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SCMP Reporter

Hongkong Telecommunications (HKT) kept up the momentum last year, registering 14.3 per cent earnings growth.

  However, rising profits and a strong cash position did not hide worrying figures for growth in international calls. International revenue growth was only 1.9 per cent to $16.53 billion.

  Part of this was due to cuts in International Direct Dialling (IDD) rates announced last August. As the final phase of a three-year deal with the Government to cut IDD rates by 12 per cent, HKT had to cut 2 per cent from the cost of international calls.

  It concentrated the cuts on two countries - the cost of calls to the United States was reduced 21 per cent; those to Canada by 15 per cent - in a bid to compete with call-back services and new fixed network rivals.

  Chief executive Linus Cheung Wing-lam said worldwide growth in call traffic was soft last year.

  The main problem for HKT was growth in calls to China. While total IDD traffic-minutes grew 8.5 per cent last year, traffic between Hong Kong and China grew only 6.6 per cent.

  The China-Hong Kong cable is the fourth busiest route in the world, according to Salomon Brothers' figures. It accounts for more than half the calls placed between Hong Kong and the rest of the world.

  China traffic is low margin in that the split in fees collected goes two-thirds to China's Ministry of Posts and Telecommunications (MPT) and one-third to HKT, rather than the 50:50 split that applies to virtually every other route in the world.

  Back in the 1993-94 financial year, growth in calls between China and Hong Kong exceeded 25 per cent, and that kind of strength was the trend rather than the exception.

  When the rate fell to 18 per cent in 1994-95, HKT executives insisted that it was a temporary blip. They said new initiatives were being launched in order to boost calls, notably methods of paying for calls from China to Hong Kong.

  Calls from the mainland are charged at twice the rate as the other way, following massive price rises by the MPT in September 1994.

  The current slump in growth has been blamed partly on these punitive rates and partly on the continuing austerity measures in China.

    If the growth figure is split into Hong Kong-China and China-Hong Kong segments, the latter is seen to have grown at a slow 1.6 per cent in 1995-96, according to David Barden, regional telecommunications analyst at J.P. Morgan. Traffic from Hong Kong to China grew 10.7 per cent. Worse news is that this rate slowed in the second half of 1995-96. At the end of the first half, HKT said traffic had grown 8 per cent year-on-year.

  'That is still disappointing, given that China's economy is growing by 10 per cent per annum,' Mr Barden said. 'There is certainly something bizarre happening in China call traffic.'   One such oddity is the fraud against HKT and the MPT. Adam Quinton, an analyst at Merrill Lynch in Singapore, believes sophisticated fraudsters are using leased lines to send calls over the border from Hong Kong to Shenzhen. Once in China, the calls are sent on to Beijing, among other northern destinations, via the MPT network.

  Although Shenzhen and Hong Kong are only a few miles apart, there is a big difference in the cost of calls. Hong Kong to Beijing costs more than $9 a minute while a call placed from Shenzhen to Beijing costs just $1.30 a minute, according to the MPT.

  HKT executives admit that the fraud is sophisticated - they discovered that one enterprising fraudster had a dish on his roof for re-routing calls via satellite.

  The company refuses to give figures on the extent of the fraud and executives deny that it is having a significant impact.

  They also claim that a change in the way transit traffic is accounted has not had a serious effect. Some telecommunications operators send their China calls to Hong Kong, which then relays them onward. This boosts revenue, but a corresponding payment goes back to the originating operator. The business is very low margin but helps to keep the network running at a high usage level. This year some of the biggest customers were switched from being charged by the minute to a bulk capacity charge, moving the item in the accounts from the international revenue line to 'other telecom services'. This reduced total call revenue growth by 3 per cent, which HKT claims is not a serious factor.

   The real problem, according to a company official, is China's austerity measures, which have 'really stung growth'.

  The official said: 'We were working from a higher base which doesn't help, but the real effects have been the austerity measures and the September 1994 price hikes by the MPT. That killed outgoing traffic.'   Hong Kong's economy over the past 12 months had not helped. 'Unemployment was 3.6 per cent last year - that should tell you something was going wrong,' he said.

  There are signs, however, that business might be poised for a recovery. For example, the MPT has reduced rates by 20 per cent, repairing some of the damage inflicted by the punitive increases.

  China is also showing signs of loosening the reins on credit, easing some of tightest controls, which should boost trade between the territory and the mainland and lead to a higher demand for calls.



Phone game gets 'bizarre' on mainland