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.

The general rule is that as markets liberalise, traffic volumes are stimulated and the pie gets bigger for everyone. We will soon find to what extent this is true; the Government will publish figures this month showing international traffic volumes in first three months of the year. The present situation would seem to work best for the big international operators, the likes of Global One, AT&T, MCIWorldCom and Teleglobe, the real brokers behind the scenes providing much of the capacity. By letting smaller companies take the up-front set up costs as well as handle the local interface, they can afford to sit back and sell minutes, leaving their main marketing efforts for their own lucrative multinational clients.

However, should these operators change strategy and make their presence felt directly, the market could change overnight - such is the pricing power they hold and they are likely to hold even more. If some resellers prove to be very successful, these big operators might be tempted to buy into these enterprises as a way to make sure the international minutes generated are steered their way. British Telecom (BT) recently purchased a stake in SmarTone. While clearly not the only reason for the deal, it does mean that SmarTone's IDD minutes will go now exclusively to BT.

There is little doubt that some of the smaller ISR companies could well be making very good money relative to their initial investments. Equally it is probably true to say that some will struggle as competition continues to drive down prices.

Not all ISR licences have chosen to buy their minutes from global providers. Some have gone down the slower path of negotiating their own series of bilateral deals with operators in other countries. While more time consuming, eventually it means access to cheaper international minutes than taking the one-stop-shop approach. If they can last the difficult first phase, these operators would seem to have a better chance of making a longer-lasting impression on the market. As always, the regulator has a key role in play in deciding how quickly any market shake-out might happen.

HKT has again applied for a so-called declaration of non-dominance by Ofta. If granted, the company would be free to set its own international rates without reference to Ofta. It would undoubtedly try to use lower prices to claw back market position. HKT is much better positioned to weather a price war than its competitors. Many of the nascent ISR licensees fear they could be squeezed out early if this happened. Complicating issues is the next round of international licensing which is tied to infrastructure. This is unlikely to have a real effect for another two or three years when new cables will be brought into the SAR. The main effect of this should lower international costs even further for everyone.

There is no doubt that HKT and its well-resourced local rivals (Hutchison Telecom, New World Telephone and New T&T) will be long-term players.

One wonders, however, just how many of the 109 ISR licensees will be offering services in five years time.