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GidaByte and ComNewsGroup Special HK Telecom Market Coverage: Interview with Mr. Charles Henshaw, CEO of China Mobile People Telephone Limited [22.01.07]

Andrey Gidaspov: Mr. Henshaw, being in charge of the mobile operator business in Hong Kong, the city with the toughest competitive environment in the mobile sphere, must be very challenging. How does China Mobile Peoples Telephone Company (CMPT) show its impressive results with no 3G license, relying on 2G and EDGE?

Charles Henshaw: To answer this question, we first need to look back at history. When we got our PCS license in 1996, we were one of six new mobile licencees in Hong Kong. At the time there were three mobile operators working in the GSM standard. Basically, we started a GSM1800 battle with the existing GSM operators. At that time, we belonged to the China Resources Group, one of the largest mainland Chinese conglomerates.

So, in this situation, we realized that the only real way to compete is to be wiser. Our main task was to focus on how to save costs and make money yet still provide a compelling quality of service. Based on that we put together our strategy consisting of four corner stones or pillars for success:

1) Subscriber acquisition: we spent a lot of time acquiring retail shops in key strategic areas, and now we have 46-47 shops in throughout Hong Kong . They all belong to us. In this way we could understand the characteristics and monitor the interests of our subscribers. And we were looking at a wide spectrum of the target audience, pretty much everyone.

And also, we are very unique in HK, in that if you want a postpaid subscription, you must come to one of our own shops. We believe that dealers cannot accomplish everything that we want them to do. So we decided that we will go directly to our customers. And hence, we spent a lot of time on the IT side developing and then fine-tuning our in-house CRM system. For example, if you walk into any of our shops, the shop staff will be able to trace your bill, check your subscription plan, suggest a better tariff, and provide any other information that you want to find out. This information will be available right there on the spot. Thus, people started to like this very convenient and simple way to deal with their mobile operator, who is located right in their neighborhood.

We do have one of the easiest marketing strategies in the world! We simply match the competition on every type of rate plan. Therefore, anyone who comes to us will know that they will always get the guaranteed best tariff.

2) Customer retention: on retention side we spend a lot of time analyzing our customer’s feedback. And it is so very important! If someone gives you any negative feedback, you should do all you can to analyze it properly, understand the importance of it and try to rectify any problem as soon as practical. Everyone understands that you can’t always think of everything, it is impossible. Something will always come up and there will be issues to deal with. How fast you can react, how efficiently you can resolve it, will dramatically affect the success of your company. So, our custom designed customer support center is there to hear any complaints, proposals, advice on tariffs, coverage, you name it. We openly welcome any form of feedback from our customers and will do all we can to satisfy their requirements in order to retain them for the long term.

And we don’t outsource anything – this is the best for total control of the operations. We find it is the best way to work efficiently and effectively with our customers. Some companies are too much into outsourcing, and you have outsourced the call centers then there is always the danger that there will be someone who simply doesn’t know what is happening in the company or doesn’t know the latest product or service plan. And I think it looks bad, when this person will have to say to someone on the line - “oh, you know what? Hang on a minute, I’ve got to check this for you” and the subscriber is put on hold. No, that’s not what I call good quality service and I don’t think that it is going to work in the long run.

Also on the retention side, we have a VIP plan for our loyal customers. For example, if you use our services for more than six months or one year, we give you some better deals, replace a handset with different range of discounts, etc.

3) Another important issue is cost control of which having a balanced headcountis very important. We at CMPT use our valuable headcount wisely. We don’t overextend our requirements. We balance it by developing advanced IT systems that can automate the work more as the business grows. People say that when business is growing, you must hire more and more people to cope with the increased workload. And I say that it is nonsense! You must be able to use a more sophisticated IT system and that’s all, no need to continually hire more staff. Hiring staff is a very precise balancing exercise ~ staff versus workload.

On the other side, there is no need for very expensive IT systems. We have a very reliable, in-house developed IT system, with extensive information and we keep control of the costs.

A business formula is so simple: you have money coming in, and money going out, and hopefully the amount of money-in is more than money-out. It is that easy. We’re always very, very straightforward…

On the headcount, we have a small number of staff in our company – 650 people in total including all departments. That’s all, and on the management level, I have just 6 General Managers to help me. All of our people are located in our building. And I also want to say something about office location too. When we obtained our licence and were looking for space, we came to look at this building. At first, I thought that was foolish to be so far away from the center of the Hong Kong business district, Central. But then, in about 30 minutes I understood that we didn’t need all this class, luxury and expense of working in Central. There is no need for any of that glamour. Just look, all my staff actually live around here in the New Territories, it is their neighborhood. And our customers are here too.

We actually decided to run the business without any limitation on space for our staff. And we have adequate space here to run the business efficiently. We have paid a fraction of what we would have paid in Central! Talking about saving costs and business efficiency!

Finally, the fourth pillar is network quality, which is a must. Here at CMPT we do all the engineering work ourselves. We’ve managed to keep our core network in only two switching centers. We only go for Ericsson and there are a couple of reasons. I actually worked for Ericsson before, and in 1994 when Ericsson started working with Peoples whilst preparing the licence bid, we became strong partners very early on. And this partnership has added so much more to that bid. Peoples committed to OFTA to launch the service in four months and with the help and guidance of Ericsson and we achieved it together. So in business everything counts. We value our partnership with Ericsson and I hope they value us as a good customer. For a mid-size operator, and in particular, in Hong Kong, it is very difficult to have more than one vendor. It is a small market. Well, if you are talking about the markets of the U.K. or U.S. size, where you can have a multi-vendor situation and do some quality performance benchmarking and price comparisons, then there is a different situation. So we will stay with just one vendor and work actively and diligently together to ensure we have the best possible commercial and technical treatment.

AG: So summarizing your criteria, you mentioned acquisition, retention, cost control, network performance. Anything else?

CH: Yes. Recently we have seen that there is a 5th pillar and that is working with China Mobile. After CM’s successful acquisition of Peoples, there are many new opportunities. For example, in roaming between our two networks. We are also looking at cross-border services where VIP customers from mainland China can take advantage of various useful services when they come to HK and vice versa. We are making it very easy and convenient for all our subscribers. Furthermore, I’m sure that more and more synergies will emerge over time.

AG: Elaborating on that point – what things have changed for you after the acquisition?

CH: Well, first of all, there have been no management changes. The current management team has remained just the same. We have a few new people that have joined us from China Mobile and are working alongside us. They are doing a wonderful job in helping us to understand how business is done in China Mobile and how we can work better together to become even more successful. They all live in Hong Kong and help us to liaise with CM; finding the right people to discuss strategic issues, etc. They have become a very valuable asset to the management team.

AG: What about your current subscriber base? How many? What is the segmentation?

CH: On the numbers, I can’t really disclose this information. As we are now a private company, I don’t need to reveal numbers. However, it is over 1.5 million subscribers, making us the number 3 mobile operator in Hong Kong.

And on customer segmentation, you know, it is pretty much a mass market approach. Perhaps, years ago in the 1990s you could distinguish each operator on their subscriber type and profile. Well, that doesn’t seem to be the case any more. And if you ask someone on the street, they don’t really care that much. Everyone really cares more about service, tariffs, convenience and coverage.

So, the area where you can differentiate is on service quality. And that is where we have our edge. We spend so much time and effort ensuring that our entire service offering is second to none. For example, we implement a “mystery shopper” programme. In this programme, we randomly check on our staff attitude and knowledge. We hire anonymous people and carry out detailed checks on our staff, so that, we get a very good idea of the service level that our customers are experiencing.

Another area is network quality. Here we constantly do field measurements and optimization to ensure the best possible results.  The quality level of our service is so crucial for our success. Our focus in this area is a major part of our company culture along with our rigorous cost control.

AG: In one of the interviews, the top manager of Bharti’s Airtel, the Indian leading mobile operator, said that he actually outsources everything except for marketing and business development which he knows best. Other sides, like maintaining the network, customer service, etc. is completely outsourced to vendors and service providers. What’s your read on that?

CH: Well, first, India and Hong Kong are very different, in geographic size, in culture, etc. Perhaps in India it might work, but if you ask me to, say, outsource my Engineering or IT Division, I would be very reluctant to do it! Technology is the very heart of the company. We are in control so well, and we know our operations inside out. For example, if one of our competitors comes up with a better tariff plan, we can match it if we want to within 24 hours. It’s the best way, I’m sure, when an operator owns everything.

AG: I understand that CMPT chose not to own a 3G license, but rather to rely on the EDGE technology. What is your competitive EDGE then?

CH: We need to go back to history again. In 2000, OFTA came out with all these plans for 3G deployment in HK. We thought about it very hard and then in 2001 we understood more what the award procedures would be. We saw that it will be: 1) Multiple Ascending Auction (not a beauty contest) 2) there will be four licenses available to the existing six mobile operators 3) it would include Open Network Access, where 30 % of the 3G network must be accessible and opened to MVNOs.

We also looked at 3G technology itself. We looked carefully at the costs. You must understand that all this was happening in 2001, when it was still very much in its infancy. There was little or no commercial 3G deployment yet in the world. However, the HK government was very keen to move head quickly on issuing the 3G licences. In the end, we decided not to bid for a license. I think that we made a really good decision. Internally, we decided that there is still great potential for 2G and 2.5G. Was there any external pressure? Well, yes, of course! The media was not very kind to us and basically said that we would have a hard time surviving without 3G! Oh, really?? Why? “3G is the future”! What kind of future and for what services?? Well, no one could really answer us and they all said that they would get back to us later! And then they kept on saying – what about all these applications you are going to miss?! Which applications? Well, whatever they are and whenever they come, will address them and provide them for our subscribers.

Please don’t get me wrong! Technology is technology and there will always be advancements and improvements, but the financial bottom line is extremely important to us. Paying for the license fee of HKD 50 million (USD 6.5 million) per year for the first 5 years and then a share of the revenue for the next 10 years, is a great deal of money just to own a license. Overall a 3G license would amount to about HKD 1.5 billion (USD 198 million)! And on top of that, you have to buy the complete network infrastructure together with implementation, and that’s a lot of money.

Close to that time period, EDGE was becoming available. EDGE has always been on the GSM roadmap as 2.75G with all its data speeds and capacity improvements over GPRS but because so many operators opted for 3G, little was said about implementing EDGE. So, at that point we thought that EDGE might be the right solution for us. Now, of course, there are plenty of operators using EDGE technology.

Eventually we did some EDGE trials in our laboratory around 2003. Amazingly, in the laboratory we were getting date speeds of around 45-50 Kbps per timeslot. Yet, we were still pessimistic, as everything is different when you do it outside in the field. Hence, we decided to conduct a trial in Mongkok, one of the densest populated areas in the world. Mongkok has all these high rise buildings with densely populated streets and overcrowding. It was the perfect environment for conducting extreme testing. And what happened? We installed 5-6 base stations in a controlled environment and we saw that we are actually getting 42-45 Kbps per timeslot walking around downloading data and that to us was very impressive.

At the time we knew that we could not do video conferencing with EDGE, which is essentially synchronization of voice and pictures. We thought that this could be a problem if ever the service became popular. However, we also knew that we always had the MVNO option available to us if our subscribers insisted upon having the video conferencing service.

Well, now we have a wide variety of data services, video streaming, content downloads, music, push email, web browsing etc. Everything that our subscribers want and, importantly, are prepared to pay for.

AG: It would be interesting if you could reveal how China Mobile chose Peoples for acquisition. Do you know if they were looking for others?

CH: It is hard to say. Well, China Resources (the initial owner of Peoples) is also a mainland Chinese company and, naturally, that creates more understanding between the two parties. Perhaps, CM also looked at our company and saw that everything was pretty much in place. There were good financial numbers and a company that CM can just acquire, and it will work just fine. Basically, it was like a Cinderella story. I can imagine that many other HK operators would love to be acquired by CM. But that shoe was on our foot!

AG: Well, what can you say about overall 3G take up? We consider that Korea, Japan and HK are pretty much ahead of the world.

CH: Let’s see. If you look at these countries, and I mean Japan and Korea, they are far ahead of Hong Kong in terms of data service usage. In those countries, the subscribers use their mobile device more as a portable PC. And here we don’t. In HK there is so much fixed-line broadband available everywhere and it is so simple and quick to get a connection. With such a densely populated environment, a fibre to your high rise can provide broadband service for many households. Also, people can buy PCs fairly cheaply and get on-line access easily. So with broadband at home and in the workplace, do people really need high speed 3G data services in between? Now don’t get me wrong, 3G is growing. In fact, there are over 1.0 million 3G subscribers in HK. However, I do feel that the popular applications are mobile internet browsing and push e-mail. These are fairly straightforward and pretty simple applications to use, but people are using and relying on them. We just launched BlackBerry at CMPT. And this push e-mail service is on EDGE or GPRS. I think that the basic SMS technology is getting a little bit old fashioned now. E-mail over a small device is now the thing. Actually I use it myself, not that extensively, but I do – it is all about accessibility!

If something private and important comes my way, it will definitely get to me wherever I am. Of course, my office e-mail is always open at work, 24 hours. Perhaps I just get 2-3 very important e-mails to my Blackberry that I really need but these are available any time I want. And I don’t need to go home to log in, etc. With push email services, you’ve have your information and privacy right in front of you - quickly and efficiently.

AG: What about video streaming? Do you have it available in your network?

CH: We have the same offering as all our competitors. To date, we have about 16 channels over our “Mobile TV” service, including local news, financial news, entertainment, etc and with very good quality. So you may ask what’s the point of having HSDPSA? Of course, with HSDPA operators have much bigger bandwidth, but then you have to decide -- what do you really need HSDPA for and how cost efficient is it for this market?

If you have a lot of data to download and upload and you are traveling with the need to have a laptop to access a great deal of information, that’s one thing. Maybe you need to check your orders, send them off, receive conformation very quickly, and then maybe you need HSDPA to manage this large volume of data. Also consider that HK is not really a laptop market! Although many people own laptops, they don’t really carry them around that much. In fact, people in HK rarely have a spare 20 minutes to check email and the Internet at a WiFi enabled coffee shop over a cup of coffee! Everyone is so busy doing something or running somewhere. So, you must carefully consider the cultural specifics of your market.

AG: How about mobile content? What is the killer application for CMPT?

CH: It is definitely very much locally driven content. You know, people in HK like to access local content. E-mail and web-browsing are those killer apps as far as I can say.

For mobile content offering, CMPT has a fully operational portal. If any Russian mobile content providers would be interested in co-operation, they should be aware that the content must be adapted, brought to the liking of a HK audience. Then all content is placed into an open zone – our WAP portal called “Color”. As with many other operators, we work on a revenue share model with CPs.

AG: At the ITU-2006 John Chambers said that “if anything, I believe that mobile TV is the killer application.” What is your standpoint on mobile TV?

CH: Again, there are many different aspects to Mobile TV and first of all there are the standards. Are we talking about DVB-H? Or Mobile TV broadcast over the cellular network? Is it going to be on-demand streaming or broadcast to many? Cable or terrestrial TV channels? Will the content provider or operator be the king? Say, if perhaps, the terrestrial TV operator will broadcast the signal over to the phones via DVB-H technology on newly allocated spectrum, what does the mobile operator get in the end? Will the mobile operator take the role of payment and control as in South Korea? And what of the real demand and the cost to subscribe?

There are still many questions especially here, in HK. As you know, the cable operators occupy a good market position with their very comprehensive cable TV offering and high penetration. Competition in this area has keep prices reasonable and provided good growth. What crucial difference can Mobile TV bring in HK except to perhaps fill the gap between the peak viewing times of morning and evening for terrestrial TV. And then consider the technicalities with handset interfaces and screen sizes – they are all different.

AG: And i-Phones now?

CH: Well, on i-Phones, I don’t think that it was such a great idea to announce it well before the actual launch unless there was a very strategic reason. What are six months for competition? I mean, are all the other vendors, Motorola, Nokia, Samsung, SonyEricsson, going to sit quietly? No, they have tremendous R&D capacity and enormous resources. However, Apple does have some very clever and neat applications used on their computers which they have incorporated into their i-Phone which will definitely appeal to a lot of people. I’m sure we will see much more from Apple on mobile devices in the future. They fully understand the direction and intensity of this technology convergence.

But I only have to look at the i-Pod! It is one of the greatest invention by Apple – generating a real revolution for listening to music for the masses. I use mine extensively –I often say that the i-Pod is the greatest thing invented since toothpaste!

AG: What is the key to your success?

CH: Secret of my success? Well, I have lived overseas since 1977… I believe in the humble approach…not being charismatic or proud … I listened to the people, gave them my time. I like working closely with people and instilling teamwork… this is so very important…

And I am not a “dictator”. I believe that the fundamentals of business are very, very simple. Keep an eye closely on what you are doing. Never take your finger off the pulse of the company or the business. Take time to look at the details from time to time.

Having worked for vendors for many years, I know how to arrive at the best partnership. I am always keen to ensure that it IS in fact a partnership! And not something else! Partnership is definitely a 2 way street with give and take along the way. There will be good times and some bad. A true partner is one that will stay with you for the long term regardless of any short term upsets. It is a true marriage and we all know how ugly divorce can be!!

In addition, I enjoy speaking at conferences and meeting many people from around the world to talk about the Company. I have met so many people and made a great deal of contacts that maybe one day could be important to us. I know people from all parts of the world; Pakistan, India, Korea, Bangladesh, Japan…

Another thing I want to mention is that I like to make sure that people can trust me, and that I can trust them too. I always ask a question – how can we all work better together? I really like to support my staff, my vendors, my partnerships As CEO, I am actually a “jack-of-all-trades” and have to rely on strong relationships with all my departments.

On the contrary, I have to be a good “policeman” as well. I always try and keep a watchful eye on the relationships in the office to make sure that everything runs smoothly. If I see that something is going wrong and needs my intervention to resolve then I will act quickly. Resolution of any internal misunderstanding or conflicting ideas is very important for a company to run smoothly.

I also always sign all purchase orders, I want to know what is going on. I want to see what is really happening. In other words, I feel that a senior manager must keep an eye on so many things even down to the smallest detail – without losing sight of the bigger picture!

I also really like to see and meet people, two or three levels down within the company. I want to hear what they have to say and see if I can help them to resolve any issue by suggesting a solution. And this works, you know. I find that people are coming to you, starting to rely on you, trusting you, knowing that they can always find help.

As a manager, I’ve always relied on three principles: 1) you’ve got to encourage people’s creativity; 2) you’ve got to promote initiative; 3) people MUST be given the responsibility to carry out what they want to achieve.

Say, if an employee has a genuine idea, not necessarily with a proven successful result, and he or she comes to me with the confidence that this is going to help the organization, I will encourage and support this employee. I would never scold anyone for trying their best even if the result did not turn out to be successful. However, I would not be pleased if someone failed to voice out their idea for fear of being rebuffed.

AG: Finally a few words to our readers:

CH: What I want to say is that the telecommunication is a great industry. It has changed people’s lives more than any other industry! I consider that telecom is now a fundamental asset of our lives. Let’s look at a couple of items that have changed our social life; mobile telephony with it’s emphasis on privacy, individuality and mobility in telecommunications and cheap IDD calls. Back in the 1970s, when I was living in the UK, I could only call my grandmother in USA once a year, it was so expensive. Now I can call my sons in UK daily and not face a huge bill at the end of the month! People are so well connected now with very reasonable costs. Telecom brought that tremendous social benefit to all of us, making global connection possible, helping people far away from each other be in touch regularly, affordably. I, personally, am very happy to be a very small part of this entire achievement and I wish all Russian telecom colleagues every success in their everyday building of the future.

AG: Mr. Henshaw, thank you very much for the interview. I wish you every success in the future!