Hong Kong Broadband Network (HKBN) has decided to stick with what it knows, decommissioning its pay-TV service BBTV in 2013 to focus on fiber broadband.
Now, the telco operates in a capital-intensive business with an enviable 90% gross margin, CEO William Yeung (pictured) and CFO Niq Lai recounted at this year's APOS conference.
“We lost money for seven years,” Lai recalled. “We were in negative free cash flow for seven consecutive years, and that's why we have massive barriers of entry to our profitability protecting us today.”
HKBN maintains a hands-off approach to content investment these days, teaming up with online video providers instead.
These include LeEco (formerly LeTV), which has the Hong Kong rights for the next three seasons of the English Premier League, and the city’s biggest free-to-air broadcaster TVB, for its recently revamped OTT service, MyTV Super.
These companies provide the set-top boxes which HKBN subsidizes upfront, offering them in a bundle for new and renewing subs while recouping the investment over the subsequent subscription period.
“When we talked to LeEco in Q3 or Q4 last year, we had the army to acquire customers,” Yeung explained.
“On day one, we committed a PO of 300,000 set-top boxes,” he added. “By doing so, we offer attractive offers to our customers which will help us on acquisition and retention.”
Shared risk, reward
HKBN has delivered more than 160,000 boxes for LeEco over six months, and should be placing its second order soon. It has also distributed more than 30,000 boxes from TVB in one month, after committing to 400,000 over 18 months.
HKBN has no plans to invest in its own set-tops, which can carry multiple services, at least at this stage. The company prefers to share risk as well as reward, Yeung explained.
“When we work with partners like LeEco or TVB or whoever, we like to invest together and then reap the benefits together in the near future,” he said.
HKBN has the biggest share of fiber subs in Hong Kong although it trails the incumbent, PCCW, in the overall residential fixed line market. Yeung and Lai hope to surpass PCCW’s market share by 2018.
The company is also considering an MVNO-based mobile offering that can enhance its subscription packages and help amplify its marketing.
The company also acquired the corporate fixed line broadband network and online marketing business from local conglomerate New World in February, increasing its share of the enterprise market to 5%.
HKBN has enjoyed some robust growth of late, ending February 2016 with 792,000 fiber subs, a 10% year-on-year lift.
Consumers pay US$18 per month for 100 Mbps fiber broadband, home fixed voice and an OTT box with free trial content.
HKBN also guarantees the speed of its pipe, refunding double the monthly subscription fee should the service fall below 80% of advertised speeds.
“This is all we do,” Lai said. “We are proudly a big, fat dumb pipe provider, and we have no aspirations to go into content itself. Rather, we work with partners.”