TNAG-1986-FCO40-2819-Presentation-of-UK-policy-on-Hong-Kong-to-the-media-1989 — Page 125

D.

IMPORTANT DIFFERENCES BETWEEN THE CABLE TV BIDS

Although HKCC and HCV could develop a successful cable TV service, there are important differences between the bids. These differences should be noted by the Government and used in its evaluation. They relate to:

Each bidder's view of the market, in particular with respect to penetration levels, subscriber estimates and pricing. This will affect the revenues generated.

Relative attractiveness of the basic packages and the degree of local programming involved, which represents the benefit of cable TV to Hong Kong subscribers and which affects costs and revenue.

Configuration of the network, which affects the type of services on offer, the quality of delivery and the costs involved.

1.

Market Analysis

Both HKCC and HCV have probably over-estimated the number of subscribers they are likely to obtain. It appears that HKCC has over-estimated significantly the penetration of the market it will achieve. HCV has a realistic forecast of its penetration levels but may have over-estimated the size of the market. Overall, our judgement is that HCV's estimates are more conservative than HKCC's, especially in the important early years.

Figure 1-3 illustrates HKCC's and HCV's forecasts of subscribers versus Arthur D. Little's estimates of the likely subscriber range. Subscriber estimates are based upon estimates of the size of the potential market of living quarters (a cable TV system operator typically serves an apartment or house, i.e. a living quarter, rather than a family or person) and estimates of service penetration, i.e. the percentage of living quarters passed that subscribe to the service. Based on our discussions with the Government's statisticians, HCV appears to over-estimate the potential market. However, HKCC estimates a higher level of penetration than is supported by the market research studies. Our estimates of the likely subscriber level are based upon HCV's penetration estimates (which seem more likely to be achieved) and our own estimates of the potential market.

HCV's penetration may be depressed by its relatively high monthly subscriber rates, which are some 15 - 35% greater than HKCC's and higher than those tested in the market research. On the other hand, HCV's "entry fees" to obtain cable service are lower than HKCC's. Based on the market research, we do not believe that HCV's higher monthly rates would jeopardise the project's viability, particularly because the proportion paying 35% more than HKCC drops to one third of the subscribers by the mid-90's.

Arthur D Little

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