FTTH deployment in Hong Kong: Successful story of a forerunner

Mr. William Yeung, CEO

Hong Kong Broadband Network Limited

29 Sept 2011

We offer 1Gbps for EUR18/month

222

Agenda

1. Successful Model

2. Critical Drivers

3. Sustainable Business

33

Successful Business Model1. Outperform Competitors on Financial Performance

1H FY2011 Results HKBN PCCW i-Cable HTHK

(HK$mn)

Revenue 826 12,186 1,051 6,018

EBITDA 303 3,775 68 1,243

Net Profit 168 824 (55) 494

Total Assets 2,284 36,162 2,232 19,521

Equity 1,760 (3,216) 1,693 10,076

EBITDA Margin 36.7% 31.0% 6.5% 20.7%

Net Margin 20.3% 6.8% -5.2% 8.2%

Return on Total Assets 14.7% 4.6% -4.9% 5.1%

Return on Equity 19.0% -ve Equity -6.5% 9.8%

Source: Interim Reports by City Telecom (Parent Company of HKBN), PCCW, i-Cable and HTHK

44

Successful Business Model2. Consistent Organic Growth

FY05 FY06 FY07 FY08 FY09 FY101H FY11

(Proforma)*

Change from

FY05 to 1H

FY11(x)

Broadband '000 229 220 247 316 391 526 551 2.4x

Voice '000 294 281 308 329 382 431 449 1.5x

IPTV '000 109 116 128 156 170 153 159 1.5x

Total subscriptions ('000) '000 632 617 683 801 943 1,110 1,159 1.8x

Turnover HK$ mn 1,137 1,160 1,141 1,303 1,478 1,575 1,652 1.5x

EBITDA HK$ mn 66 245 354 378 508 469 606 9.2x

Profit After Tax HK$ mn (206) (92) 29 125 213 217 335 2.6x

* Financials based on 2 times of 1H FY11

55

Successful Business Model3. From the 4th Player to the 2nd Largest Player

6

Source: PCCW, CTI, i-Cable and HTHK Interim and Annual Reports, JP Morgan’s HTHK report “Hutchison Telecom Hong Kong

Holdings Ltd” dated 12 Aug 2009, and Company information

Note:

1.HTHK no longer discloses broadband subscribers as of 31 Dec 2009, hence, all subsequent data is estimation only

2.Shadow area represents Company estimation only

0

300,000

600,000

900,000

1,200,000

1,500,000

1,800,000

2006 2008 2010 2012 2014 2016

HKBN

PCCW

HGC

i-Cable

Others

Broadband Subscribers (‘000)

?(Note 2)

6

7

Only 34%

FTTH/B

penetration

High Growth for Fibre

Drivers for Success

8

Three “must-have” criteria for compelling “Return on investment” (ROI)

1. Recession resilient

2. Dense Population

3. Pro-competition landscape

8

Drivers for Success1. Recession resilient

FY05 FY06 FY07 FY08 FY09 FY101H FY11

(Proforma)*

Change from

FY05 to 1H

FY11(x)

Broadband '000 229 220 247 316 391 526 551 2.4x

Voice '000 294 281 308 329 382 431 449 1.5x

IPTV '000 109 116 128 156 170 153 159 1.5x

Total subscriptions ('000) '000 632 617 683 801 943 1,110 1,159 1.8x

Turnover HK$ mn 1,137 1,160 1,141 1,303 1,478 1,575 1,652 1.5x

EBITDA HK$ mn 66 245 354 378 508 469 606 9.2x

Profit After Tax HK$ mn (206) (92) 29 125 213 217 335 2.6x

* Financials based on 2 times of 1H FY11

99

Drivers for Success

Source: IMF 2010 data and Company Information/Estimates

Country

GDP/

Capita

(2010, US$)

Pop

(million)

Area

(mi2)

Density

(mi2)

CAPEX per

Home

passed

(US$)

HK 31,591 7 428 16,355 200

US 47,284 311 3,717,813 841,000 to

4,000Japan 42,820 128 145,868 877

10

2. Dense Population

10

Drivers for Success

11

3. Pro-competition landscape

11

Sustainable Business Model

12

Japan’s Fibre vs Copper Trends

Source: Japan’s Ministry of Internal Affairs and Communications

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2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

De

c-0

5

Feb

-06

Ap

r-0

6

Jun

-06

Au

g-0

6

Oct

-06

De

c-0

6

Feb

-07

Ap

r-0

7

Jun

-07

Au

g-0

7

Oct

-07

De

c-0

7

Feb

-08

Ap

r-0

8

Jun

-08

Au

g-0

8

Oct

-08

De

c-0

8

Feb

-09

Ap

r-0

9

Jun

-09

Au

g-0

9

Oct

-09

De

c-0

9

Sub

scri

be

rs m

illi

ion Copper (xDSL + CATV)

Fibre (FTTH)

1. World Trend…. We are not alone!

US Verizon’s Fibre vs Copper Trends

Source: Verizon FY09 / FY10 Annual Report

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

FY06 FY07 FY08 FY09

Su

bsc

rib

ers

mil

lio

n

Copper (xDSL)

Fibre (FiOS FTTH)

1212

Sustainable Business Model

2. Talents as Unique and Ultimate Edge

1313

3Es

• Entrepreneurship

• Execution

• Engagement

Sustainable Business Model

2. Talents as Unique and Ultimate Edge

1414

• Entrepreneurship

Management compensation tightly pegged with KPI

Sustainable Business Model

2. Talents as Unique and Ultimate Edge

1515

• Execution

Pledge Ceremony for 3,000+ talents in Hong Kong and Guangzhou

– launch of customer acquisition campaign for 100Mbps at EUR9/mth

Sustainable Business Model

2. Talents as Unique and Ultimate Edge

• Engagement

1616

“Japan Study Mission Trip” 2009 “Awesome Germany Trip” 2010

Sustainable Business Model

2. Talents as Unique and Ultimate Edge

• Engagement

1717

“Get Everybody Moving (G.E.M.) Sparkling G.E.M. Evening” 2011

Sustainable Business Model

2. Talents as Unique and Ultimate Edge

• Engagement

1818

“CxO of the Future” 2011 Management “Reading Day”

Going Forward

– Continue to monetize our “Dumb” Pipe• Free TV business venture• Multimedia production center• And more …...

– “Partnership” with players in the ecosystem( contact me at william@hkbn.com.hk )

1919

2020

Thank You