on 28 July 1998
Legislative Council Information Technology and Broadcasting Panel
1998 Review of Fixed Telecommunications
This paper informs Members of the progress of the 1998 Review of Fixed Telecommunications.
2. When the three new Fixed Telecommunication Network Services (FTNS) licences were issued in June 1995, the Government agreed to a three-year moratorium on the issue of further FTNS licences. This moratorium is up for review now - a review also required under Hong Kong, China's commitments under the World Trade Organisation (WTO) Agreement on Basic Telecommunications.
3. On 20 January 1998, the Government signed an Agreement with Hong Kong Telecommunications Limited (HKT) for the early surrender of the licence of Hong Kong Telecom International Limited (HKTI) and released a Policy Statement on the liberalisation of Hong Kong's external telecommunications markets. This Statement set the dates for external services competition (1 January 1999) and external facilities competition (1 January 2000) and gave an undertaking to consult on the further opening up of the external telecommunications markets.
4. The Government commenced the 1998 Review of Fixed Telecommunications on 30 April 1998 with the release of a consultation paper. The objectives of the review are to consider -
- the current state of development of Hong Kong's local fixed telecommunications industry on the completion of the 3-year head-start granted to the local FTNS operators;
- the opportunities that exist for ensuring effective competition in both the local and external sectors of the fixed telecommunications industry;
- the appropriate industry structure which should be encouraged in Hong Kong, with particular emphasis on issues of licensing, network development and economic efficiency; and
- any necessary fine tuning of the policy and regulatory environment especially in regard to the regime of competitive safeguards employed in Hong Kong.
5. In particular, the review addresses several key market access issues which will determine the future industry structure in telecommunications in Hong Kong. These are :
- whether applications should be invited for the issue of further FTNS licences;
- whether an unlimited number of external service-based licences should be issued;
- whether external facilities-based licences should be offered beyond the existing four FTNS operators.
6. The review is being conducted in parallel with the 1998 Review on Television Policy so that interface issues and areas of common concern can be considered and addressed at the same time.
Scope of Review
7. On the future structure of the fixed telecommunications services market in Hong Kong, three broad options were put forward in the consultation paper:
- Option 1 - extend the existing moratorium upon its expiry in mid-1998 for a further period;
- Option 2 - allow the grant of a limited number of new FTNS licences;
- Option 3 - allow open entry to an unlimited number of service suppliers in all market segments - this would mean issuing as many licences for local and/or external fixed telecommunications network services as the market demands.
8. The other outstanding major issues of policy and regulation included within this Review are:
- convergence of telecommunications, information technology and broadcasting services;
- the nature of regulation;
- local tariffing issues;
- competitive safeguards; and
- fixed versus mobile services.
9. In response to the Review, 30 submissions were received from the telecommunications industry and other interested parties. In summary, most submissions agreed that the moratorium on FTNS licences should end as scheduled, although those who argued otherwise considered that the Government should ensure a reasonable level of return on the investment of the three new FTNS licensees. On the liberalisation of the external telecommunications market, most submissions supported the liberalisation of the external services-based market but suggested that the terms of interconnection should be considered carefully. For the external facilities-based market, there were differing views on the way it should be liberalised. The primary concern was to avoid "cream-skimming" by companies with little interest in investing in the local telecommunications infrastructure.
10. As regards the structure of fixed telecommunications market, several submissions proposed that be for the long term benefits of consumers and users should be safeguarded. Most submissions believed that allowed to determine the number of operators should be determined by market forces, but some considered it the duty of the Government to adopt a "managed competition" approach.
11. The other major issues commented on were the nature of regulation, interconnection and access. While some applauded the Government's achievement thus far in ensuring fair and effective competition, others considered that the light-handed approach in regulation is insufficient to restrain the market power of the dominant operator. The difficulties experienced by operators in interconnecting with the dominant operator's network and in gaining access to certain premises to install equipment also featured prominently in the submissions.
12. The Information Technology and Broadcasting Bureau, in conjunction with the Office of the Telecommunications Authority (OFTA), are analysing the views received and will formulate the policy directions and proposals for the purpose of further consultation with interested parties.
The Next Step
13. The Government is working towards finalising a package of policy proposals as soon as possible and with a view to publishing them for public consultation in late summer. We are planning to provide a minimum of four weeks for the industry and the community to offer comments and views on the proposals. We will brief and consult the Legislative Council Information Technology and Broadcasting Panel at the first available opportunity and, as done in the past, post the consultation paper on the Internet. We will also organise forums for in-depth discussions. The Government's time-table is to complete the consultation exercise in time for policy decisions to be made and announced before the end of the year.
21 July 1998
Information Technology and Broadcasting Bureau
File Ref. : ITBB CR 7/4/6 (98) II