Macau mobile gamble pays off

When Hutchison Telecom and SmarTone Telecommunications gambled on a newly deregulated Macau mobile phone market in August 2001 not many observers shared their hopes of becoming big winners in the casino city.

Their mobile ventures got off to a bad start when they organised press tours to their new set-ups in early August only to find they did not have the necessary interconnections to incumbent operator Companhia de Telecomunicacoes de Macau (CTM).

Eighteen months later, the two companies' investments in the 'Las Vegas of the East' seem to have paid off. The pair have a combined market share of about 30 per cent and they are posing a serious threat to CTM, a subsidiary of Britain's Cable & Wireless.

Macau is fertile territory for mobile phone business. Although it has only 440,000 residents, roaming services are especially profitable. Phone calls made from the enclave by the millions of people who visit each year contribute a significant portion of the two operators' revenue.

Just an hour by ferry from Macau is Hong Kong and its highly competitive mobile market with six operators fighting a cutthroat battle to sign up subscribers.

Eighty five per cent of the population have mobile phones, and operators have been looking elsewhere for growth opportunities.

In 2001, Macau was a new battlefield for the Hong Kong operators. Since the entry of Hutchison Telecom and SmarTone, the enclave's mobile penetration rate has jumped to about 62 per cent from 37 per cent. There were 276,000 mobile users at the end of last year, an increase of 71 per cent since the market opened.

In the process, all three operators have gained users. CTM still dominates Macau with its market share of about 70 per cent, but it is fighting a tough battle against Hutchison Telecom, which has been aggressively building its subscriber base in the territory.

By offering price discounts, Hutchison Telecom has acquired nearly 100,000 subscribers.

Due to price competition between CTM and Hutchison, mobile tariffs have fallen by between 60 and 80 per cent from the level offered by Macau's domestic company before August 2001.

In the process, Hutchison Telecom managed to sign up more than 60 per cent of new mobile users in Macau last year.

'We welcome competition,' Hutchison Telecom managing director Agnes Nardi said. 'Through healthy competition, we offer a better service at a better price with better technology.'

Hutchison Telecom has shown how a Hong Kong operator can export its successful business model into a new region. Through its 100 per cent subsidiary, Hutchison Telephone (Macau), it has introduced a range of new mobile services to the enclave.

Some services, such as short messaging services (SMS) and general packet radio services (GPRS), were launched in Macau within a month after their Hong Kong debut.

Hutchison Telephone is the most innovative of Macau's mobile operators, being the first to introduce wireless Internet, international SMS and wireless e-mail devices such as BlackBerry.

Hutchison Telephone's SMS traffic is close to one million messages per month, and Mrs Nardi said the response to its data services and other mobile services, were ahead of the company's expectations.

'Our target is to become profitable this year, and we hope to gain more market share in a healthy competitive environment,' Mrs Nardi said, adding that the Macau operation was already cash-flow positive.

Hutchison Telecom has the know-how to compete.

In Hong Kong, one of the world's most competitive mobile markets, its Orange brand has the highest subscriber base with about 1.7 million users. It achieved this by offering the most competitive tariffs, and maintaining its position as a price leader.

SmarTone adopted a different pricing strategy to Hutchison Telecom in Macau. To protect its profitability, SmarTone Mobile Communications (Macau), a 72 per cent owned subsidiary, has kept out of the price war and instead targeted premium services.

'In a new market I believe we do not need to cut prices,' director Patrick Chan Kai-lung said.

'Pricing is one element, but we are focused on costs and a strong network.

'We will wait for the return of rational pricing. Any time they stop their price war, we can get more market share.'

With its small customer base, more than half of SmarTone's Macau revenues come from roaming services.

Hutchison claims to have more than one-third of the Macau roaming market, with 40 per cent of its roaming revenues generated from Orange users.

By shaping a more competitive market, the Hong Kong operators believe their presence has benefited the enclave's population, and according to SmarTone, also the Macau government.

'We contribute a meaningful portion of our revenue to Macau,' said Mr Chan, adding that more than 10 per cent of SmarTone Macau's annual revenue contributed to licence fees.