Legislative Council
Panel on Information Technology and Broadcasting
1998 Review of Fixed Telecommunications

Comments of
Norman Yuen
Deputy Chief Executive
Hongkong Telecom
25 September 1998

Mr. Chairman, on behalf of Hongkong Telecom and its affiliated companies, I would like to express our appreciation for the opportunity to appear before this Panel and present a pre-view of our thoughts on the proposals advanced by the Information Technology and Broadcasting Bureau, which will be submitted to the Government at the end of this month.

Not only does this Panel play a vital role in overseeing the Government's policy toward these critical sectors of the Hong Kong economy, but it will also be asked shortly to consider and adopt a series of detailed amendments to the Telecommunications Ordinance proposed by the Government in attachments to its policy review papers. I have appended to this statement a short overview of our positions on those amendments--positions which we hope to have a fuller opportunity to discuss with this Panel when it comes to consider these proposals.

Hongkong Telecom is in strong agreement with the basic vision presented by the Government in its Policy Review proposals: a society and economy propelled toward ever greater prosperity by an advanced information infrastructure which is the envy of the world. As the Chief Executive said in his statement last autumn, the scope of this vision knows "few boundaries other than our imagination." We also note, Mr. Chairman, that you have presented your own compelling view of this future in your vision of "Digital Hong Kong 2005" last summer.

We agree that the best way to achieve this vision within the broader global marketplace is to foster in Hong Kong an environment of open, vigorous competition in all key sectors of the telecommunications, broadcasting and information technology industries. While the Government has a vital role to play in assuring that the incentives to innovate and invest are foremost among its objectives, any effort to protect or manage competition in this larger marketplace is not only fruitless, but is also likely to undermine Hong Kong's competitive advantages in the region and the world at large.

The first of January will mark a turning point in the history of the telecommunications industry in Hong Kong. On that date, Hongkong Telecom will give up its external telecom services exclusivity and begin to share the market with a wide range of new competitors--in addition to those already competing through international "call-back" arrangements. This set of competitors will read like a "Who's Who" of the global industry, including some of the largest and best known companies in the world. At the same time, January also marks the beginning of a phased process of "rebalancing" the rates for local and international calling to correct an artificial and increasingly inefficient cross-subsidy designed for a bygone era. We have already seen significant reductions in the rates for international calling; rebalancing will begin the important second phase of this essential process. The timetables for both of these major changes are contained in the Framework Agreement signed by the Government with Hongkong Telecom last January. In addition, not long after that Agreement was announced, Hong Kong also became party to the provisions of the World Trade Organisation's Agreement on Basic Telecommunications. While the Framework Agreement provided for the timing, the WTO Agreement provides the general principles under which competition will take place in Hong Kong--and in all other developed markets--principles which come fully into play with the advent of services competition next year.

It is in this context, therefore, that Hongkong Telecom will express its support for the Government's plans to issue new licenses in each of the three sectors--local services, international services and international facilities--which are the principal focus of this review. We do not think the Government should prevent the entry of any company willing to invest the resources required to serve customers competitively in this market--so long as the Government does not perpetuate policies which deny those customers the benefits of the full capabilities of the SAR's premier provider, Hongkong Telecom.

Members of the Panel will be aware that the Telecommunication Authority applies a wide range of rules that limit HKT's ability to make attractive offers to customers. These include minimum prices for services, which keep HKT's tariffs artificially high for some services, and extended approval periods for new products and services, which delays these benefits for customers.

The supposed purpose of these restrictions is to protect new entrants to the market. Whatever protective cocoon the government felt it needed to provide in the past to assure that all new competitors would grow from being caterpillars into butterflies, such protection is not warranted for those giant moths who will be drawn to the bright light which Hong Kong now represents in the global industry.

Indeed, the idea that BT, WorldCom, Singapore Telecom, or AT&T, need to be protected in the global services market from Hongkong Telecom, is too fanciful to be suggested in this day and age. These companies not only have vast resources and experience, but close relationships with large customers in their home territories which give them great advantages over any competitor the size of Hongkong Telecom, even in our home base. We are prepared to meet them fairly in the market, but we strongly urge this Panel to support the phasing out of unreasonable limitations on our ability to meet them service-for-service and price-for-price. In effect, January marks Hongkong Telecom's transition from being the big fish in a small pond, to being the small fish in a large pond--in fact, a global ocean.

But our principal concern with the proposals put forward by the ITBB in this review has to do with its support for the idea of Government-imposed terms and conditions for unbundling the local loop--that part of our network which extends from the telephone exchange to a customer's doorstep. Under existing commercial agreements, we now make available these loops to each of our local competitors--New World, New T&T and Hutchison--and these lines actually represent about half of the connections which these companies have with their local customers. But one of our competitors has recently asked the Telecommunications Authority to step in and tear up our commercial agreement by deciding itself the terms under which that transfer of the loops will occur. The TA is in fact proceeding to make such a determination--notwithstanding our arguments that such an interventionary step would have a chilling impact on both our own plans to invest in network infrastructure, as well as on the plans of the competitors themselves. For if they can connect to customers using our network at mandatory bargain basement prices, they will have no incentive to invest in such connections themselves. And we will have to reconsider putting our money into assets which can be taken from us in this manner. Yet, it is network-based competition which ultimately will provide the infrastructure development which it is the Government's principal objective to promote. This so-called "Type II Interconnection"--which is not interconnection at all--but confiscatory disconnection--is not good policy and is not necessary to achieve the objectives we all seek. In fact, it will set us back--perhaps irrevocably.

Mr. Chairman, these are the basic points we plan to make in our comments to the Government at the end of this month. As indicated at the outset, we have also included a summary of our comments on the legislative proposals accompanying this review, but we will not try to address all of the other issues which are raised by these proposals and will save that for another day.

Hongkong Telecom believes that Hong Kong can achieve the kind of advanced information society which the Government has made such a high priority--and which you have expanded in your own vision of the future. Even in the difficult economic climate which we face in the near term, Hong Kong already has available the capabilities and policy agendas needed to follow through with this vision. We simply need to recognise the dimensions of the changes we have already agreed to make--and to adjust our thinking, and our concrete policies, to the new realities of the marketplace we are about to enter in full force.

Thank you for the opportunity to be here.