Speaking at the IPTV World Forum Asia conference and exhibition in Shanghai late September, Mr. Wong said 'now TV' had made it increasingly difficult to tempt PCCW customers to his 100Mbps broadband offer and City Telecom had to respond with at least a basic broadcast TV package. He said the continuing development of a City Telecom IPTV offer (operating under Hong Kong Broadband Network Limited, or HKBN) is to meet the needs of his sales team. He noted: "Our sales people were outlining our broadband offer but Mums were saying that their kids wanted the Disney channels."

IPTV working

His admission provides clear evidence that IPTV works for large telecoms operators. PCCW is reaping the benefits of its extensive broadcast TV and on-demand video offer in the form of reduced churn, and this lesson will not be lost on major Telcos in Europe and the US. "Our main product is broadband, with 100Mbps download speeds, which is very powerful compared to ADSL or VDSL," comments Mr. Wong. "But I have no choice but to do IPTV because all my competitors now bundle their broadband with television and, to be a serious and long-term player, I have to deliver this product. Without IPTV it is very difficult to ask people to use our services. Even if the service is not as good [as City Telecom's competitors], I needed something for my salesmen to tell people."

Fibre-to-the-building

City Telecom disrupted the Hong Kong telecoms market in the early 1990s when it took on the incumbent operator with cheap IP-based broadband services over a fibreto-the-building network, and today offers services to around 650,000 subscribers. The company uses a Metro Ethernet core network and takes fibre to within 100 metres of end-users, claiming a 27-30 per cent broadband market share in the Hong Kong area. Mr. Wong says: "Television started as a value-added service for telcos, but broadband plus television reduces the churn rate dramatically. Our broadband is much faster than our competition - 100Mbps downstream and upstream - but their television channels are making it hard for us. TV is a significantly strong bundling tool."

He offered a word of caution about introducing IPTV. "It is totally different from the telecoms business. Telecoms is very simple and straightforward by comparison. If we buy a switch, we call Alcatel and Cisco etc., and tell them what we want, then compare the specifications and price. But if you want a movie, the content owner can charge whatever he likes and it depends on your relationships."

Mr. Wong adds that if a triple-play operator loses their best video content, they could also lose their business overnight. City Telecom's chairman and co-founder clearly admires his Telco rivals, PCCW, and the boldness they have shown in acquiring top brand content on exclusive deals for Hong Kong – often at the expense of the local cable TV operator. Content has been a major factor in the growth of 'now' to 608,000 subscribers (end of June) together with clever marketing (like entering the Pay TV market with a true 'a la carte' service so subscribers could choose the channels they wanted).

However, he is not about to attempt to duplicate the PCCW model. In fact, Mr. Wong clearly views the IPTV market in two parts: the mass market, family television offer with big-brand channels and premium content, and a service aimed at a younger audience (he says under-25s) who are more interested in Internet-originated multimedia content including movie and TV downloads and user-generated content (UGC) like that found on websites like MySpace and YouTube.

He believes that the increasing ease with which people can record video and upload it onto PCs provides a ripe market for IPTV if operators facilitate the publishing and transfer of content. He also pointed to multimedia connectivity between homes – like a grandfather playing video games with his grandson via the Internet – as a market opportunity.

"I see IPTV as a platform where we can show the output of a digital camera and similar input/output devices. The telecom operator can be the gateway to collect all these things together. Who is the target audience for IPTV? They are aged below 25 and looking for crazy content like the stuff off YouTube, and I know how much traffic that creates; I have a dedicated cache machine just for YouTube."

For Mr. Wong and City Telecom/HKBN, Internet-based video represents a win-win scenario: dramatically increased demand for bandwidth (which they have more of, compared to PCCW) and content that they do not have to buy or aggregate. Indeed, he is a reluctant TV provider, despite his company having entered the private network IPTV business in August 2003 with 17 channels and expanded the service to over 30 channels since. He is looking for a basic TV offer that will be just good enough to convince would-be broadband customers to switch from other providers. He says that in the past, cable TV held all the cards and could dominate negotiations about how much the content owner would pay for carriage on the platform. But increasing competition means content owners are now in a position of power, and as a result he says he declines to bid for exclusive content.

Instead Mr. Wong wants to pursue the Internet-centric, peer-to-peer, user-generated and over-the-top opportunities, stating: "If I had a choice I would not touch IPTV, but I didn't have a choice."