Even if we consider demand growth only in those specific buildings to which HCV proposes to connect its network, we find that demand growth outpaces the amount of revenue required to sustain HCV's second network business. The expected growth of demand from this specific sub-segment of the business market amounts to HK$380m per year by 1997 and HK$810m per year by 2007. This exceeds by a factor of 1.9 and 1.3 respectively the requirements for HCV, under the assumption that it provides local telecommunications services only.
5.1.2 Demand for residential cable television service
Consumer demand for cable television service appears from the evidence available to be strong enough to justify the construction of a cable network (but not by a large margin). Our reassessment of the financial viability of the plans put forward by HKT/CTHK and HCV confirm that each would obtain an acceptable financial return if penetration levels of some 40 to 45% were ultimately achieved and an average price per consumer of some HK$120 per month obtained. The rate of return on capital achieved would be approximately 12.6% to 14.3% per annum.
However we caution that the amount of money available for programming under these financial projections implies a very low budget per hour for programme making, commissioning or acquisition. The revenues per channel hour consistent with these financial projections is HK$25,500, compared with an average expenditure of HK$52,000 by the main terrestrial channel with which this service will have to compete (TVB). Clearly the difference will be made up in part by greatly increasing the incidence of repeats; nevertheless there is cause for concern that programming of an acceptable quality to persuade consumers to pay for the service may not be as forthcoming as anticipated.
5.1.3 Demand for residential telecommunications service
Such
The residential market in Hong Kong does not appear, for the foreseeable future, to have the potential to justify investment in a new telecommunications network, or in providing full two-way telecommunications facilities on a cable television network. additional facilities would only be justified either by significant demand in homes for broadband two-way communication services, or by sufficient growth in demand for conventional narrowband telecommunications to sustain two network operators in this market.
The failure of either HKT or HCV to put forward cable television plans supporting wideband two-way services to residences is evidence of lack of demand of the former kind, and the failure of HCV to plan for provision of two-way narrowband services is evidence of lack of demand of the latter kind. We see no reason to question the judgement of either operator on this point. Demand for broadband services (two-way) to homes is at yet unproven, and provision of facilities capable of supporting such applications would render the viability of the cable television network (already questionable as indicated in 5.1.2 above) emphatically non-viable. As for the need for a second narrowband network for residential use, revenue growth per customer will not justify the
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