HONGKONG TELECOM'S ITV FIGHTS RECESSION, APATHY: BROADBAND SERVICE LINKS TO MICROSOFT'S WINDOWS

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Hongkong telecom celebrated the first anniversary of its interactive TV on March 28, but the world's first broadband interactive service has not had an easy first year.

The iTV platform reaches just more than 70% of the territory's 1.6 million households, offering video music and racing on demand; a home banking service for Bank of China consumers; and even interactive karaoke to Hong Kong's gadget-crazy and relatively affluent population.

But growth has not met expectations, largely due to viewer apathy.

Hongkong Telecom predicted it would have 250,000 subscribers by the end of its first year, but only 110,000 households have signed up to date. On average, they spend only $39 per month on pay-per-view services, far less than the $50 estimated a year ago.

What is holding subscriptions back?

QUALITY VS. QUANTITY

The quality vs. quantity debate is one factor. The population segment targeted by Hongkong Telecom has generally been its poorer citizens, grouped in large public housing blocks that are easy and cheap to wire.

Those consumers are also less savvy about technology and have less to invest in pay-per-view services, namely a onetime $45 installation fee and $25 monthly charge, which includes set-top box rental.

While these charges are not beyond the means of most consumers, many Hong Kong homes are already paying for cable and satellite programming.

With Hong Kong suffering from its worst recession in decades, fewer viewers feel like shelling out for extra entertainment options. As a result, Hongkong Telecom has been forced to push back the projected break-even point to 2003.

It has also warmed to the brightest star in the new-media sky, Bill Gates, in search of new life.

The Microsoft Corp. mogul visited Hong Kong on March 9 to gush over the territory's state-of-the-art interactive service and announce a strategic alliance to further develop broadband online services in the Chinese territory.

A futuristic plan has been hatched to develop multimedia applications that will be delivered via Hongkong Telecom's broadband network using a Microsoft Windows operating system.

Mr. Gates said the joint venture will converge the PC and the TV with cutting edge telecommunications technologies, creating a "new era" in multimedia services.

PC, TV FUNCTIONS MERGING

Consumers soon will have the ability to watch movies on their PC, surf the Internet on their TV, or talk with friends via live video conferencing and play interactive games on either one.

The enhanced service will be available no sooner than the end of this year, but is not realistically expected within the next 12 months.

"For consumers, this will mean enhanced lifestyles with more choices. For businesses, it will mean enhanced productivity and competitiveness, which in turn will uphold Hong Kong's position as the region's premier financial, business and information hub," said Linus Cheung, CEO of Hongkong Telecom.

In addition, Hongkong Telecom will be able to further dominate the local Internet service provider market and expand into electronic commerce, where the territory lags behind the U.S. and even regional high-tech centers such as Singapore and Kuala Lumpur, Malaysia.

NOT EVERYONE HAS A PC

Industry observers note that Hongkong Telecom's enthusiasm for iTV a year ago didn't pan out as expected and the new applications will require a PC. Few low-income households in public housing have home PCs; higher-income homes that do have PCs are often out of range, given the territory's rocky, island geography, where the iTV platform is offered.

Pundits note that Magix, a similar video-on-demand system in Singapore, is dependent on home PCs for distribution and has gone nowhere. The Southeast Asian city-state has twice the per capita home Internet connections as Hong Kong, so how could a PC-reliant broadband network possibly fare better in Hong Kong?

Hongkong Telecom believes a partnership with Microsoft will resolve such issues.

Even if the new venture does not come to life, the alliance now "has been good for Hongkong Telecom as an injection of confidence," said Vivian Lau, director

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