HGC’s investor ‘keeps on investing’ in the industry

Hong Kong-based HGC Global Communications is building up its presence in Singapore in response to requests from corporate customers. Andrew Kwok, CEO of HGC, says that “several corporate customers in Hong Kong and around the world” are asking for “something in Singapore”.

He adds: “People are asking us what we have in Singapore. If people want to go to Singapore, we’ll be ready.”

No one in HGC “is talking about us pulling out of Hong Kong”, he is quick to say.“We are strong in the international market. We are very strong in the Hong Kong local market, with corporate customers, with small and medium enterprise and with consumers.”

And HGC has a strong local carrier business “mainly to support 5G growth in Hong Kong” and a local fixed-line business.

“We capture more than 40% of the business for 5G cellsite backhaul.” HGC is extending 5G reach to remote areas, he says,“in islands and villages. We have more than 40% of that market.”

HGC has “a very long history with mobile players in Hong Kong, starting from 2G and then 3G and 4G, and now it’s 5G. We have a very long, understanding relationship. It’s the trust we’ve built in the past.”

But there’s a change. First, that increasing interest in Singapore as a sort of alternative hub for HGC, which has solid Hong Kong roots but is now owned by a US private equity investor, I Squared Capital (ISQ).

This company paid US$1.9 billion at the end of 2017 to Hong Kong company CK Hutchison to take over 100% of its former international and fixed operation, which Kwok had been with for years. Until the completion of the acquisition his job title was president of the international and carrier business of Hutchison Telecoms (Hong Kong).

And there’s another change. When I interviewed Kwok just after the ISQ acquisition, and in all subsequent interviews, he has been reluctant to talk about “our investor”, to the point at which he’s been unwilling even to say its name. Now things have changed: in mid-October GTT agreed to sell its infrastructure division — mainly the former Interoute, but with other elements on both sides of the Atlantic — to ISQ for $2.15 billion, in a deal expected to close in the first half of 2021.

Two things happened at that point. First, the previously highly secretive ISQ quickly agreed to Capacity’s request for an interview. Partner Mohamed El Gazzar spoke late on a Friday afternoon, only hours after the announcement, and we published it the following Monday morning.

Separately, HGC said over that weekend that, further to the GTT announcement “HGC, being the first telecom asset for I Squared Capital… will continue to consolidate and expand its Hong Kong base, establish ourselves in Asia, and expand its international venture in different possible aspects.”

Overseas expansion

On the day of publication, HGC got in touch to ask if Capacity would like to talk to Kwok about its “overseas expansion plan”. Yes, please, we said.

“I just approved some overseas projects,” said Kwok after we’d said hello by video. And: “You’ve talked to Mo already.”

What’s changed, I asked Kwok. “What’s changed is that ISQ is in a pretty good mood about investing in infrastructure. We are so proud that we [HGC] were the first [carrier in ISQ’s portfolio].”

As the CEO of the first telecoms investment, Kwok clearly played a role in working with El Gazzar and others in ISQ. “What does GTT mean to us?” Kwok asked, meaning the infrastructure division, which will need to be renamed. “The first point is that our investor keeps on investing in our industry. We do have the same belief. In the future, our ISQ telecoms portfolio has a lot of value for the HGC family.” More family members in the group “add value”. Note the use of the words “our telecoms portfolio” there.

But despite that, the plan is that the infrastructure division of GTT will be separately managed from HGC. Both El Gazzar in October and Kwok, in this interview, have confirmed that to Capacity. But it’s clear that, in these two companies, ISQ will own infrastructure that stretches from North America through Europe to south-east Asia. El Gazzar said in October that ISQ is now “looking at the US market”. There are “a lot of opportunities in the US and Latin America. … There are some interesting opportunities we are looking at” in business-to-business networks and fibre-to-the-home.

At the same time it “likes to bolt on acquisitions”. ISQ has already done that with HGC since 2017 and El Gazzar wants “tier 2 and tier 3 cities and data centres” to add to the GTT infrastructure purchase once it’s complete.

Hong Kong dilemma

Back to HGC in Hong Kong. Though it has been US-owned since 2017, HGC is a Hong Kong operator, and under the Trump administration Hong Kong telcos have been regarded by the US in more or less the same way as Chinese telcos. The US regulator, the Federal Communications Commission (FCC), has taken a number of steps against the three main Chinese operators and, more recently, against a subsea cable that was due to run from the US coast right into Hong Kong. The FCC blocked that last, westernmost, leg: it wanted no directly linked telecoms between Chinese and US territory.

This is causing a quandary for global carriers that are based in Hong Kong. The owner of PCCW Global won’t speak publicly, though Capacity knows it is keeping options under review. HGC, though US-owned, is so engrained in Hong Kong’s economy that any severance between internal and international infrastructure would be painful on the one hand and politically challenging on the other.

As Kwok says, HGC is a trusted company in Hong Kong, with a long history. More recently, it’s at the heart of Hong Kong’s 5G strategy. “We are still searching for applications appropriate for high-speed services. When they grow, we grow also. We are trying to grow together. We give them the best-of-breed design.”

The company has been expanding, not only in Hong Kong and the rest of China but elsewhere in south-east Asia. In June 2020 it set up a new point of presence (PoP) in Bangkok, as well as a memorandum of understanding (MoU) with Aamra Networks, an internet and infrastructure service provider in Bangladesh. In October it signed another MoU, this time with CyberSecurity Malaysia, the Malaysian government’s national cybersecurity specialist and technical agency.

The road to Singapore

And in November it expanded its connections to Singapore, 2,500km across the South China Sea by setting up bandwidth-ondemand capability to the city state’s Paya Lebar data centre, operated by Big Data Exchange (BDx), which is owned by HGC.

“We have big plans for a regional hub in Singapore,” says Kwok. The BDx data centre“is up and running and we have interconnection to our main switch in Singapore, and communications to our international network”.

In 2019, as part of its owner’s strategy for bolt-on acquisitions, HGC bought MacroView, which offers technology solutions and managed services in Hong Kong as well as Macau, another special administrative region (SAR) of China, and in mainland China itself. This acquisition will be key. “We have a very firm plan to expand into south-east Asia using Singapore as a regional headquarters.” There’s one proviso: “We will not compete with the local carrier” — in other words, Singtel — but HGC will “provide our customers an additional choice in the region”.

The company “is trying to look for local partners and earn business together”, he says. “We want to contribute to Singapore and south-east Asia.” This will be “in cooperation with local carriers”, offering cloud solutions and “what we call digital-ready infrastructure”.

At the heart of this is software-defined networking (SDN), and HGC is expanding its SDN PoPs. “We have 15 SDN PoPs worldwide”, including six in Hong Kong. Others are in major cities such as London, Los Angeles and Singapore, he notes. The company is using OpenFlow SDN technology with NoviFlow equipment and SDN switching.

HGC is working on what it calls Smart X, its suite of smart solutions, for buildings, including offices, shopping centres and so on, for features from security to temperature regulation.

Next is the internet of things (IoT), he says. There’s a big shopping mall in Hong Kong which has worked with HGC, “connecting their IoT sensors to a portal, alarms and so on”, with IoT managed services. And security is also on the list.

We can’t sign off without talking about the pandemic. Normally I’d be interviewing Kwok on the sidelines of Capacity Asia in his own Hong Kong — two years ago we met in the garden outside the hotel on a warm December afternoon. Not in 2020. “The whole world is changing fast. We’ve become more practical. The culture has changed.”

The article was published by Capacity Media.