Even coffee firm joins rush for telecoms riches, reports Andrew Chetham

One hundred and nine and counting. If the effectiveness of international telecommunications deregulation in Hong Kong could be measured by the number of licences, then it must surely be seen as a success.

Barely six months after the lucrative international call market was partially opened, Hong Kong probably has more licences to offer overseas calls than the rest of the region put together. Of course, not all licensees have launched services. Some probably never will, while others will target only certain sectors of the market. Whatever the real figure, there is no denying that there are dozens of new operators out there trying to compete for international custom.

Given the slim margins involved in the business, this seems an inherently unstable situation and one where industry consolidation would be considered the norm. Yet many find the longer-term shape of this market difficult to call.

The nature of today's international call business means a provider does not have to own infrastructure to be a player. International simple resale (ISR) licences, granted by the Government from January 1, allow operators to buy capacity at wholesale rates and sell on to customers at whatever margin they can achieve. Entry costs to this business can be low. All you need is a free access code from the Office of the Telecommunications Authority (Ofta), a switch to handle traffic which you can house in one of several purpose-built facilities, an office and a marketing team. It is reckoned US$50,000 would easily be enough to launch your own international call business.

For the majority of players in Hong Kong, the ISR business is first and foremost about marketing, then securing the best deals for cheap international minutes of capacity leaving the SAR. The name of the game is volume. When margins are slim, volumes of traffic are the only ways to make significant returns. Equally, as the volumes you handle increase, so can the discounts you can squeeze out of the global providers of capacity. Such is the horse trading of traffic, that a conversation with an aunt in the United States could well be going through the hands of several companies in accounting terms, while the call itself travels down one physical pipe.

As in any other area where competition is fierce and differentiation difficult, leveraging of established brands is a key element in establishing a business. Taking this to its logical conclusion would suggest those companies without telecoms experience but with a strong brand presence could be enticed into the reseller market. Could this be why the well-known US coffee chain Starbucks is one of the latest batch of companies to secure an ISR licence? Bundled moccachino and IDD? In short, those who tap a popular vein of marketing, undoubtedly will do well.

With so many smaller operators the danger is that the market will fragment, allowing no significant new operators to emerge to challenge the big established local players. This would follow a pattern established by the Internet Service Provider (ISP) market where there are also more than 100 licences but only a handful of meaningful businesses. Again the ISP barriers to market entry are low yet one operator, Cable & Wireless HKT, has a 50 per cent market share.