Hutchison is surprised and very concerned that the Government is still considering the possibility of issuing further FTNS licences. Hutchison strongly urges the Government against this.

What does the Hong Kong consumer need? In Hutchison's view, the Hong Kong consumer needs an alternative network service operator providing efficient and competitive state of the art voice and data services including high speed data, multi media and Internet services.

The real issue is: do the Governments proposals address these needs?


Hutchison is three years into a major construction programme for a territory-wide optical fibre network intended to cover all major business and residential areas in Hong Kong Island, Kowloon, Lantau Island and the New Territories. Construction work is still in progress and the work completed to-date includes:

The fibre backbone linking all major towns in the New Territories is being constructed and is due for completion in mid 1999. Direct fibre connections from the backbone to customer buildings are rapidly being built with the aim of providing not only basic telephone service but also high speed data, multimedia and Internet services to a large percentage of the Hong Kong population. Unlike HKT's legacy network, the Hutchison network will allow it to offer a much wider choice of service at higher quality. Major customers currently include the Hospital Authority and Airport Authority.

Hutchison's current network topology is as set out in Annex A.


Building the network takes time. Physical constraints distinguish Hong Kong from other markets where space is less of a problem. Networks are being built from scratch and building access facilities put in place. This is a time consuming and capital intensive business with many physical constraints resulting in timetables which run into years.

Equipment room space and facilities to access building are already in critically short supply. In many existing buildings the space allocated to telecom equipment is already fully occupied by HKT.

Road opening for duct works imposes a severe adverse environmental impact. Road opening restrictions (imposed by Government of up to 5 years) and requirements for co-ordination or joint undertaking by all FTNS Operators of construction works and road openings further compound the difficulties.

HKT currently controls most street ducts, duct into buildings, equipment space in buildings, in building wiring and all currently operational telephone exchanges. New FTNS Operators are also critically dependent upon HKT for the provision of interconnect circuits. In all these areas new FTNS Operators are making great efforts to provide their own facilities but physical, regulatory or landlord constraints inevitably dictate lengthy timetables.

Most of these problems do not apply to other markets where space is generally less of a problem. They should not be increased by the licensing and building of more duplicate network facilities.


Local telephony in Hong Kong is a distorted market place in which local calls are free, telephone lines are tariffed at less than cost (requiring the offer of even lower prices and 3 months' free line rental to win a customer), cut throat competition in international call charges has left margins very thin and unlike most parts of the world there are no domestic long distance calls to yield a revenue stream.

In many districts our network is already fully built and operational. However, reaching customers with that network is often not possible by virtue of difficulties accessing buildings. As noted above, in some cases there are very real physical constraints but in others landlords simply block access for commercial reasons (e.g. allegiance to another operator) or in order to extract unreasonably high charges. Any possibility of the issue of limited scope FTNS licences will exacerbate this problem considerably.

HKT thwarts our sales effort in many ways:

HKT has unique experience of and access to information about the Hong Kong market. It uses this to maximum advantage in many ways:

The reality is that whatever the regulatory constraints, HKT defends its customer base by all means available. Major corporate customers are induced to remain with HKT with offers which would drive a new FTNS Operator out of business.


More licences will not solve the problems:

We must learn from the PCS experience:

An example of the Government's oversight in this respect, was its decision to issue so many PCS licences. Six PCS licenses were issued creating at the time eight mobile operators holding eleven mobile licences. This forced existing operators onto the defensive with a resulting price war and collapsing margins. Within months of licence issue, 2 independent PCS Operators have been acquired by existing mobile operators reducing the total number of operators to six. More consolidation is confidently expected.

The Singapore example:

These lessons in the hard school of experience have at least not been wasted in Singapore. Despite its commitment to both free trade in general and WTO in particular, this harsh reality of a limited market place has been recognized by the Singaporean Government which ultimately decided to issue only one new fixed network licence despite a publicly stated original intention to issue two.



The Government must provide a viable environment for investors to:

This must be supported by firm regulation.

The Hong Kong economy is contracting rapidly. Currency and equity markets are in turmoil and Asia in general is in financial crisis.

Now is not the time to be pursuing idealistic notions of unlimited access to already overly competitive markets.

Existing investment plans are already hard to justify in the current economic circumstances. In these perilous economic times it is vital that the Government gives support to maintaining these plans and the thousands of Hong Kong livelihoods critically dependent upon them.

A moratorium or "wait and see" policy risks nothing. On the other hand, the granting of further licences will certainly lead to unwanted redundancies as well as cherry picking foreign interest. You will recall that despite a then favourable economic climate, foreign investment failed to materialize when foreign operators were given the opportunity to bid for FTNS licences at the same time as the existing FTNS Operators.

The issue of further FTNS licences prior to, at the very earliest, 2003 would thus be to court disaster. Widespread redundancies would be inevitable. We would be forced to review our investment plans. Financial survival would necessitate drastic scaling back and even closure of existing operations. A company such as Hutchison which has clearly demonstrated its commitment to Hong Kong reasonably expects to receive the Governments support in its efforts. At the very least, it is entitled not to have its investment and commit totally undermined by Government policy. The Government should not even consider issuing more licences.