3. At the Chairmans suggestion, members agreed to postpone the date for the next meeting to 17 February 1997 at 10:45 am to continue the discussion on China Light and Power Company Limiteds excess generating capacity.

IV Development of local telephone and international telecommunication services

4. The Acting Director - General of Telecommunications (Ag D-GT) briefed members on the results of the review on local telephone pricing structure, the latest position on the Administrations negotiation with Hong Kong Telecom International Ltd. (HKTI) regarding its international telecommunications licence, and development of the new fixed telephone network service, as set out in the paper tabled at the meeting.

(Post-meeting note: The information paper tabled was circulated to members vide LegCo Paper No. CB(1)690/96-97(01) dated 14 January 1997.)

Review of pricing structure and development of local telephone services

5. Ag D-GT advised that since the public consultation paper on the review of the pricing structure of local telephone services was issued in May 1996, the Telecommunications Authority (TA) had received a total of 105 written submissions. It had also held many meetings with District Boards and other interested parties to discuss the matter. Whilst the majority of views supported the status quo of the current pricing structure, there was also substantial support for some kind of usage charge for high users. TA decided to conduct further studies on the issue while the current pricing structure of local telephone services would be maintained.

6. Members expressed support to the principle of having a different charging scheme for machine users of telephone lines, which could take up significant usage time in the telephone network. They enquired whether there were data showing the respective usage times of the telephone network by machine users and human users. Ag D-GT advised that the data in the last survey did not differentiate between machine and human users. TA was discussing with Hong Kong Telephone Company Ltd. with regard to the feasibility of differentiating machine usage from human usage in recording the relevant data for future study on this issue.

7. As regards the development of the local telephone network, Ag D-GT advised that four Fixed Telecommunications Network Service (FTNS) licences were issued to four companies in June 1995; namely, Hong Kong Telephone Company Ltd. (HKTC), Hutchison Communications Ltd., New T & T Ltd. and New World Telephone Ltd. The new operators were bound by special conditions to roll out network and HKTC was required to provide universal service. All three new operators were constructing optical fibre backbone network along the MTR route on north Hong Kong island and Kowloon peninsula, and had, as an interim measure, leased a number of circuits from HKTC. All the four networks were currently interconnected. The new operators had started to provide service at prices slightly cheaper than HKTC.

8. Members noted that the new operators of FTNS were not providing territory-wide services and asked whether it was TAs intention that the new operators would provide services only in specified geographical regions. If TAs intention was that the new operators could also provide territory-wide service, TA should disclose the timetable for this development. Ag D-GT advised that the policy was not to require the new operators to provide territory-wide service because it would be a waste of resources to have four territory-wide networks. The new operators were committed to providing service in specific geographical regions as proposed in their tendering documents. Such commitments had been included as conditions in the licences granted to the companies. The operators could propose to expand their service areas if they considered it commercially profitable and TA would consider such proposals. However, HKTC was required to provide territory-wide service even though the provision of some services to isolated locations would be running at a loss. The loss arising under such circumstance would be shared by all the four FTNS licencees.

9. Mr CHAN Kam-lam observed that whilst HKTC had claimed that local telephone services were running at a loss, there were three new companies willing to provide local telephone services at similar price levels as HKTC. He urged that the Government should monitor the utility companies more closely in order to protect consumers interest. Ag D-GT responded that the new operators had to pitch their prices at lower levels than HKTC in order to enter the market, even though they would be making a loss. Furthermore, the new operators aimed to promote other services such as international telecommunication service to subsidise the local telephone service.

10. As regards TAs action in encouraging competition, Ag D-GT advised that TA would scrutinise HKTCs pricing proposal very carefully to ensure that there would be no cut-throat pricing strategy which would drive out the new operators from the market.

International Telecommunication Service

11. Ag D-GT advised that the Administration had started a dialogue and was exploring common grounds with Hong Kong Telephone International Ltd. (HKTI) with regard to the international telecommunication licence granted to the company. In the meantime, the Administration was conducting a cost and benefit analysis on liberalising Hong Kongs international telecommunication services. The Administration had not made any commitment and would keep all options open for the time being.

12. As regards the latest position on the dialogue between the Administration and HKTI, the Ag Secretary for Economic Services (Ag SES) advised that the dialogue was at its early stage and nothing had been offered yet. A cost and benefit study on the liberalisation of Hong Kongs international telecommunication service was being jointly conducted by TA and an external consultant. The results of this study would help the Administration in formulating its negotiation objectives. Ag D-GT further advised that the three new operators of FTNS would naturally be interested in knowing the progress of the negotiation. The new operators could forward their views on the issue to the Administration for consideration.

13. Regarding the reasons for the high price of calls to the United Kingdom and China compared with that to North American countries, Ag D-GT advised that with indirect access provided by some companies, early competition in international telecommunication service had been achieved. However, the price level of international calls was determined by many factors and one of which was the charge made by the overseas network providers. The telecommunication markets in the United States of America and Canada had been liberalised for quite some time and were very competitive. Hence lower charges were made by the network providers leading to lower price of calls to these countries.

14. On the latest position regarding the development of the Personal Communications Service (PCS), Ag D-GT advised that one of the companies which was granted the licence to develop PCS was rolling out its network and would provide service by the end of January 1997. The whole project was progressing smoothly and there was no indication that any PCS licencee would withdraw from the project. At members request, the Administration agreed to provide an information paper on the development of PCS.

Admin

V The Post Office Trading Fund report and proposed amendments to the Post Office Regulations

(LegCo Paper No. CB(1)450/96-97(01))

15. Ag SES advised that the Post Office Trading Fund Report 1995-96 was the first annual report published after the establishment of the Post Office Trading Fund. The Administration would be happy to consider any comments from members on the operation of the Trading Fund. Furthermore, the Post Office had proposed some amendments to the Post Office Regulations in order to introduce certain new services to the public.

16. The Postmaster General (PMG) and the Deputy Postmaster General (DPMG) briefed members respectively on the Post Office Trading Fund Report 1995-96 and the proposed amendments to the Post Office Regulations, as set out in the information paper tabled at the meeting.

(Post-meeting note: The information paper was circulated to members vide LegCo Paper No. CB(1)690/96-97(03) on 14 January 1997.)

17. Members observed that there was a windfall in philatelic revenue, and enquired about the possibility for the Post Office to charge a price higher than the face value of the stamps sold for philatelic purpose. PMG advised that it was the practice for the Hong Kong Post Office, and in fact for post offices in other Administrations, to charge the face value of the stamps. However, the Post Office was selling a number of postal products and it was possible to introduce more new postal products, such as souvenir items, in order to increase revenue. He emphasised that revenue from philatelic and postal products sales were not the main revenue source for the Post Office. Ag SES further advised that there would be technical difficulties in charging a price higher than the face value of the stamps because it would be difficult to distinguish philatelic sales from postal sales. However, he agreed that it would be possible to introduce additional postal products to broaden the revenue base.

18. As regards whether the profits from philatelic sales would be used to subsidize the normal postal operation of the Post Office and reduce the pressure on increase in postal charges, DPMG advised that although philatelic revenue was included as a separate revenue item, the income and expenditure account of the Post Office was considered as a whole. In this sense, profit from philatelic revenue was in fact subsidizing the normal postal operation.

19. As to the likely impact on the Post Offices revenue with the introduction of the recorded delivery service and cessation of certain free postal services, DPMG advised that the impact on revenue would likely be neutral. The recorded delivery services aimed at providing an alternative to registered mail. The cheaper charges for recorded delivery services would attract new customers on the one hand, and would lead to a diversion from the more expensive registered mail service on the other. The cessation of free postal services for Government mail sent to the UK and British possessions or protectorates was only a change of accounting practices. Before the establishment of the Trading Fund, postal charges on Government Departments were effected by internal accounting arrangements within Governments accounts. Under the Trading Fund concept, all services should be provided on a cost recovery basis as far as possible.

20. Dr LAW Cheung-kwok opined that the Post Offices commitment to achieve 2.5% productivity gain in the next five years was a very modest target and enquired about the reasons for setting this target. PMG advised that the Post Office was developing comprehensive efficiency programmes which would help in realising greater improvement in productivity. He believed that the Post Office could do better than the estimated targets. Currently, the Post Office had to take stock of all options and possibilities and hopefully by next year, the Post Office could have more solid data for planning purpose and thus be able to set higher commitment targets.

21. As regards measures to facilitate the transition of the cessation of use of stamps bearing the Queens head, PMG advised that the Post Office would soon embark on a scheme whereby people could exchange stamps bearing the Queens head for new stamps of equal value which could be used beyond 30 June 1997.

22. The meeting ended at 4:20 pm.

Legislative Council Secretariat
24 February 1997

Last Updated on 14 August 1998