TELECOMMUNICATIONS INDUSTRY IN HONG KONG: ANALYSIS OF CHINA RESOURCES PEOPLE’S TELEPHONE COMPANY LIMITED AND CSL1010
TELECOMMUNICATIONS INDUSTRY IN HONG KONG: ANALYSIS OF CHINA RESOURCES PEOPLE’S TELEPHONE COMPANY LIMITED AND CSL1010
Table of Contents
The telecommunication industry in Hong Kong, and in the rest of the world, has been flourishing in the past decade. Aside from the traditional unit sales, corporations in this industry have also created a whole new set of markets using the mobile technologies introduced by the mobile industry. In Hong Kong, two of the more influential corporations in the telecommunications industry are China Resources People’s Telephone Company Limited and CSL1010. These two telecommunication companies employ two distinct strategies in its operations in the Hong Kong business environment. This paper intends to uncover and examine the two strategies of these telecommunication companies with reference to the existing conditions of the internal and external environments of the telecommunications industry in Hong Kong.
Hong Kong has been considered as one of the most lucrative markets for telecommunications and wireless industries in Asia. In a study of the Telecoms Infotech Forum (2004), Hong Kong is the apparently the hub of wireless development in Asia. They pointed out several drivers for this claim. First, they indicated that the market demand is high for handsets with high resolution coloured screens and polyphonic sounds. In the same regard, 3G licensing is manageable in term of the fees that they are required to pay. Moreover, the infrastructure of the administrative region is capable of supporting wireless applications like MMS and wireless data roaming. More recent data is provided by the Office of the Telecommunications Authority (2008) as it claims that as of April of 2008, there are five major mobile network operators in Hong Kong.
III. Corporate Mission and Major Goals
The focus of this study is China Resources People’s Telephone Company Limited and CSL1010. The following will establish the background information on the said companies.
A. Mission of the Companies
China Resources People’s Telephone Company Limited has become a subsidiary of China Mobile Communications Corporation in March of 2006. This means that the mission of the latter may complement the former. To illustrate, China Mobile adheres to the core value of “responsibility makes perfection.” (China Mobile 2008) This is emulated by People’s strategic goal of "PEOPLES We Care" where responsibility to the consumers is given priority and providing new services to give the consumers what they want. (People 2008)
On the other hand, CSL is the mother company of CSL1010. It adheres to a corporate vision to “create a simple life” by attempting to “empower people to create lifestyles that match their needs and desires.” (CSL 2008) Being the leading mobile operators in Hong Kong, its brand “1O1O is dedicated to offering customers a reliable, high-quality mobile communications service and provides 3G roaming data service covering over 90 destinations around the world, which enables 1O1O customers to stay connected without any geographical constraints.” (CSL 2008)
The following diagrams show the business definition of CSL1010 and People using the framework of Abell.
Figure 1. Business Definition of CSL1010
The figure above represents the business definition of CSL1010. The figure shows that the customer groups of the company include professionals and corporate consumers. In the same regard, services like GPRS applications, 3G technologies and an efficient customer service management (CRM) fulfils the customer needs of these professionals and corporate consumers. Moreover, the distinctive competencies of the company is seen in its award-winning CRM applications, personalised business solutions for its clients and added service like “news, finance, horse racing, football, music and entertainment.”
The figure below shows the business definition of People in its Hong Kong operations
Figure 2. Business Definition of People
Figure 2 shows that the consumer groups that People caters to includes those who need regular international call services. These include expatriates, foreign contract workers, and other professionals. To complement these customers, the company provides high-end technologies like IDD and SMS roaming. Other services include personalised customer service and other value added applications. These value added applications add up to the distinctive competencies of the company. Specifically, the provision of store-value SIM cards zeroes in to specific target markets.
In the area of business ethics, the evaluation is based on the corporate profiles of the companies on their respective websites. As shown earlier, the high regard on the consumer is shared by the People and CSL1010. However, only CSL1010 have established a clear and unambiguous corporate social responsibility.
As seen above, only CSL1010 has a clear CSR. Based on the noted projects indicated in the website of CSL1010, it appears that its CSR is akin to what Galbreath (2006) noted as an altruistic strategy. This means that majority of the activities held by CSL1010 has been geared towards giving back to the community which they serve. On the other hand, the website of People does not signify any CSR. However, their 2004 annual report implied the type of CSR that they practice with reference to Galbreath (2006). (People 2004) In the said report, the shareholder strategy is implied implicitly. Basically, the report intimated that maximising the value of the shareholder’s revenue is its primary concern. And in doing so, consequent benefits for society will be realised like the creation of jobs and development of the industry.
The following parts will be describing the external and internal environments of the company.
a) Threat of New Entrants
The threat of new entrants is high because the Office of Telecommunications Authority (OFTA) has lowered the requirements that serve as a barrier for the entry in the industry.
b) Rivalry among Competitors
The industry is primarily operated and controlled by five major networks that provide similar services and products. (OFTA 2008) However, these major networks operate using different business-level strategies. Thus, the rivalry of the competitors is considerably high.
c) Bargaining Power of Suppliers
The suppliers in this sense are the international mobile phone manufacturers like Motorola and Nokia. Their 3G phones are exclusively distributed by their own sales departments. In this sense, these providers tend to have sole control on the specific products they sell and it would be greatly costly if the local service providers change suppliers or acquire a conduit to purchase these types of units.
d) Bargaining Power of Buyers
The buyers in Hong Kong are immensely powerful as the telecommunication industry offer services that would deem interchangeable. Thus, it means that the buyer could decide on whether he/she prefer a less costly subscription or a trendier one.
e) Threat of Substitute Products
The threat of substitute products is also high in the industry as wireless communication through online means has improved immensely with the introduction of WiFi applications.
The liberalisation of the telecommunication market has helped the mobile industry in improving the market. This means that the consumers could then choose in an array of providers in the telecommunications market.
As indicated in the claim of Telecoms Infotech Forum (2004) above, Hong Kong is the centre of wireless technology in Asia. This means that the environment is more than well equipped in supporting the massive industry that is telecommunications.
In the same regard, as of February of 2008, Hong Kong has over ten million mobile subscribers. (OFTA 2008) With this amount, the penetration rate of the mobile companies for subscribers was recorded to 154% as of February of 2008. This means that there are individuals who hold several mobile accounts. With these numbers, it affirms the claims forwarded by the Telecoms Infotech Forum several years ago claiming that Hong Kong is the primary hub of Asia’s telecommunication industry.
In the early study of Ure (2001), 85% percent of the population of Hong Kong owns a cellular phone unit. This is verified by the OFTA (2008) as over ten million subscribers are in existent in Hong Kong in its last count.
Being in the same industry, the People and CSL1010 possess rather similar primary and support activities. In the study of Porter (1985, in Swiercz and Spencer 1992, 35), a part of the primary activities of the value chain are the “inbound logistics, operations, outbound logistics, sales and marketing, and service.” In the case of People and CSL1010, the inbound logistics would be the acquisition of mobile phone units from global manufacturers and suppliers like Motorola and Nokia. In the context of operations, these companies provide the wireless services needed to make these mobile phone units to be functional. This also includes the value-added services that make People and CSL1010 distinct with each other. Marketing, in the same regard, involves the advertisements provided by these companies in multimedia sources. In the case of CSL1010 it has been given several awards for innovative marketing through television advertisements. (CSL 2008) On the case of People, it has a distinctive brand name and already has a considerable following in Hong Kong. Added to the service spectrum is the maintenance of the cellular towers and sites that provide the coverage that these companies provide to its consumers.
The following will discuss the competitive advantage of both CSL1010 and People based on their annual reports. In the case of CSL1010, the main source will be the 2007 annual report of Telstra Corporations Limited and CSL HK’s website. On the other hand, the main source of People will be its 2004 and 2005 annual reports.
There is some mystery of the actual processes involved in the operations of CSL. However, the awards that it has received in the recent years are reflective of the efficiency of its operations. For instance, it has acquired a "Hong Kong Operator of the Year Award" from Asian Mobile News Awards in 2007. (CSL1010 2008) This shows that it has satisfied its critics with the level of efficiency provided to its customers.
On the other hand, the 2005 annual report of People intimated that the efficiency of their operations is based on their “back-to-basic” strategy. This means that their operations dwelled in maintaining a unique edge on cost leadership. (People 2005) They carried this out by consistently monitoring its bottom line. Moreover, it also created a culture where everyone in the organisation participates in the development endeavours of the company. In line with these improvements, the company sought to optimise its networks and further placed IT automisation as among its primary endeavours.
In the context of quality, the performance of CSL Hong Kong is presented in the table below
Table 1. Offshore Controlled Entities Revenue
This is taking from the 2007 annual report of Telstra showing that CSL has induced 20.5% growth from 2006 to 2007. In the same regard, the brand CSL1010 has been given the "Best of Mobile Network Operator" by PC Market in 2006.
In the case of People, quality is seen in its optimisation of its network. According to its 2005 report, the company has been focusing its development initiatives in network quality. They did this by ensuring that improvement on both the indoor and outdoor coverage was ensured by developing new software tools and other techniques for network optimisation.
People’s “back-to-basic” strategy does not show innovation on their products. However, the strategy focused more on innovation on its services. For instance, the introduction of PSP offers for students and other savings package show that their intention is to widen its consumer base. In the same regard, the introduction of a Doraemon prepaid card shows that they are attempting to tap a new target market.
Based on the website of CSL, the mobile company has become the first to operate the Xanga mobile applications in Hong Kong. They recently launched it this year. (CSL1010 2008) This means that the mobile phones that the company is selling could now operate Xanga applications like weblogs, photoblogs, and other social networking profiles in their handheld devices.
As mentioned in the discussions above both companies place their consumers as among its top priorities. In the case of People, one of the pillars of its “back-to-basic” strategy is to retain its existing client base. Based on their 2005 report, they did better than merely retaining their core customers. An increase of 17% of the subscriber base has been accounted for, along with an increase of 42% in its prepaid revenue. This shows that the company is doing well in its initiative towards having superior customer responsiveness.
In the case of CSL1010, the contents of Table 1 above are a clear indication of the responsiveness of the customers on its products and services. In the same regard, the brand 1010 acquired the Hong Kong Service Awards from East Week as they introduced their Mobile Communication Service programme in 2007. This shows that the customer responsiveness of the said company is also noticed by some publications and authorities in the realm of HK business.
Based on the arguments and observations provided above, it appears that the two companies possess distinctive business-level strategies. On the part of People, it obviously shows signs of having a cost leadership strategy. In its “back-to-basic” strategy, it has been noted that one of its pillar is maintaining its advantage in the market as the top player in cost leadership. This means that they are not adding more advantages by spending more resources on new plant and equipment. They are trying to improve based on increasing the productivity of the assets that they already possess. In the case of CSL1010, it shows that its strategy is akin to differentiation. This means that the main weapon that the company use is its innovativeness and superior marketing capacity. This is seen in its numerous awards and the distinctive value-added elements that its service provides its Hong Kong subscribers.
The strategies shown by the two companies may have given the short term advantages. However, there are certain observations regarding their choice of business-level strategies. In the case of People, their regard on cost leadership may have compromised their capacity to compete with the other players in the industry in terms of innovation. Granted that they do have a strong core consumer base, it does not ensure that these consumers will be staying with their meagre technologies in the long run. This means that aside from focusing on the maintenance of their assets, they should also take time to consider developing their R&D endeavours.
In the case of CSL1010, their strategy is highly skewed towards differentiation. This bid well given that the industry do offer products and services that are inherently indistinguishable and interchangeable. In this aspect, differentiation is the key. However, the focus on differentiation through innovation tends to incur added cost on their products and services. Economically, the most logical thing to do is to pass these costs to the consumers. This means that their cost leadership in the industry is highly compromised by the immense innovativeness and R&D costs incurred by their operations. In the long run, their core consumers may not be able to sustain the cost of their subscription and may well be driven off to other mobile service providers.
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China Mobile Peoples Telephone Company Limited. (2008) Company Profile. Available at: http://www.peoples.com.hk/p_about_profile_iso.jsp [Accessed 12 May 2008]
China Resources People’s Telephone Company Limited. (2006) "2005 Interim Results Announcement." Available at: http://www.peoples.com.hk/p_ir_frame_iso.jsp?url=0000362.pdf&year=2005 [Accessed 12 May 2008]
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