This paper sets out our further response to the BOT Tunnel Operators' latest submissions to the Bills Committee on 20, 22 and 30 September 1999 and 13 October 1999 relating to the proposed amendments to section 14 of the Telecommunication Ordinance. It also acknowledges the clear and strong endorsement given by the Consumer Council to section 14 in its letter to the Bills Committee on 2 October 1999. We believe that our proposal is a well balanced approach to support our policy on ubiquitous coverage for mobile telecommunications services in Hong Kong. It has been supported by telecommunications user groups as well as the Consumer Council during our consultation in the context of the 1998 Review of Fixed Telecommunications and in their recent deputations to the Bills Committee.

Mobile phone licence obligations

2. All Personal Communications Services (PCS) operators are bound by their licences issued in 1996 to extend service coverage to BOT tunnels including Tate's Cairn Tunnel, Eastern Harbour Tunnel and Western Harbour Tunnel. The service coverage commitment did not include the Tai Lam Tunnel which is the newest BOT tunnel and commenced operation in May 1998. Their commitments to extend service coverage, including coverage to the BOT tunnels, are given by way of making performance bonds to guarantee the coverage of milestones. In the event that the mobile network operator fails to comply with any of the milestones by the specified deadline, the surety is liable to pay to the Telecommunications Authority (TA) a specified bonded sum. We do not agree with the BOT tunnel operators' claim that there is no effective time limit within which the mobile telecommunications operators should provide service coverage to these tunnels. In enforcing the obligations under the performance bonds, the TA will take into consideration whether the mobile network operators have used their reasonable endeavours to reach commercial agreements with the tunnel operators.

Respect for contract and free market economy

3. The proposed amendments to section 14 would not affect existing commercial agreements between mobile network operators and landlords/tunnel operators. It will empower the TA to make authorisation under the new section 14(1A) only if the public interest test under the new section 14(1B)(a) and any other relevant factors (such as whether there is any alternative location for installation) set out in the new section 14(1B)(b) are met. Under the new section 14(5), the TA will only be empowered to determine the access fees if the concerned parties have failed to reach an agreement as to the fee to be paid. Furthermore, the same section stipulates that fees so determined should be fair and reasonable in all the circumstances of the case.

4. Given the high and ever increasing mobile penetration rate (52 mobile telephones per 100 people as in July 1999) in Hong Kong, mobile telecommunications have now become an essential public service to consumers and the community. There is general expectation from consumers that there would not be disconnection of mobile communications services in shielded areas, including tunnels. With the advent of the third generation mobile services which enable consumers to conduct e-commerce, data transmission as well as other multi-media applications through handsets, there can only be even stronger consumer demand for ubiquitous coverage and uninterrupted services. It is therefore in the public interest to have a policy objective that there should be ubiquitous coverage of mobile telecommunications services in Hong Kong. Our proposed amendments to section 14 is a balanced package while on one hand ensure that the public interest is met, and on the other hand ensure that primacy should be given to commercial agreements in a free market economy and a fair and reasonable access fees would be paid to the owners of shielded areas.

Level of access fees

5. The Administration has reassured Members at previous Bills Committee meetings that we have not made any judgment as to whether the present level of access fees into private tunnels is reasonable or not. Nor have we decided on any charging principles in determining the access fees under the new section 14(5)(b) introduced by the Telecommunication (Amendment) Bill 1999.

6. As stated in our previous response to the Bills Committee [CB(1) 1860/98-99 (01)], the TA will, in line with its established practice, conduct public consultation on the charging principles in determining the access fees. It will formulate clear guidelines on how he would make such a determination. The purpose of the consultation is intended to enhance the effectiveness and transparency of decisions by ensuring that the views of all interested parties, including the landlords and tunnel operators, are factored into the decision-making process.

7. The TA will carry out research and analyses on the relevant factors and considerations, including the commercial consideration put forward by landlords/tunnel operators, to determine the appropriate charging models under various circumstances. These models may include, but not limited to, the following :

• an incremental cost-based model that includes only costs such as the costs of additional resources incurred by the tunnel operators to enable the installation, operation, management and maintenance of the mobile network facilities inside the tunnels;
  
  
• a revenue-sharing model that involves the estimation and sharing with the tunnel operators of the additional revenue being generated through the usage of the mobile network facilities inside the tunnels;
  
  
• access charges that are based on the valuation of property rights such as the retail rental value of spaces on equivalent premises; and
  
  
• various combinations of above models to be applicable under specific circumstances.

In response to Members' request, we will produce an outline of the draft consultation document and present it to the Bills Committee.

8. As set out in our paper to the Bills Committee [CB(1)46/99-00(02)], the Government has completed a review on the access fees charged by Government for installation of radiocommunications equipment at Government tunnels with a view to lending support to our policy objective of ubiquitous coverage of mobile services in Hong Kong. The new access fees charged by the Government are based on a full-cost recovery approach. The BOT tunnel operators' view that charging the access fee at a level lower than the market rate is subsidizing mobile phone operators at the taxpayers' expense is unfounded. The access fee will recover all the cost incurred by the Government in handling such installations and there is no subsidy involved. As explained at the last Bills Committee meeting held on 6 October 1999, the fact that the Government is charging the mobile network operators at cost does not mean that the private BOT tunnel operators are expected to follow suit. We have not decided on any charging principles in determining the access fees under the new section 14(5)(b) introduced by the Telecommunication (Amendment) Bill. The TA will consult the public on the charging models to be adopted, including those in paragraph 7 above. Clearly, the revenue-sharing model and the model based on the valuation of property are not cost-based.

Benefit to the consumer

9. Our proposal will facilitate the extension of mobile network coverage. This will undoubtedly benefit consumers and businesses in Hong Kong given the growing importance of mobile telecommunications services. The penetration of mobile telecommunications services in Hong Kong has already passed 52% in July 1999, or 44% more than that in July 1998.

10. The Consumer Council in its letter to the Bills Committee dated 2 October 1999 gave us full support on our proposed amendments to section 14 as it would help protect the interests of both businesses and consumers. The Council considers that the concerns of facilities owners should not be viewed as reasons for not allowing third party arbitration to take place that will have regard to economic welfare as the overarching concerns. It considers that our proposal would help ensure a role of the TA in resolving issues on access to facilities (e.g. road tunnels) that is essential for the maintenance of a ubiquitous telecommunications network. It also points out that the role proposed for the TA is not unprecedented in Hong Kong. The necessity of interpolating a Government appointed "arbitrator" in the process of negotiations between two parties where the wider communities' concerns need to be safeguarded, is an established principle in overseas jurisdictions where other telecommunications sectors have been deregulated.

11. We welcome the Consumer Council's support. It is also in line with views received from telecommunications user groups during our consultation in the context of the 1998 Review of Fixed Telecommunications and in their recent deputations to the Bills Committee.

Basic Law Issues

12. The tunnel operators' claim that our proposed amendments to section 14 are in contravention of the relevant Articles of the Basic Law is unfounded. There is no question that the Bill will compromise the stipulations in the Basic Law and we are fully committed to abide by them. We are dedicated to implementing the policy of free trade and free economic principles, and to provide an economic and legal environment for encouraging investments as guaranteed under the Basic Law. Our proposals to enable the TA, in certain circumstances only after the application of a public interest test (the new section 14(1B)(a)) and having regard to the factors under the new section 14(1B)(b) (e.g. whether there is other alternative location and whether there is space constraint of the intended location for installation)to determine what constitutes a fair and reasonable charge would surely benefit consumers and businesses. Our proposals would continue to give primacy to commercial negotiations and provides a balanced and reasonable framework to facilitate our policy objective of ensuring ubiquitous coverage of mobile services in Hong Kong.


Information Technology and Broadcasting Bureau
October 1999