2 October 1999

The Hon SIN Chung-kai
Bills Committee on Telecommunication (Amendment) Bill 1999
Legislative Council Building
8 Jackson Road, Central
Hong Kong

The Consumer Council understands from recent discussions on the Telecommunication (Amendment) Bill that there has been some disquiet from certain sectors that the Telecommunications Authority (TA) has proposed legislative amendments to ensure that mobile telephone operators are not prevented from gaining access and providing services to the public in underground stations, tunnels and shopping malls.

The Council would like to express its support for proposed amendments which would ensure a role for the TA in resolving disputes on access to facilities (such as road tunnels) that are essential for the maintenance of a ubiquitous telecommunications network. The Council considers this to be little different to the existing role the TA has in terms of arbitrating access disputes in relation to other 'bottleneck' monopolies in the telecommunications network, where one party is able to use ownership of an essential facility as a lever to either prevent entry by a competitor, to raise rivals' costs, or to extract monopoly rents.

Because carriers will as a matter of course recover the costs through tariffs and service charges, the ultimate cost of meeting the rents that will be extracted through negotiations will eventually be borne by businesses and consumers through higher usage charges for telecommunications services.

The Government's reforms in the telecommunications sector have made notable achievements for deregulation and the implementation of competition policy in Hong Kong. This has arisen because of two important factors. The first being the application of broad based competitive safeguards that prevent the abuse of dominance, and act as a check against restrictive horizontal and vertical restraints that lessen economic welfare. The second is the existence of a mandated essential facilities regime that uses arbitration by an expert body as a means to ensure that the owners of monopoly infrastructure, or those that control other services, are not able to leverage their monopoly power at the expense of economic welfare.

The Council is of the view that all important parts of the telecommunications network, which includes physical infrastructure such as rights of way, should be included in the services that are within the scope of the TA's arbitration powers. The need to ensure that economic welfare is not compromised by the ability of one party to assert leverage, that emanates from a lack of substitutes available to the other party, would demand that the arbitration power is vested in the hands of an authority that has the statutory capacity to neutralize that leverage, and safeguard the interests of the businesses and consumers who use the telecommunications services.

The Council accepts there is a need for those seeking access to have regard to the fact that there are space constraints and complexities in coordinating the various demands of operators. It also accepts that private agreements should not be disrupted, unless there is good reason. However, Government has a responsibility to ensure that the interest of the wider Hong Kong community is not prejudiced by such agreements. The concerns of facilities owners should not be viewed as reasons for not allowing third party arbitration to take place that will have regard to economic welfare as the overarching concern. The concerns of facilities owners are valid matters for consideration in the more important issue of ensuring Hong Kong has a ubiquitous telecommunications network, and that the interests of telecommunications users, both business and consumers, are protected.

The interests of facilities owners can be easily provided through statutory requirements for the TA to have due regard to such matters. The Council's concern is that in the absence of a third party in the negotiations between facilities owners and telecommunications operators, there will be no representation of a wider consumer interest that the principle of 'user pays' is maintained. In the course of attempting to maximize their return on investment, through the fees collected from telecommunications operators, excessive rents obtained by facilities owners could in effect be forcing mobile telephone users to subsidize consumers of the facilities owners' services. By the same token, if adequate remuneration is not provided to facilities owners for their investment to satisfy telecommunications operators' demands, consumers of the facilities owners' services would be subsidizing consumers of telecommunications services.

Finally, the Council would emphasize that the role proposed for the TA is not unprecedented in Hong Kong. Moreover, the necessity of interpolating a Government appointed arbitrator in the process of negotiations between two parties where the wider communities' concerns need to safeguarded, is an established principle in overseas jurisdictions where other telecommunications sectors have been deregulated.

I trust you will give the above careful consideration. The Council is willing to assist further in this matter if so desired.

Pamela CHAN WONG Shui
Chief Executive