom CSL had only 20 per cent of its network free, he said.

  As well as having to keep track on their rivals, mobile phone operators had a difficult job keeping pace with advances in technology, industry analysts said.

  One example is the cordless telephone, the CT2.

  Introduced four years ago, the CT2 was regarded as a pioneer. Now, as , users are unable to receive calls and are able to make them only in certain zones, the system is being wound up.

  Last week, Chevalier International made a HK$57 million provision for its CT2 business and is closing it down in June. First Pacific made a provision of HK$175.5 million for the service in its 1995 results.

  Hutchison Whampoa is also said to be considering ditching CT2.

  Hongkong Telecom CSL did not invest CT2 , even though it had a licence. The company said it had shelved development plans for the CT2 after studying the market.

  OFTA has yet to respond to inquiries about the convertibility of CT2 networks into CAS (Cordless Access Service), the next generation of CT2 technology.

  Most analysts said they were sceptical of the profitability of CAS, saying it was inferior to the PCS networks.

  Mr Newton disagreed. 'There are potential markets for CAS with concentration in high density in-building environment. The system could be attractive.' 



Mobile-phone rivalry sends prices crashing