At a glance
- HKBN wants to challenge the largest incumbent in Hong Kong’s highly competitive telecom industry.
- Snatching market share from the much larger entrenched incumbent is a formidable challenge.
- HKBN has followed a two-pronged approach by investing in a state-of-the-art fiber optic technology and in its talents.
- HKBN’s journey to become Hong Kong’s second largest broadband company offers insights into building sustainable competitive advantage by focusing on people.
Hong Kong owes much to its advanced telecommunications infrastructure for enabling its position as a leading business center in Asia Pacific. Its privately owned telecommunications industry offers a level playing field with no restriction on foreign investment. HKBN is the second largest provider of residential broadband services and the largest high-speed fiber broadband operator by number of subscriptions. In 2015, the company set itself a new target – to achieve the number one position by 2019.
One of the company’s core strengths is its employees. With competitors quickly catching up on the technology front, HKBN takes a holistic approach toward its Talents – investing in, enabling and empowering them – as the key source of competitive advantage. This has worked well given that HKBN has largely grown organically since its inception. However, it has started scaling up through the acquisition of complementary companies, and this raises several questions. What will be the impact of absorbing people from acquired companies into the HKBN fold? Can HKBN continue to rely on its talent strategy as a key driver of success? Can it sustain its entrepreneurial fast-paced performance-driven culture? What will characterize responsible leadership at HKBN going forward?
The broader issue
Today, technological innovations are increasingly altering industry structures and business models including cost positions, scale economies and power relations between manufacturers, intermediaries, buyers and sellers. In a high-tech industry such as telecommunications, the ability of a firm to identify and quickly harness technological advancement for creating value is crucial. We believe that there are two major issues facing tech firms. First, technology itself does not produce sustained performance advantage; at best, the advantage is transient. Further, the fast pace of technological change means that firms need to keep on investing in the latest innovations to stay ahead. Second, technology is prone to imitation. This makes it particularly difficult for firms to appropriate the value of their innovative efforts. Hence, the potential to turn technological competencies into competitive advantage remains short term. In our experience, it is a combination of technology with complementary human resources and business practices that enables a firm to gain superior performance advantages. HKBN is a case in point.
HKBN understood the potential of fiber optic technology way back in the early 2000s. It invested HKD4 million to build a large-capacity nationwide network (in partnership with Cisco) that would be resilient and scalable for the future. This was contrary to the perception of other industry players who did not believe in fiber and were busy cutting capital expenditure in the aftermath of the dotcom crash. Being a new entrant, HKBN knew that its service could not be marginally better; it had to be MUCH better in order to lure customers away from the entrenched incumbents. At a time when high-speed broadband was coveted and available only to upscale clients, HKBN made another counterintuitive move; it focused on the mass market, i.e. public housing estates. HKBN shocked the industry as it flipped around the value proposition and offered mass-market symmetric 10/100/1,000Mbps broadband services at highly competitive prices.
However, HKBN’s fiber optic infrastructure investment – a serious capital-intensive venture– meant that the company was cash flow negative for seven years. Despite that, early mover advantages enabled it to secure market share aggressively. By end-2015 HKBN’s fiber optic network covered over 2.2 million residential homes, representing approximately 81% of Hong Kong’s total residential units.