"The return [from the narrowband business] was not sufficient," said SmarTone chief executive officer Douglas Li. "We felt the need to discontinue the resources being put into that line of business."
He said SmarTone would concentrate on its core mobile business and reaffirm the company's commitment to customers.
Analysts had been expecting the move for some time.
"SmarTone's getting out of narrowband was not a surprise," said Richard Wu, Telecommunications analyst at JP Morgan Securities Asia Pacific. He noted that SmarTone had written down its Internet investments while continually stressing the focus on its mobile operations.
SmarTone also operates a fixed broadband network, which has just been completed. SmarTone has "a few thousand broadband subscribers", according to Li, who added that the return from this business had also yet to reach a satisfactory level.
"For most businesses, the accepted rate of return on investment is around 10% or more," said Li. He did not specify the operating margins of either the dropped narrowband or existing broadband operations.
As a result of this move, the future of SmarTone's broadband business appears to be in limbo. "Do we wholesale [our broadband network]? Do we sell capacity?" Li asked. "Or do we use the backend to support mobile? We haven't decided on its future yet."
Wu believes that pulling out of narrowband signals SmarTone's eventual exit from fixed Internet provision. "It's hard to see SmarTone making headway into broadband, [because] Hong Kong is a small market," he said. "There's only room for so many players."
Wu said the three major players dominating the broadband market would continue to do so. Hong Kong's leading broadband providers include PCCW, Wharf Holdings's I-Cable unit and Hong Kong Broadband.
SmarTone's Li talked of the need to concentrate on businesses with higher profit potential. The focus will be on shifting from voice services to datacentric services, he said.
Li acknowledged that the company's immediate concerns lay with 3G and
Data services. "3G is our future, but it's clear that the focus must be on developing appealing services," he said, lamenting the industry's constant debate over 3G technology. "People should not be obsessed over the technology or the network platform - 3G is only a delivery pipe, services are the crucial factor."
JP Morgan's Wu noted that while SmarTone's facelift may "freshen up" the company, he expected no real impact on its business. "SmarTone's push for data is in line with other operators and it is well positioned to compete," Wu said.
Wu added however, "It's not necessarily a good thing just to be the first to roll 3G out, the prudent approach is sensible."
Wu said the market was looking for evidence of operators being able to charge for new applications. "If we see signs of that, then the market will lift."