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PCCW: A Best Practice Showing How to Gain Success via Convergence?

Like many incumbent telcos, PCCW’s fixed business is facing stiff competition, especially from fixed-to-mobile substitution. However, it continues to maintain a stable fixed-line subscriber base and experience growth in other revenue-generating sectors. In PCCW’s case, its convergent strategy is the driving force behind this success.

“Rather than abandoning its fixed business, it has invested in innovative new services, under the brand ‘eye’, in an attempt to not only stabilise its fixed-line subscriber base but also migrate those customers onto higher tariffs in order to grow its overall business”, said Sherrie Huang, Analyst based in Hong Kong.

PCCW positions its eye services as lifestyle services for all family members. PCCW eye, launched in 2007, delivers voice, SMS, infotainment, and lifestyle applications via multimedia fixed telephones. The upgraded PCCW eye2, launched in 2009, enables the user to access content such as now-TV and music videos via a portable touchscreen home portal. While other operators have failed in delivering similar strategies, PCCW has found that the eye services have improved customer “stickiness” and facilitated ARPU uplift. Huang adds, “We believe the main reasons for its success are its quad-play capability, clear positioning, good customization, and continuous innovation”, added Huang.

Overall PCCW has a strong TV capability and a well-developed quad-play solution, with innovative terminals and customized applications. The company offers bundled packages and convergent services, leveraging its strengths to defend/improve subscriber base and ARPU, while aggressively seeking out new revenue sources.

The main convergent services PCCW offers are content and applications such as now-TV and MOOV (PCCW’s online music service), shared among its four customer delivery platforms where appropriate. PCCW supports single billing and synchronization of content/playlists among platforms (e.g. its music playlist). It also offers significant discounts for bundled packages.

The success of PCCW’s convergent strategy can be seen in its financial and operational performances. It has seen fast growth in its subscriber base of convergent services. Also, the ARPU of convergent services is generally much higher than that of separate services, which has helped PCCW to stabilize its fixed service revenues and grow its pay-TV revenues. The monthly fee for its eye services is two to three times of that of normal fixed-line services.

PCCW is facing limited growth opportunities in the Hong Kong market and an increasing challenge from competitors; for example, CSL launched HSPA+ and will launch LTE this year, while HKBN is aggressively promoting its 100Mbps FTTH offering. “Further convergence and more innovative offerings will be needed if PCCW is to continue to defend its position in the market against such aggressive competition”, comments Huang. The player plans to enrich its convergent service portfolio further in 2H10 by (for example) adding popular Internet applications to eye2, and even offering an eye3 service, possibly with integrated mobile and Internet features, in the near future.

However, as the incumbent and with many subscribers in each market segment, it is very difficult for PCCW to make changes to or upgrade its support systems for convergent service delivery. “As well as network upgrades and construction, PCCW will also need to optimize its organizational structure and consolidate procedures and systems – a painful but necessary step toward long-term success”, Sherrie Huang concludes, “Another tricky problem facing PCCW will be how to balance its investments against the stringent cost controls required to continue to make a profit in today’s difficult economic climate”.

Hence for incumbents, PCCW can be a good case study showing how to maintain the previous investment as well as current market position, and how to develop new revenue sources. /Ovum-pr

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