A gloomy outlook on the fixed-line telecoms sector weighs on the giant's price Shares in PCCW yesterday sagged to a historic low amid the gloomy outlook for the fixed-line telecommunications sector in Hong Kong. The share price fell to $4.175 before bouncing back to close at $4.225, down 2.87 per cent. The price war intensified this week with Wharf T&T offering a three-month plan to select residential users for $1, followed by City Telecom slashing average monthly tariffs by 27 per cent to $57. These offers represent a discount of 40 to 50 per cent to PCCW's $110 tariff plan. 'This reminds me of the mobile-phone price war in 1996,' Hong Kong Polytechnic University assistant professor Lam Pun-lee said. 'If someone sells it at $1, others could sell it at zero.' Mr Lam said this could happen in the next 12 months with some operators including a fixed-line as a value-added service to their broadband networks. 'Look at how Hutchison, PCCW and Wharf have invested in their content businesses and you know there is going to be some kind of bundled product,' Mr Lam said. Residential broadband services, which cost about twice as much as fixed-line services, now have a penetration rate of about 50 per cent, according to the Office of the Telecommunications Authority (Ofta) statistics which also showed broadband users broke the one million mark in May. Ricky Wong Wai-kay, chairman of City Telecom, which bundles telephone, broadband and IDD services, said it had seen a further erosion in its voice service margins. 'The low tariff situation is likely to continue in the next two to three years,' Mr Wong said. A month ago, outgoing Ofta secretary-general Anthony Wong Sei-kei said users would not need to pay for their voice services as voice over Internet protocol matures. Meanwhile, Hong Kong's dominant pay-television player i-Cable, a sister firm Wharf T&T, is to launch voice services this year. 'In future we might not need two networks,' said Wharf T&T vice-president Tony Cheung Tung-lan. 'To this end, we have been exploring offering services under one network.' In a bid to stem a loss of market share to its rivals, PCCW two weeks ago offered free short messaging services-enabled phones to customers willing who sign a 12-month contract. A PCCW spokeswoman said the promotional campaign had attracted an overwhelming response, with 135,000 customers signing up in less than two weeks. 'We assume the new pricing strategies by our competitors have occurred because of the success of our new-generation services,' she said. However analysts are bearish about the impact on the industry price war on PCCW. 'This is clearly negative for PCCW as fixed-line telephony represents a very important source of free cash flow for the company,' said CSFB's telecoms team. CLSA analyst Francis Cheung said: 'We continue to remain cautious about PCCW shares due to market share and arpu [average revenue per user]. The recent price cuts are likely to undermine PCCW's more pro-active subscriber retention activities, which centre on providing more services for the same price and giving away free phones.'
