House Committees (Papers) 6 Mar 98

PLC Paper No. CB(1) 1107

Ref: CB1/SS/10/97

Paper for the House Committee meeting on 13 March 1998
Report of the Subcommittee on Telecommunication (Amendment) Regulation 1998 and Telephone (Repeal) Regulation 1998

Purpose

This paper reports on the deliberations of the Subcommittee on Telecommunication (Amendment) Regulation 1998 and Telephone (Repeal) Regulation 1998 (the Subcommittee).

Background

2.The Government has reached an agreement (the Agreement) with Hong Kong Telecommunications Limited (HKT) for early surrender of the Hong Kong Telecommunication International (HKTI) licence with exclusive rights for certain external circuits and telephone services due to expire on 30 September 2006. The terms and conditions of the Agreement are summarised as follows:

the HKTI licence would cease on 31 March 1998 with external service based competition beginning on 1 January 1999 and external facilities based competition beginning on 1 January 2000;
the Fixed Telecommunication Network Services (FTNS) licence given to the Hong Kong Telephone Company Limited (HKTC) would include external services and circuits and, HKTI and HKTC would no longer be required to be structurally separate;
royalty payable by HKTI on its exclusivities would cease on 20 January 1998;
HKTC would be permitted a phased increase in its residential exchange line tariffs and increases in business exchange line tariffs, but the CPI(A)-4% cap on the other services would be maintained; and
a compensation of $6.7 billion (net of tax) would be paid.

The Subsidiary Legislation

3.The Telecommunication (Amendment) Regulation 1998 and the Telephone (Repeal) Regulation 1998 are parts of a series of arrangements for implementing the above Agreement:

the Telecommunication (Amendment) Regulation 1998 introduces a new licence known as the Public Radiocommunication Service Licence (for services other than land mobile services), which is valid for ten years and extendable for a further period of up to three years, to enable HKT to continue to provide aeronautical and maritime mobile services after the surrender of its existing licence; and
the Telephone (Repeal) Regulation 1998 repeals the Telephone Regulation (Cap. 269 sub. leg.) which currently provides for the price control arrangement in relation to HKTC for the revision of any charge which the company may make and collect for the provision of any service.

The Subcommittee

4.At the meeting of the House Committee on 13 February 1998, Members decided to form a Subcommittee to study the abovesaid subsidiary legislation. With Hon James TIEN Pei-chun elected as Chairman, the Subcommittee held two meetings with the Administration, and also met with deputations at one of the meetings. The membership list of the Subcommittee is at Appendix I. The list of organizations which have expressed views on the subsidiary legislation is at Appendix II.

Deliberations of the Subcommittee

5.Members of the Subcommittee generally support the Administration's move to further liberalize the telecommunications market. The Subcommittee noted that the $6.7 billion cash compensation to HKT was already approved by the Finance Committee on 27 February 1998 and that the surrender of the HKTI licence was still dependent upon the passing of the present two sets of subsidiary legislation. The concerns raised by members during the course of deliberation, which mainly relate to whether genuine and effective competition could be introduced in the telecommunications market such that consumers would benefit in the long run, are summarized in the following paragraphs.

6.Regarding members' concern about whether the three existing FTNS operators other than HKTC will be prepared to make the substantial investment required to participate in the liberalized market, the Administration is confident that these operators are keen to make the necessary investments in response to the liberalization. In response to the Subcommittee, representatives of the three FTNS operators have also confirmed their intentions to make investments in this respect.

7.As to whether the existing FTNS operators allowed to supply non-exclusive external services from 1 January 1999 and HKTC would form a cartel, the Administration assures that there are consumer protection measures and safeguards against anti-competitive practices in the terms and conditions of the FTNS licence. Contravention of these terms and conditions may lead to penalties on the licensee or even revocation of the licence.

8.Under the Agreement, HKTC is required to open up its already installed local access lines to give other FTNS licensees access to at least half of the residential exchange line customers by 1 January 1999. Other external telecommunications services competitors would also need to negotiate with HKTC on interconnection arrangements and provision of external circuits. Members are concerned about the mechanism whereby charges are set for access to HKTC's or other operators' networks as these charges will affect the tariffs to be borne by consumers. According to the Administration, there are guidelines to ensure that these access charges are cost based and to be negotiated between the parties concerned in a transparent and fair manner. The Telecommunications Authority (TA) can act as an arbitrator in case of dispute and take action against anti-competitive practices. Furthermore, as external telecommunications facilities-based competition commences on 1 January 2000, relevant licensed service providers would be able to provide services over their own infrastructure and by-pass other operators' facilities. With the confirmation by existing operators that the access charges would indeed be agreed in a reasonable and fair manner, members raise no further queries but remain of the view that these access charges should be under continual monitoring by the legislature.

9.On the speed of making the required residential exchange lines available to other operators, members have noted HKT's confidence in opening up over half of the lines within the next ten months. As to whether there would be a physical limitation on the number of other operators that could be accommodated by HKTC's exchanges, both HKT and the Administration assure that given the more and more advanced technology with time, there would be virtually no limit in this respect.

10.Noting that the issue of whether there would be additional telecommunications facilities operators will only be considered by the Administration in the context of the FTNS review scheduled for mid 1998, members are concerned about the fairness in the arrangement of giving a head-start to the three existing FTNS operators to supply non-exclusive external services from 1 January 1999. They are also concerned that uncertainties regarding the number of new licences to be issued may discourage investment by potential competitors. In response to the concerns, the Administration undertakes to advance the FTNS review from mid 1998 to April 1998 and to consult the trade on relevant issues including access charges. The Administration also agrees that there should not be any pre-set limit on the number of additional licences to be issued and decisions would be made in accordance with a set of fair, objective and transparent standards. It is expected that a decision to accept applications for external telecommunications services licences can be made by September or October 1998 and successful applicants can commence operation after about three months' preparation work. Hence new licensees would be able to start providing the relevant services at approximately the same time as the three existing FTNS operators. As to the external telecommunications facilities-based competition, members noted that the three existing FTNS operators and other licensees, if any, would be allowed to participate from 1 January 2000.

11.On examination of the provisions in the two sets of subsidiary legislation, members noted the Administration's view that as the new arrangements for HKTC to increase its tariffs were already in the Agreement, it was not necessary to include them in the Telephone Regulation. Members do not object to the repeal of the Telephone Regulation and the proposed amendments to the Telecommunication Regulation.

Recommendation

12.The Subcommittee recommends that the two sets of subsidiary legislation be supported.

Advice Sought

13.Members are invited to note the deliberations of the Subcommittee and the recommendation at paragraph 12 above.

appendix I

Provisional Legislative Council Secretariat 10 March 1998

Subcommittee on Telecommunication (Amendment) Regulation 1998 and Telephone (Repeal) Regulation 1998

Membership list

Hon James TIEN Pei-chun, JP (Chairman)

Hon NG Leung-sing

Hon Mrs Elsie TU, GBM

Hon Henry WU

Hon Henry TANG Ying-yen, JP

Hon MA Fung-kwok

Hon CHAN Yuen-han

Hon CHAN Kam-lam

Hon CHENG Kai-nam

Dr Hon LAW Cheung-kwok

Hon CHOY So-yuk

Total: 11 Members
Date: 26 February 1998

appendix II

Subcommittee on Telecommunication (Amendment) Regulation 1998 and Telephone (Repeal) Regulation 1998
List of organizations which have expressed views on the subsidiary legislation

Consumer Council

providers:

China Hong Kong International Communication Co Ltd
Hong Kong Internet Service Providers Association
SmarTone Telecommunications Holdings Limited
Telecom Association of Hong Kong
Worldcom Asia Pacific Ltd

Provisional Legislative Council Secretariat
10 March 1998

Paper for the House Committee meeting on 13 March 1998 Report of the Subcommittee on Telecommunication (Amendment) Regulation 1998 and Telephone (Repeal) Regulation 1998

Paper for the House Committee meeting on 13 March 1998
Report of the Subcommittee on Telecommunication (Amendment) Regulation 1998 and Telephone (Repeal) Regulation 1998