For discussion
EC(96-97)61
on 26 February 1997

ITEM FOR ESTABLISHMENT SUBCOMMITTEE OF FINANCE COMMITTEE

HEAD 46 - GENERAL EXPENSES OF THE CIVIL SERVICE
Subhead 081 Recoverable salaries and allowances
(Office of the Telecommunications Authority Trading Fund)

Members are invited to recommend to Finance Committee the creation of the following permanent post in the Office of the Telecommunications Authority, with effect from 23 March 1997 -

1 Assistant Director of Telecommunications
(D2) ($102,900 - $109,250)

PROBLEM

With the introduction of more competition to the telecommunications services market and advances in technologies, work in the Regulatory Affairs Branch (RAB) of the Office of the Telecommunications Authority (OFTA) has increased both in complexity and quantity. There is inadequate capacity at the directorate level of the RAB to deal with regulatory and licensing matters related to public telecommunications services.

PROPOSAL

2. We propose to create one permanent post of Assistant Director of Telecommunications (D2) to head the Economic Regulation Division (currently known as the Economic and Legal Unit) in the RAB to provide the Senior Assistant Director (SAD) (D3) with the necessary directorate support to cope with the increasing workload in the Division arising from the rapid growth of the telecommunications industry and the complexity in regulating the telecommunications market.

JUSTIFICATION

Increase in workload

3. Since its establishment in July 1993, developments in the telecommunications industry in Hong Kong have increased OFTA's workload both in quantity and complexity. These include Government's adoption of a pro-competition policy, emergence of new services and technologies, and increasing customer expectations.

4. With the adoption of a pro-competition policy, the number of industry operators has increased. Hence there are more incidents of conflicting interest and disputes among operators (in areas such as network interconnection, sharing of facilities, access to buildings and allegations of anti-competitive behaviour) which require the intervention of OFTA. Such intervention may be informally through mediation or formally by using powers available under legislation or licence conditions. At present, the SAD is the sole person in RAB with the authoritative status to act as mediator or arbitrator as appropriate. For instance, over the last 20 months, the Telecommunications Authority(TA), acting on the advice from the SAD, has made formal determinations regarding network interconnection on four occasions and numerous informal interventions in disputes or negotiations between network operators.

5. The SAD needs to monitor the fixed telecommunication market for anti-competitive behaviour and abuse of dominant market position, and to take action to ensure open and fair competition. The market has to be closely monitored to ensure that no operator is engaged in anti-competitive conduct such as collusive agreements to fix prices for any apparatus or service, boycotting the supply of goods or service to competitors, entering into exclusive arrangements which prevent competitors from having access to supplies or outlets, and agreements between licensees to share the available market. Also the conduct of the dominant operator has to be kept under surveillance to ensure that it is not abusing its dominant position by engaging in activities such as predatory pricing, price discrimination, tying arrangements and discrimination in supply of services to competitors. In some cases, direct action is required. An example of this approach is that all tariff proposals put forward by Hong Kong Telephone Company Limited (HKTC), the dominant operator, have to be approved by the TA. In the past 20 months, the RAB processed 102 new service/tariff revision proposals from HKTC and these require the endorsement of the SAD. By way of comparison, fewer than 20 service/tariff revision proposals per year were processed prior to the liberalisation of the local fixed telecommunication market.

6. The existing regulatory mechanisms require regular reviews in areas such as the international exclusive franchise, universal service obligation, price control framework and tariff structure, to meet the demand and expectations of the community and to cope with the rapid development of the telecommunications industry. In the past 20 months, the TA has issued, on the recommendation of the SAD, seven guidance notes and 27 statements on complex regulatory issues.

7. Not only has the quantity and complexity of the regulatory workload been increasing, the expectations of the regulator's output has been rising as well. Consumers and industry operators have become increasingly demanding of the regulator, whom they expect to deal with issues in a thorough, efficient and speedy manner, to take a more proactive regulator's role, and to handle issues in a transparent manner through undertaking public consultation or consulting advisory committees. For instance, the dominant fixed telecommunication network operator has demanded that the TA process its applications for approval of new services and tariff adjustments in ten days, instead of the existing time frame of 30 - 45 days.

8. The emergence of new services and technologies inevitably results in the requirement for new regulatory frameworks. In formulating such frameworks, the SAD has to undertake numerous consultations with relevant government departments and within the industry. The introduction of self-provided external telecommunication service licences, personal communications service licences and virtual private network licences are recent examples of new regulatory measures.

Need to strengthen the directorate in the RAB

9. Under the existing organisation structure (chart at Enclosure 1), the SAD is directly responsible to the Director-General of Telecommunications (D5) for running the RAB which comprises the Regulatory Division and the Economic & Legal Unit. In respect of the work of the Regulatory Division, the SAD is supported by a Chief Telecommunications Engineer (CTE) (D1) and for the work of the Economic & Legal Unit, he is underpinned by a group of non-directorate staff, comprising one Senior Administrative Officer (SAO), one Senior Economist (SE), one Senior Treasury Accountant (STA), one Treasury Accountant (TA) and two consultants. All staff in the Unit (except the Treasury Accountant) report directly to the SAD.

10. The responsibilities of the SAD, as the head of the RAB, have grown significantly in terms of breadth and weight, as compared with the responsibilities shouldered in 1993 when the post was created. The inadequacy of resources is particularly acute in the Economic & Legal Unit of the RAB which regulates the financial, economic and legal aspects of public telecommunications services. The Unit is responsible for conducting studies and research into telecommunications regulatory issues, monitoring the performance of telecommunications operators, investigating anti-competitive practices and complaints, arbitrating in inter-operator disputes as well as evaluating licence and service applications.

11. With the proposed directorate officer to head the Unit, the SAD will be able to devote more time to handle more important and strategic policy issues such as preparing Hong Kong for the information age so as to compete with territories in the region as the telecommunications hub of the Asia-Pacific Region, ensuring the efficient provision of a universal telecommunications service, and coping with issues created by the convergence of computer, communications and broadcasting technologies.

Creation of one Assistant Director of Telecommunications post

12. We propose to create a directorate post at D2 level to head the Economic & Legal Unit, which will be renamed as the Economic Regulation Division (ERD). The post holder will provide support to the SAD in supervising and coordinating the work of the ERD. He will supervise consultancies on legal, economic and accounting matters related to public telecommunications. On the market regulation front, he will monitor the performance of public telecommunications operators, and conduct investigations on anti-competitive practices and complaints regarding public telecommunications services. He will supervise the evaluation of licence and service applications on public telecommunications services and support TA's interventions and determinations on disputes among networks operators on interconnection and other issues. He will chair or represent the TA in OFTA's advisory committees on regulatory issues.

13. In order to discharge the aforementioned duties, the post requires an officer with decision making ability at the directorate level. The post holder has to make professional decisions on regulatory issues having regard to the specific needs as well as technological developments of the telecommunications industry, react in a pro-active manner to changes in the telecommunications scene, and command the confidence of the industry. As such, he has to have in-depth knowledge of the telecommunications industry and technologies in order to appreciate the dynamics of development of the telecommunications industry, tender expert advice on telecommunications issues to the industry and map out strategies to regulate the telecommunications industry. We therefore propose to create one additional permanent post of Assistant Director (AD) of Telecommunications in OFTA. The job description of the proposed AD post, Assistant Director (Regulatory) [AD(R)], is at Enclosure 2. The existing job description and the revised job description of the SAD are at Enclosures 3 and 4 respectively.

ASSOCIATED ORGANISATIONAL CHANGES

(a) Transfer of Infrastructure Coordination Section from the Operations Branch to the proposed Technical Regulation Division of the RAB

14. Following the creation of the proposed AD(R) post, the Infrastructure Coordination Section (ICS) will be transferred from the Operations Branch to the Technical Regulation Division (currently known as the Regulatory Division) of the RAB and placed under the control of the CTE(R). The ICS, set up in September 1995, coordinates the sharing of accommodation and facilities for public telecommunications and broadcasting installations. Its work is closely related to the development of competition in the public telecommunications service market. Staff of the ICS liaise closely with staff in the RAB on issues relating to sharing of accommodation, equipment, duct spaces and radio sites among operators. We consider that it is more appropriate for the Section to be put under the Technical Regulation Division to facilitate better internal communication and consultation. The existing and revised job descriptions of the CTE(R) post are at Enclosures 5 and 6 respectively. The existing and proposed organisation charts of the Operations Branch are at Enclosure 7 and 8 respectively. The proposed organisation chart of the RAB is at Enclosure 9.

15. The activities of the ICS represent only a small part of the overall functions of the Operations Branch. Over the years, the workload of the Branch has also increased, particularly in the field of broadcasting. Although the transfer of the ICS to the RAB will slightly reduce the workload of the AD in the Operations Branch [AD(O)], there is no substantial change in his duties and responsibilities. The existing job description of the AD(O) in the Operations Branch is at Enclosure 10.

(b) Transfer of the Competitive Services Section and the Franchised Services Section from the Technical Regulation Division of the RAB to the Economic Regulation Division of the RAB

16. We also propose to transfer the Competitive Services Section and the Franchised Services Section from the Technical Regulation Division of the RAB to its Economic Regulation Division. These two sections will be renamed as the Competition Licensing Section and the Tariffing Section respectively upon transfer. This organisational change is a logical arrangement as the work of these two sections is more related to the economic, financial and legal aspects of regulation than to the engineering and technical aspects.

FINANCIAL IMPLICATIONS

17. The additional notional annual mid-point salary cost for the creation of one permanent AD of Telecommunications post is $1,273,200. The full annual staff cost of the proposal, including salaries and staff on-costs, is $2,219,148.

18. In addition, this proposal will necessitate the creation of one Personal Secretary I post to provide secretarial support to the proposed AD(R) post. The notional annual mid-point salary cost is $258,300 and the full annual average staff cost is $406,344. There is sufficient provision under the 1996-97 Corporate and Business Plan of the OFTA Trading Fund to cover the additional cost associated with this proposal.

BACKGROUND INFORMATION

19. The heavy workload of the RAB has made it necessary for the Director-General of Telecommunications to create under delegated authority a supernumerary post of AD of Telecommunications on two occasions in 1996. On 24 January 1996, a supernumerary AD of Telecommunications post was created for six months to handle a judicial review sought by Wharf Cable on the decision of the TA to permit the commercial trial of video-on-demand. On 23 September 1996, another supernumerary AD of Telecommunications post was created to prepare for the dialogue with Hong Kong Telecom International Limited on further liberalization of the market for international telecommunications services and to deal with the review of the Telecommunication Ordinance. The supernumerary AD post will lapse on 23 March 1997.

CIVIL SERVICE BRANCH COMMENTS

20. Having regard to the increasing complexity and volume of work in regulatory and licensing matters related to telecommunications services, CSB agrees that an AD of Telecommunications post is required to provide necessary support to the SAD in OFTA. In view of its management and professional responsibilities, the grading and ranking of the proposed post are considered appropriate.

ADVICE OF THE STANDING COMMITTEE ON DIRECTORATE SALARIES AND CONDITIONS OF SERVICE

21. The Standing Committee on Directorate Salaries and Conditions of Service considers that the grading proposed for the post would be appropriate if the post was to be created.

Economic Services Branch
February 1997

(E5626/P.1-P.7/WIN99)
Enclosure 2 to EC(96-97)61

Duties of the Proposed Assistant Director (Regulatory) (Assistant Director of Telecommunications (D2))

Job Description

Responsible to the Senior Assistant Director of Telecommunications for the running of the Economic Regulation Division, specifically -

(a) supervising and coordinating the work of the Economic Regulation Division which will provide detailed legal and financial advice on telecommunications regulation to the Telecommunications Authority;

(b) monitoring the performance of public telecommunications operators and preparing reports on quality of service issues;

(c) supervising consultancies on legal, economic and accounting matters related to public telecommunications;

(d) conducting investigations on anti-competitive practices;

(e) conducting investigations on complaints regarding public telecommunications services;

(f) supporting OFTA's interventions and determinations on disputes among networks operators on interconnection and other issues;

(g) chairing and overseeing in the running of OFTA's advisory Committees on regulatory issues; and

(h) supervising the evaluation of licence and service applications on public telecommunications services.

(E5626/P.8/WIN99)

Enclosure 3 to EC(96-97)61

Senior Assistant Director (Regulatory Affairs) (Senior Assistant Director of Telecommunications (D3))

Existing Job Description

Responsible to the Director-General of Telecommunications for running the Regulatory Affairs Branch, in particular -

(a) taking responsibility for the management of the major regulatory projects within OFTA;

(b) implementing and overseeing the operation of the regime of anti-competitive safeguards (for example, financial separation requirements and cost accounting manuals) in order to ensure the fair and efficient conduct of network competition in Hong Kong;

(c) conducting investigations into anti-competitive practices;

(d) managing OFTA's intervention, and where necessary arbitration, of network interconnection disputes among network operators;

(e) monitoring the performance of public telecommunications operators and preparing reports on quality of service issues;

(f) supervising and coordinating the work of the Economic and Legal Unit which will provide detailed legal and financial advice on telecommunications regulation to the Telecommunications Authority;

(g) coordinating the investigation of complaints regarding public telecommunications services;

(h) representing OFTA on advisory panels set up to advise on regulatory issues; and

(i) liaising with overseas regulatory bodies.

(E5626/P.9/WIN99)

Enclosure 4 to EC(96-97)61

Senior Assistant Director (Regulatory Affairs) (Senior Assistant Director of Telecommunications (D3))

Revised Job Description after Creation of the AD Post in RAB

Responsible to the Director-General of Telecommunications for running the Regulatory Affairs Branch, in particular -

(a) taking responsibility for the management of the major regulatory projects within OFTA;

(b) implementing and overseeing the operation of the regime of anti-competitive safeguards (for example, financial separation requirements and cost accounting manuals) in order to ensure the fair and efficient conduct of network competition in Hong Kong;

(c) overseeing investigations into anti-competitive practices;

(d) managing OFTA's intervention, and where necessary arbitration, of network interconnection disputes among network operators;

(e) overseeing the investigation of complaints regarding public telecommunications services;

(f) representing OFTA on advisory panels set up to advise on regulatory issues;

(g) liaising with overseas regulatory bodies and representing Hong Kong on international telecommunications organisations;

(h) undertaking the duties of the deputy head of a department in the management of OFTA; and

(i) deputising Director-General as and when necessary.

(E5626/P.10/WIN99)

Enclosure 5 to EC(96-97)61

Chief Telecommunications Engineer (Regulatory)

Existing Job Description

Responsible to the Senior Assistant Director (Regulatory Affairs) for the running for the Regulatory Division of Regulatory Affairs Branch, specifically-

(a) managing the Regulatory Division;

(b) monitoring, regulating and evaluating the operations and performance of franchised telecommunications companies (H.K. Telephone Co.; Cable and Wireless Ltd.) to ensure that they are operating in accordance with the provisions in relevant ordinances and maintaining an appropriate level of technical facilities;

(c) providing professional input for approval and renewal of telecommunication franchises;

(d) planning and co-ordinating review of legislation on telecommunications and telephone services;

(e) examining the terms and conditions of special/exclusive telecommunication licences and providing documentation for consideration by the Governor-in-Council;

(f) producing and carrying out controlling and licensing strategies on telecommunication services, ensuring that all telecommunication systems and services are operated in accordance with local and international technical and regulatory requirements;

(g) ensuring that all telecommunications apparatus used in a licensed system or service for land, aeronautical and maritime services are in compliance with specified conditions and regulations;

(h) examining proposals for new telecommunication services;

(i) maintaining examination standards in respect of certificate of competency in radiotelegraphy and radiotelephony; and

(j) making recommendations for amendments to existing legislation, licensing policy and procedures in the light of changing requirement and technological developments.

Enclosure 6 to EC(96-97)61

Chief Telecommunications Engineer (Regulatory)

Revised Job Description

Responsible to the Senior Assistant Director (Regulatory Affairs) for the running for the Technical Regulation Division of Regulatory Affairs Branch, specifically-

(a) managing the Technical Regulation Division;

(b) monitoring, regulating and evaluating the technical performances of the public service operators to ensure that they are operating in accordance with the provisions in relevant ordinances and licences;

(c) administering and managing the numbering plan;

(d) liaising and coordinating with the public service operators regarding the access into building and the sharing of infrastructures facilities;

(e) providing professional inputs to the Economic Regulation Division and SAD(R) on the processing of licensing applications and proposals for new telecommunications services;

(f) providing technical input to the Interconnection Determination Committee;

(g) coordinating with Chief Telecommunications Engineer (Development) on the adoption of technical standards for public services; and

(h) making recommendations for amendments to existing legislation, licensing policy and procedures in the light of changing requirement and technological developments.

(E5626/P.12/WIN99)

Enclsoure 10 to EC(96-97)61

Assistant Director (Operations) (Assistant Director of Telecommunications (D2))

Existing Job Description

Responsible to the Director-General of Telecommunications for running the Operations Division, specifically -

(a) allocating frequencies for all radio-based services in Hong Kong and advising the Telecommunications Authority on frequency allocation plans;

(b) supervising the licensing of all private telecommunications systems;

(c) providing advice on broadcasting issues related to telecommunications to the Director-General and to the Broadcasting Authority;

(d) overseeing the investigation and prosecution of breaches of the laws regarding wireless telecommunication; and

(e) assisting in the control of ship-board communication systems.

(E5626/P.13/WIN99)

Last Updated on 12 August 1999