RealTime IT News

Hong Kong IP Telco Takes On Big Operators

The combination of IP telephony and last month's liberalization of the telecom market has resulted in a long distance price war in Hong Kong, and fledgling voice-over-IP (VOIP) pioneer Magictel Co. Ltd. is making ground.

"IP Telephony started the price war in Hong Kong," said Ryan Hendricks, the feisty CEO and founder of Magictel. "All other operators are now fighting to match our market-leading pricing structure and simple anyone, anytime, anywhere, one-second charging approach."

The other Hong Kong telcos have different prices for consumers and businesses, charge in 6-60 second increments, and have different rates for different call lengths and the time-of-day, claims Hendricks.

Magictel has already signed up over 1,000 consumers and businesses to its branded voice Intelligent IDD services, according to Hendricks, and plans to deploy advanced voice, fax, conferencing and messaging services in the newly opened market.

"We don't consider ourselves a traditional telecommunications carrier or an ISP but an enhanced service provider (ESP), providing packet-based replacement services for international communications," said Ryan Hendricks, managing director of Magictel.

"Our competition is primarily the 'LastGen' telcos who currently dominate the phone business and are used to fat profits from both outgoing and incoming traffic," added Hendricks.

Magictel has been successful so far because the IP technology and its lean business model allows it avoid the cumbersome overheads of other leading local and global players.

Industry analysts are also raving about Magictel's savvy marketing methods.

For example, the Internet telco has been tapping the substantial market in Hong Kong for prepaid card-based services--especially for tourists and migrant domestic workers who don't have access to home-based networks.

In the domestic workers market, Magictel has been meeting the pent-up demand for reasonably priced prepaid services among the Filipino community in Hong Kong, a population over 150,000.

"We expect that within the first 6 months of this year we will be able to garner 6-8 percent of the prepaid card market to the Philippines," said Hendricks.

"Hong Kong Telecom has already been forced to respond to our HK$3.99 (51.5 US cents) per minute rates with their own HK$3.98 (51.3 US cents) per minute pricing scheme though they still charge in one-minute increments," continued Hendricks.

Prior to the founding of Magictel, Hendricks had 10 years experience in strategic marketing and consulting for global information technology firms including IBM, DEC, Warner Music, Bristol Meyers Squibb, Hong Kong Telecom, J Walter Thompson and others.

Hendricks and a core team of specialists from his consulting firm, Media-magic Inc, started Magictel in March 1997 with backing from the controlling shareholders of Sunday, one Hong Kong's newest mobile telecom networks. Sunday was founded by Rick Siemens, head of Distacom Wireless Telecommunications Group and the architect of Hutchison's successful wireless communications business.

"Though they thought I was a bit crazy to suggest that data networks based on Internet technology could begin to replace traditional telecom services, they believed enough in my vision to help me get started," said Hendricks.

By the end of 1997, Magictel acquired licensing rights to OzEmail Interline's technology out of Australia for voice and fax over IP (currently being bid for by WorldCom MCI) and landed a license from Hong Kong's Office of Telecommunications Authority (OFTA) for virtual private network services (VPNS)--the only legal way to sell VOIP services before deregulation on 1 January 199.

According to Hendricks, even though the license severely restricted Magictel's ability to sell to and service customers, Magictel convinced some 650 local businesses to trial the services in 1998.

With liberalization of the market, the Internet telco was well placed to develop some market share and compete with local and foreign telecoms.

However, Magictel will face challenges from the stampede of companies offering IP Telephony services that is expected to enter the Hong Kong telecom market.

AT&T recently launched its Internet telephony brand, AT&T@Phone, in Hong Kong but, according to local managers, the American long distance carrier see no benefit in entering the IDD price war and are only focusing on developing corporate business.