"Just about every phone company in the world has come through here," says Alexander Arena, the financial chief of PCCW, Hong Kong's incumbent telecom company. And no wonder. For PCCW has, in the past couple of years, done something that fixed-line telecoms firms across the world hope to do in the near future. It launched a television service over broadband phone lines, called Now Broadband TV, that has been a huge commercial success. It could soon dethrone the local cable-TV services. It is also the largest television-over-broadband deployment in the world. As they worry about the encroachment of new competitors on to their turf and search for new sources of revenue, telecoms operators the world over hope to follow Now's example.

Why has it been such a success, and can its approach be replicated elsewhere? When Now unveiled its service in September 2003, Mr. Arena recalls, "analysts proclaimed us road kill." That was because PCCW had attempted to launch television services twice before, in 1996 and 2000, failing expensively both times. But these attempts paved the way for Now, since they meant that PCCS had built a fast, fiber-optic network capable of carrying television signals into telephone exchanges. They also meant that PCCW had learned from its mistakes.

In particular, Now knew better than to settle for the usual terms offered to cable operators, which are expected to pay big up-front fees for film rights, in part to cover the content providers from piracy. Unlike cable networks, however, broadband phone lines have enough capacity for only one television channel at a time, so channel switching is done at the exchange, not inside the set-top box. This makes piracy almost impossible, and also allows for the collection of extremely detailed viewing statistics. The combination of security and feedback convinced content providers to agree to an "a la carte" model, in which Now subscribers can choose whether or not to subscribe to each individual channel, rather than being forced to pay for the whole bundle. This was much more flexible than the rival offering from the incumbent cable-TV firm. Now started with ten free cannels, and allowed subscribers to choose with additional channels, if any, to pay for on top. Viewers can even sign up for new channels on-screen.

Now also took the unusual step of developing its own set-top box, based on a stripped-down DVD player and produced very cheaply in China. This enabled it to begin its service without waiting for industry standards to emerge. It offered the box free of charge to broadband customers, 93% of whom now take the TV service as well. As its subscriber base grew- it exceeds 500,000, or more than 40% of the market- Now was able to poach valuable content, such as sports rights and film channels, from rival pay-TV operators. It recently launched a films-on-demand service, and on March 20th its own Chinese-language business channel.

PCCW is advising telecoms firms in Malaysia, Indonesia, Thailand, and Eastern Europe on how best to emulate its strategy. Another partner is China Netcom, which plans to launch TV services based on Now's model in two Chinese cities with populations of 6m or so, comparable to that of Hong Kong. China has 100 more such cities, notes Mr. Arena.

But some observers are skeptical. While aspects of Now's model can be applied elsewhere- such as the world "a la carte" pricing as a competitive weapon- in some ways it is unique, says Bertrand Chui, an analyst at ICEA Securities. "Hong Kong is a very small place, so it is relatively cheap to roll out really fast broadband access," he says. The high population density, with people packed into high-rise apartment buildings, reduces network costs. The savings enabled Now to give away set-top boxes and pay more for content. Operators in other countries may not be able to do the same.

Furthermore, notes Windsor Holden of Analysts, a telecom consultancy, a "one size fits all approach is unlikely to work across Europe, so telecoms firms in other countries will have to tailor their approaches. They may also face a cultural challenge, notes Mr. Holden, as they move into television. "Whenever you get telecoms companies and broadcasters coming together, you're going to get trouble," he says. Worryingly, that may highlight another secret of Now's success: there may be no substitute for learning by experience.

###