HKBN clicks fund platform

Money Glitz | Jennifer Li 19 Jan 2015

HKBN Limited, Hong Kong's second largest residential broadband internet service provider, is seeking a local listing in an apparent strategic move.

The company will not be getting any proceeds from its proposed IPO as it will not issue new shares, with all of the offered shares coming from current shareholders.

But even if it does not immediately benefit from the proposed US$500 million (HK$3.9 billion) to US$1 billion IPO no later than March, it has established a platform for future fundraising.

Local entrepreneur Ricky Wong Wai-kay, chairman of HKTV (1137), established HKBN in 1999 as an Internet broadband service provider of HKTV, known previously as City Telecom.

In 2012, Wong sold all his interests in HKBN to private equity fund CVC Capital Partners for HK$5 billion.

CVC now holds 70.74 percent and is currently the majority shareholder of HKBN. Singaporean sovereign wealth fund GIC is HKBN's second largest shareholder with a 11.31 percent stake, while the Carlyle Group holds an 8.14 percent interest. A combined 9.81 percent stake is held by 87 HKBN management staff under the firm's co- ownership scheme.

As of end-August last year, HKBN had 692,000 residential broadband subscribers and 32,000 enterprise subscribers, up 4.85 percent and 10.34 percent, respectively, from a year ago. Those numbers made HKBN the second biggest telecom operator in Hong Kong after HKT (6823).

HKT's subscriber numbers over the past three years have remained at 1.54 million.

HKBN has covered 2.1 million, or 79 percent of total households in the SAR, and over 1,900 commercial buildings.

Its total revenue grew 9.34 percent to HK$2.13 billion for the year ended August last year, driven by increased subscriptions of residential business and raised prices for both residential broadband and enterprise services.

The residential sector, made up 76 percent of total revenue, up 9.44 percent from a year ago, while revenue from the enterprise sector surged 14.08 percent.

Despite steady growth, HKBN is still far behind HKT, which remains the dominant market player. HKT revenues hit HK$22.83 billion in 2013.

Due to nearly HK$1.46 billion of "other operating expenses", namely advertising, marketing, talent cost, depreciation, amortization of intangible assets, HKBN lost HK$136.61 million in 2013, but it rebounded and made HK$53.17 million profit last year despite "other operating expenses" going up by 6.9 percent.

Looking ahead, HKBN plans to further grow residential subscriptions by converting digital subscriber line and hybrid fiber-coaxial technology users into fiber network, as well as expanding the coverage of residential premises and providing competitive packages.

It will also step up the offer to customers of higher speed broadband services of 500 Mbps and 1,000 Mbps to 100 Mbps users. Proportion of users who subscribed to above 100 Mbps, typically 500 Mbps and 1,000 Mbps have risen to 16 percent as of end- August last year, up sharply from 8 percent two years back.

HKBN also aims to further expand its market share of the enterprise market by focusing on small businesses, offering limited free usage periods and attractive prices.

In the residential sector, the average revenue per user per month in December reached HK$175, up sharply from HK$155 in 2012. Meanwhile, enterprise ARPU climbed to HK$1,026 from HK$910 two years earlier.

Hong Kong, with one of the world's highest population density and extensive fiber rollout, has the highest peak connection speeds across developed countries.

The local market currently has six players, namely HKT, HKBN, Hutchison Telecommunications (0215), Wharf T&T, New World Telecommunications and i-Cable Communications (1097).

According to consultant firm Media Partners Asia, the average ARPU in Hong Kong's residential broadband internet sector is HK$225 per month, and this level is expected to rise to HK$290 by 2020.

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