For discussion
on 12 April 1999

Legislative Council Panel on
Information Technology and Broadcasting

Liberalisation of the
External Telecommunications Services Market


Following the liberalisation of the market for external telecommunications services from 1 January 1999, International simple resale (ISR) of external leased circuits for voice and non-voice services, Internet telephony as well as services based on other technologies are permitted. All four Fixed Telecommunication Network Services (FTNS) operators are allowed to provide external telecommunications services. In addition, service providers may also operate external telecommunications services under Public Non-exclusive Telecommunications Service (PNETS) Licences. Up to 30 March 1999, OFTA has received 125 applications for such PNETS Licences and has granted 76 licences. This paper provides a situation report on the liberalisation exercise to date.

Steps of Implementation

2. Following two rounds of public consultation on the 1998 Review of Fixed Telecommunications, the Government announced on 22 October 1998 its decision to issue licences for the provision of external telecommunications services freely on demand, for operation from 1 January 1999. On 23 October 1998, the Telecommunications Authority (TA) issued guidance notes inviting applications for licences to operate external telecommunications services.

3. At its meeting on 9 November 1998, this Panel was briefed on the comments received during an industry consultation exercise conducted by the Office of the Telecommunications Authority (OFTA) on a scheme for external telecommunications services operators to pay local access charges to the FTNS operators for the use of the latter's networks in order to reach end customers. The objective of the scheme was to compensate the FTNS operators so as to maintain the commercial incentive for them to continue to invest in and roll out the local fixed network infrastructure.

4. Following the completion of this consultation exercise, the TA issued a Statement on 25 November 1998 setting out the local access charge and modified delivery fee arrangement for implementation from 1 January 1999. The local access charge arrangement has replaced the delivery fee arrangement which had been in place since 1995 over routes (called "Category A" routes) on which competition (from ISR and other technologies) with the external gateway of Hong Kong Telecom is expected. For the other routes (called "Category B" routes) on which competition with the external gateway of Hong Kong Telecom has not fully developed (because, for example, ISR is not permitted by the distant authorities), the delivery fee arrangement continues to apply, but at a modified level.

5. On 24 December 1998, the TA made the initial classification of the routes to and from Hong Kong into Category A and Category B.

6. On 30 December 1998, the TA determined the level of the local access charges applicable to Category A routes and the level of the modified delivery fees and gateway prices applicable to the Category B routes. As a result of such determination, the prices of Hong Kong Telecom's external gateway have been revised downward, based on the cost level, for many Category B routes, including routes to destinations in the mainland of China outside Shenzhen and Guangdong. This paved the way for lower prices for Category B routes.

Price Trend

7. In preparation for the full liberalisation of the ETS market with effect from 1 January 1999, the International Direct Dialing (IDD) service providers had launched their competition plans long before the liberalisation date. Price competition became intense during the second half of 1998, especially during the last quarter. In view of this development, we have analysed the price trend for the past 12 months to assess the impact of the liberalisation.

8. The trend of the weighted average of the IDD prices (excluding the IDD001 services of Hong Kong Telecom) over the 12-month period to March 1999 is summarized in the following table :-

Major RoutesPeak Hour ChargesOff-peak Hour Charges
Mainland of China, Taiwan, USA, UK, Singapore, Japan, Canada and Australia-12.4%-21%
Same as above but excluding the Mainland of China -19%-43%

The weighted average reduction in IDD prices over all routes over the 12-month period was 15%.

9. IDD prices for routes outside the Mainland of China for off-peak hours have seen the deepest reduction while the routes to and from the Mainland of China are subject to a lesser degree of competitive pressure. Our analysis indicates that, although our external telecommunications services market was fully liberalised only on 1 January 1999, competition in that market had already become rather intense towards the second half of 1998.

Economic Benefits

10. Based on the weighted average reduction of 15% in IDD prices over all routes, there will be an estimated saving of $2.5 billion in IDD expenditure by Hong Kong users for the full year of 1999. This figure has not taken into account the indirect benefit that such savings would bring to the Hong Kong economy.


11. The liberalisation of the external telecommunications services market has been implemented successfully and achieved the desired objective of making available quality external telecommunications services at reasonable pricing. OFTA will continue to monitor the market to ensure that there will be fair competition among the external telecommunications services operators.

Information Technology and Broadcasting Bureau
April 1999