The Consumer Council is pleased to provide the following submission to facilitate the exchange of views with the Bills Committee.

Introduction

1. The Council is taking this opportunity to comment on the proposed amendments to the Telecommunications Ordinance, as per the Telecommunications (Amendment) Bill 1999, in regard to recent comments that have been made concerning the extension of the powers of Telecommunications Authority (TA). In particular, regarding the concerns that have been expressed as to the proposed role for the TA in resolving disputes on access to facilities (such as road tunnels) that are essential for the maintenance of a ubiquitous telecommunications network.

2. At the outset, the Council wishes to express its general support for the proposed amendments that will strengthen the ambit of the telecommunications competitive safeguards found in the Telecommunications Ordinance. The competition reforms in this sector have brought about real benefits to consumers in Hong Kong. This has largely been due to the application of broad competition principles by the TA that are found in the general competition laws of our major trading partners.

General competition law

3. In fact, it is the absence of a general body of competition law in Hong Kong that makes it all the more necessary for the TA to have the power of intervention in competition matters relating to the telecommunications industry, however oblique that relationship is.

4. The concerns regarding the reach of the TA's powers by persons who are not telecommunications license holders is in fact symptomatic of the sector specific approach the Government has taken with competition policy in Hong Kong. The Council pointed out late last year, when the TA was examining the acquisition of Star Internet by Hong Kong Telecom IMS, that there may be markets developing in the future that will not have an industry competition regulator (such as the TA) to take on the responsibility for ensuring a competitive marketplace in the area of Internet activity. The disputes that are now arising with regard to access to physical infrastructure not directly associated with the telecommunications network, is but another example.

5. The inevitable consequence of the Government's approach is that it will be reacting to deficiencies in its sector specific regulatory stance as and when problems arise. As a result of the time lags inherent in this approach, there is the possibility that irreversible damage will occur in terms of economic efficiency, and Hong Kong's ability to further the advances it has already made in evolving to a services based economy. The longer Hong Kong is without competition law, and the more that technological and marketing activity results in convergence or creation of new economic sectors, the greater will be the problems for Hong Kong business, when faced with disputes of a competition nature. General competition law provides a basic set of rules that market participants in all sectors can become familiar with and abide by to ensure that markets are fair and fully contestable. Not having these rules deprives business of the certainty of regulatory action and of their rights as participants in Hong Kong's economy.

6. Having said that, the Council recognizes that in the absence of general competition law, and the Government's intransigence in this area, Hong Kong must do with what it has. Accordingly, it has supported the role of the TA in arbitrating disputes on access to infrastructure that is vital to maintaining ubiquity of the telecommunications network.

The TA's Role

7. The Council considers the TA's role in arbitrating access to facilities such as road tunnels is little different to the existing role the TA has in terms of arbitrating access disputes in relation to other 'bottleneck' monopolies in the telecommunications network, where one party is able to use ownership of an essential facility as a lever to either prevent entry by a competitor, to raise rivals' costs, or to extract monopoly rents. The success to date of Hong Kong's liberalized telecommunications industry, which has attained world recognition, has been due to the fact that there are basic competition rules on access. This success should not be jeopardized by a failure to allow the TA to extend established and successful powers of intervention.

8. It is important that some certainty be given to the issue of access, to ensure that mobile telephone operators are not prevented from gaining access and providing services to the public in underground stations, tunnels and shopping malls. Because carriers will as a matter of course recover the costs through tariffs and service charges, the ultimate cost of meeting the rents that will be extracted through negotiations will eventually be borne by businesses and consumers through higher usage charges for telecommunications services.

9. The reforms in the telecommunications sector, and the TA's involvement have made notable achievements for deregulation and the implementation of competition policy in Hong Kong. This has arisen because of two important factors. The first being the application of broad based competitive safeguards that prevent the abuse of dominance, and act as a check against restrictive horizontal and vertical restraints that lessen economic welfare. The second is the existence of a mandated essential facilities regime that uses arbitration by an expert body as a means to ensure that the owners of monopoly infrastructure, or those that control other services, are not able to leverage their monopoly power at the expense of economic welfare.

10. The Council is of the view that all important parts of the telecommunications network, which includes physical infrastructure such as rights of way, should be included in the services that are within the scope of the TA's arbitration powers. The need to ensure that economic welfare is not compromised by the ability of a facilities owner to assert leverage, that emanates from a lack of substitutes available to a telecommunications operator, would demand that the arbitration power is vested in the hands of a capable authority. Such an authority should have the statutory capacity to neutralize that leverage, and safeguard the interests of the businesses and consumers who use the telecommunications services.

11. The Council accepts there is a need for those seeking access to have regard to the fact that there are space constraints and complexities in coordinating the various demands of operators. It also accepts that private agreements should not be disrupted, unless there is good reason. However, Government has a responsibility to ensure that the interest of the wider Hong Kong community is not prejudiced by such agreements. 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 concern. The concerns of facilities owners are valid matters for consideration in the more important issue of ensuring Hong Kong has a ubiquitous telecommunications network, and that the interests of telecommunications users, both business and consumers, are protected.

Consumer Interests

12. One of the main concerns of the Council is that in the absence of third party involvement in the negotiations between facilities owners and telecommunications operators, there will be no representation of the wider consumer interest. It can be expected that facilities owners may, by leveraging their power to grant access, attempt to maximize their return on investment, through the fees collected from telecommunications operators. It is inevitable that excessive rents obtained by facilities owners will be passed on to telecommunications users through higher mobile phone tariffs. This will lead to a distortion of the costs of mobile phone usage, with possible negative implications for allocative efficiency. Moreover, while the fees for access may appear small when considered on a per customer basis, in aggregate they would make a substantial contribution to the overall costs of operating the telecommunications network.

Checks against the TA's power

13. As a general principle, the Council believes that the right of appeal should exist for parties dissatisfied with administrative decisions. How far the right of appeal should reach in terms of testing the merits of a decision, is a matter to be resolved by reference to two matters. First, whether there are adequate legislative guidelines that can be applied to ensure the TA's decisions are bound by certain requirements that safeguard licensees' and non licensees' interests. Second, whether giving another body the power to review the merits of the TA's decisions will be serving the purpose of safeguarding legitimate interests, or serving a purpose of delay and increasing the leverage that a protagonist in a dispute can use to maximize advantage, against the public interest. This is particularly acute given that there is no established merits review panel with experience in competition matters.

14. The Consumer Council in fact recommended in its November 1996 Report 'Competition Policy - The Key to Hong Kong's Economic Success' that a general competition authority's decisions in dealing with certain matters under competition law should be subject to review by an Appeal Body. If Hong Kong had an overarching competition law, administered by a general competition authority, and an Appeal Body that had the benefit of experience in reviewing competition matters, the issue of appeal on merits would be largely addressed. It could be expected that such a body would now be in existence, there would be clear guidelines under which the body would work, and it would have the ability to quickly and efficiently review such matters.

15. The Council therefore supports the creation of a Competition Appeal Body with a clear role as to its function in reviewing the merits of the TA's decisions on competition related matters. The support is qualified to the extent that

• such a body should have a clearly defined role, for example, to safeguard the long term interests of end users of telecommunications services;
  
  
• there are clearly detailed time limits as to the periods under which appeals can be made and heard to prevent abuse of the appeal mechanism; and
  
  
• the right of review should be limited to the TA's decisions on competition related matters.

16. It is important that, in keeping with the general position in other jurisdictions, decisions on technical issues regarding the telecommunications network remain the sole province of the telecommunications regulator. Moreover, as a Competition Appeal Body, it should have experience relevant to competition and business; and that it should publish detailed reports of the findings.

Summary

17. The Council would emphasize that the role proposed for the TA in arbitrating access to facilities is not unprecedented in Hong Kong. There is a clear necessity of interpolating a Government appointed arbitrator with wide ranging powers in circumstances where two parties have been unable to negotiate an agreed position on access and where the wider communities' concerns need to safeguarded.


Consumer Council
21 October 1999