Broadband's Utility Player
City Telecom became Hong Kong's second-largest residential Internet provider by treating access like water and power.
By Om Malik

(Business 2.0) – Throughout the world, Residential Internet access is usually sold as part of a bundle: To get fast, always-on service, a customer first has to purchase a local telephone line or sign up for cable TV. But what about those who just want the high-speed connection?

That's the market served by City Telecom, a Hong Kong company that offers 100 megabits per second--65 times as fast as a typical DSL connection--for just $25 a month, with no phone or cable strings attached. Ricky Wong, founder and chief executive of City Telecom, describes his company as "a broadband utility." City Telecom is already Hong Kong's second-largest residential broadband provider, despite competition from PCCW, the area's largest and oldest phone company; iCable, the dominant cable operator; and HGC Telecom, a firm backed by billionaire Li Ka-Shing. Now, in fact, those larger competitors have made it their mission to halt Wong's progress. Says Dave Burstein, editor of industry newsletter "DSL Prime," "City has inspired incumbents to sprint and catch up."

It took Wong more than a decade to create an access alternative. He founded City Telecom in 1992 as a long-distance telephone provider, and when Hong Kong deregulated its telecom market in 1995, he decided to challenge the local giants. In 2000, City Telecom spent $25 million to deliver residential Internet access, in part by using wireless transmitters perched on rooftops and cell-phone towers. The plan didn't pan out--the wireless technology couldn't pump enough bandwidth--but there was a silver lining: City Telecom had already installed Ethernet jacks in 1.2 million homes. The company regrouped by wiring each building to a fiber-optic trunk line, which in turn connected to the Internet.

The result is a citywide version of the local area networks found in many corporate offices. Wong says City Telecom spends $130 to wire a new dwelling--roughly half the cost of a DSL or cable-based hookup. The catch? City Telecom's model is viable only in cities with densely packed high-rise apartments. (Ethernet lines don't work much past 100 meters.) After a string of 13 profitable quarters, City Telecom recently hit a rough patch: In 2005 it lost $26.5 million on sales of $146.7 million as competitors initiated a price war. Jittery investors panicked, pushing the company's stock down 58 percent.

There's another reason big players are coming after Wong: His vision is to offer telecom's so-called triple play--broadband, voice, and pay TV--on an à la carte basis. That's how his company plans to expand from 1.2 million to 1.8 million homes by 2007. A low price is nice, but City Telecom hopes that local residents also want choices when making new connections.

CONNECTING ON THE CHEAP

City Telecom's Ethernet-based broadband service is among the fastest and least expensive in the world.

Monthly price per megabit per second

[lowest to highest]

Hong Kong -- City Telecom

Tokyo -- Yahoo BB

Seoul -- KT Megapass

Paris -- France Telecom

New York -- Verizon Fios

San Francisco -- Comcast High-Speed Internet

Source: Business 2.0 Analysis