Hong Kong’s Rising ‘Consumer Surplus’

This article was authored by Joseph Waring, and was originally posted on telecomasia.net.

In trying to quantify the gains the internet has brought to society, last week’s Free Exchange column in the Economic discussed the concept of the “consumer surplus”, which is the difference between what a consumer is willing to pay and actually pays. For example, if a person would pay $50 for internet service and only has to pay $30, that results in a $20 surplus.

This non-monetary benefit, the author explains, doesn’t show up in GDP figures. The article points to research by Shane Greenstein of Northwest University and Ryan McDevitt of the University of Rochester that estimates that in 2006 broadband was generating $39 billion in revenue and a consumer surplus of $5 billion to $7 billion a year. The authors reckon Wikipedia accounted for up to $50 million of that surplus.

Others have attempted to quantify the time saved using Google search: 3.75 minutes a day, translating to a consumer surplus of $500 per user or $65 billion to $150 billion a year.

While it’s impossible to measure the exact financial benefit to consumers of the internet, one place where broadband and mobile internet prices are among the lowest in the world is Hong Kong.

Speaking at a TM Forum event in Singapore recently, Niq Lai, Hong Kong Broadband Networks’ CFO and head of talent engagement, said its 1-Gb fiber service costs users about 2 cents per megabyte per month, noting that’s less than 1% the cost in Australia or China.

“Hong Kong residents enjoy among the best value of broadband in the world. If you look at the pizza index, in most societies the cost of broadband will buy you four family-size pizzas. In Hong Kong it only gets you one pizza,” he said.

Long before I read the Economist article, I told the CTO of my Hong Kong service provider at a chance meeting in MWC in Barcelona that after recently switching to a family plan (four SIMs and a data SIM, with 15 Gb/month for US$61) I almost felt bad about paying so little. Based on rates in North America, there’s no doubt Hong Kongers have long benefited from a huge consumer surplus, which I estimate at more than 50% for mobile service.

While competition is keeping prices down for consumers, it certainly hasn’t kept them from being profitable. HKBN’s Lai claimed: “We are by far the most profitable return-on-equity company in Hong Kong in the fixed-carrier space. We generate four times higher returns than the incumbent.”

 

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