LC Paper No. CB(1)650/98-99
(These minutes have been
seen by the Administration)

Ref : CB1/PL/ITB

Legislative Council
Panel on Information Technology and Broadcasting>

Minutes of meeting held on Monday, 9 November 1998, at 2:30 pm in Conference Room A of the Legislative Council Building

Members present :

Hon SIN Chung-kai (Chairman)
Hon MA Fung-kwok (Deputy Chairman)
Hon David CHU Yu-lin
Dr Hon Raymond HO Chung-tai, JP
Hon Eric LI Ka-cheung, JP
Hon Fred LI Wah-ming
Hon James TO Kun-sun
Hon Howard YOUNG, JP
Hon YEUNG Yiu-chung
Hon Emily LAU Wai-hing, JP
Hon CHOY So-yuk
Hon Timothy FOK Tsun-ting, JP
Hon LAW Chi-kwong, JP

Members attending :

Hon Mrs Selina CHOW LIANG Shuk-yee, JP
Hon Ronald ARCULLI, JP

Members absent :

Hon Kenneth TING Woo-shou, JP
Prof Hon NG Ching-fai

Public officers attending:

For Item III

Mr K C KWONG

Secretary for Information Technology and Broadcasting

For Items III & IV

Mr Eddy CHAN

Acting Deputy Secretary for Information Technology and Broadcasting (1)

Mr Gary YEUNG

Acting Commissioner for Television and Entertainment Licensing

For Item IV

Mrs Jessie TING

Deputy Secretary for Information Technology and Broadcasting (2)

Mr T F SO

Acting Assistant Director of Telecommunications

Mr Eddie MAK

Principal Assistant Secretary for Information Technology and Broadcasting (A)

For Items IV & V

Mr S K WONG

Director - General of Telecommunications

Mr Geoffrey WOODHEAD

Principal Assistant Secretary for Information Technology and Broadcasting (E)

Clerk in attendance :

Miss Polly YEUNG

Chief Assistant Secretary (1)3

Staff in attendance :

Ms Sarah YUEN

Senior Assistant Secretary (1)4

I Confirmation of minutes of meeting and matters arising
(LC Paper Nos. CB(1) 299, 335 and 393/98-99)

The minutes of the regular meeting held on 14 September 1998 and the two special meetings held on 25 September 1998 were confirmed.

II Date and items for discussion for next meeting

2 Members agreed to discuss the following items at the next meeting to be held on Monday, 14 December 1998, at 2:30 p.m. -

1. Electronic Service Delivery; and

2. 1998 Review of Fixed Telecommunications and 1998 Review of Television Policy.

3 Members also agreed that should the Administration confirm that it was not yet ready to report the finalised way forward on 2 (b) at the time of the December meeting, the following two items should replace 2 (b) -

1. Policy on safeguarding fair competition in the Internet services market; and

2. A common interface for the use of Chinese in electronic communication.

III Film Development Fund
(LC Paper No. CB(1)342/98-99(01)

Amount of the Fund

4 Responding to concerns about the viability of phasing the $100-million Fund to operate over a period of five years as planned, the Secretary for Information Technology and Broadcasting (S/ITB) assured members that to enable all deserving projects in a year to benefit from the Fund, flexibility would be exercised in respect of its disbursement.

Scope of the Fund

5 S/ITB clarified that use of the Fund would not be restricted to the application of advanced technology but would cover projects which could benefit the long term and healthy development of the local film industry. S/ITB further pointed out that the Administration had no pre-conceived ideas of the type of projects which would be approved for funding as the industry itself should be in the best position to determine which areas should be given priority treatment and attention. However, the Administration was aware from consultation with the industry that possible projects might include the development of pyrotechnic operators and improvement of post-production capabilities.

6 While agreeing with the Administration that the Fund should not be used to subsidise the commercial production of films, a member opined that it should help to boost the overall professional standing of the industry, ultimately making it easier for individual film production companies to secure loans from financial institutions for film production.

Vetting of applications

7 S/ITB reported that in drawing up the criteria for approving applications, the Administration had consulted the Film Services Advisory Committee (FSAC) as well as the industry at large. The industry in general found the criteria acceptable.

8 Members noted that the criterion which required that projects should "mainly be non-profit making by nature" was necessary to balance the interests of different parties in the industry. However, S/ITB clarified that notwithstanding the criterion, if a project involving an individual company could ultimately serve the interest of the entire industry, the project concerned might be approved. In response to members' questions on whether certain types of projects would qualify, S/ITB stressed that each application had to be considered on its own merits and it would not be appropriate for him to state whether a particular project would be funded in the absence of specific project details.

9 Some members questioned the appropriateness of allowing the Film Services Office (FSO) to apply for the Fund, pointing out that there might be a role conflict as the Fund was managed by the FSO. In reply, S/ITB emphasised that in view of the need on some occasions for the Government to take a lead in implementing projects that would benefit the development of the local film industry, FSO should be entitled to apply for the Fund, which was dedicated to such purposes. He further clarified that the FSO would only provide secretariat service to the Fund and since the Fund's Projects Vetting Committee (the Committee) would vet all funding applications according to the specified criteria, FSO applications would not enjoy any advantage over others. Moreover, the monitoring mechanism as specified in paragraph 11 of the paper would apply to FSO. Some members, though not opposed to FSO applications, cautioned that FSO should not take up a disproportionate amount of the Fund as this would reduce the size of the Fund which would otherwise be available to the industry at large.

10 Responding to some members' suggestion that S/ITB, being a Government official, should not take up chairmanship of the Committee so as to remove any doubt about the Committee's neutrality and fairness, S/ITB explained that his presence was necessary to ensure proper use of public money. As regards the Committee's membership, he reported in reply to a member that the four FSAC members on the Committee were Mrs Selina CHOW, Mr MA Fung-kwok, Mr NG See-yuen and Mr NG Chun-bong. The two co-opted members to be named after formal establishment of the Committee would also be closely associated with the industry. Members further noted that the Committee's membership had been worked out in consultation with the industry, which also considered it broadly acceptable.

11 Members opined that to ensure fairness of the vetting procedure, there was a need for continued consultation with the industry and a high degree of transparency to keep the industry informed of the projects being funded. In response, S/ITB acknowledged members' concerns about the importance of consultation and enhanced transparency. However, he did not consider it appropriate to announce the reasons for approving individual projects. The Administration would instead examine with FSAC the feasibility of providing a consolidated report on projects being funded and their progress.

Other concerns

12 On whether reference had been made to successful experience overseas when finalising details of the Fund, S/ITB reported that the Administration had examined the UK and Australian models. Members noted that the Fund's operation would be slightly different from that of similar funds in these two countries. For example, the Australian fund could provide direct subsidies for the production of individual films. S/ITB nevertheless pointed out that in comparing the Fund with similar funds overseas, there was a need to give due consideration to differences in the concept of public spending and the local conditions.

13 In reply to the Chairman, S/ITB advised that a request for funding to establish the Fund would be put to the Finance Committee at its meeting on 27 November 1998. The Administration would hold a seminar to brief the film industry on the scope and operation of the Fund upon approval of the request. The Deputy Chairman and Mrs Selina CHOW, who were also members of the FSAC, urged members to support the funding proposal to set up the Fund as the first major step to facilitate the long-term development of the industry.

IV 1998 Review of Fixed Telecommunications and 1998 Review of Television Policy - the Administration's response to concerns raised by non-government organisations (including concerns about the local access charge)

(LC Paper Nos. CB(1)342/98-99 (02) to (05), and submissions from a group of telecommunications operators and Cable TV tabled at the meeting and circulated to members thereafter vide LC Paper Nos. CB(1)463/98-99(02) and (03))

14 After drawing members' attention to the submissions tabled at the meeting, the Chairman advised that a submission from New T & T had been received shortly before the meeting. The Chairman directed that as the submission consisted of some 26 pages and pending clarification of some technicalities with the sender, the submission would be circulated to members after the meeting.

(Post-meeting note: As instructed by the Chairman, the New T & T submission was circulated after the meeting vide LC Paper No. CB(1)463/98-99(01).)

The 1998 Review of Fixed Telecommunications (the FT Review)

Opening of the market

15 On whether additional local fixed telecommunications network service (FTNS) licences would be issued, the Deputy Secretary for Information Technology and Broadcasting (2) (DS/ITB2) said that a firm decision had yet to be made, but the Administration was fully aware of the need to ensure effective competition in the FTNS market.

16 A member opined that the Administration should ascertain that all potential investments in the local FTNS market would benefit Hong Kong and requested further information on such investment commitments. In response, DS/ITB2 said that once the Administration had made a decision on the moratorium on the issue of further FTNS licences, they would make public the committed investments of the three new FTNS operators (if the moratorium was to be extended for a limited period) or those of the new entrants (if additional licences were to be issued).

(Post meeting note: The Administration later advised that a decision on the moratorium on the issue of local FTNS licences was still pending and reaffirmed that they would release the relevant investment commitments once a decision was made.)

Market domination

17 A member cautioned against pre-mature opening of the market for fear that the untimely issue of further licences would fragment market forces and strengthen the present dominant player's position. DS/ITB2 emphasised that as long as there was effective competition with competitive safeguards, market dominance achieved through quality service should not be regarded as a problem and be penalised. On the present situation in which the three new FTNS operators had failed to achieve more than 2% market penetration in their first three years of operation, the Director-General of Telecommunications (DG Tel) highlighted three main reasons. Firstly, installation of network infrastructure took time. Secondly, interconnection to Hong Kong Telecom (HKT)'s network had not proceeded at a satisfactory pace. Thirdly, tariffing would not be conducive to competition as long as local telephone tariffs stayed below cost before the scheduled rebalancing was fully achieved in 2001.

18 On measures to address market dominance, DS/ITB2 further advised that the Administration would propose to incorporate into the Telecommunication Ordinance competition safeguards already stipulated in the FTNS licences and to empower the Telecommunications Authority (TA) to enforce those safeguards. Members further noted that in response to comments about the inadequacy of the proposed ten-fold increase in penalties for breaches of competitive safeguards, the Administration was considering the appropriate level of penalty for breaches of licence conditions and the need to confer the necessary powers on the TA to impose a wider range of penalties.

Interconnection and access

19 As regards the problems of building access and interconnection, DS/ITB2 reported that the Administration was in the process of compiling a code of practice for Type II interconnection in consultation with the FTNS operators. It also planned to introduce legislation to clarify the TA's powers, particularly in relation to Type II interconnection and the appropriate costing method for such interconnection. In reply to the Chairman, DG Tel pointed out that although over 40% of housing estates in Hong Kong were managed by either the Housing Authority or the Hong Kong Housing Society, these two bodies were not in a position to take measures to expedite interconnection as interconnection works took place at the telephone exchanges.

20 Addressing concern about the proposed level of the Local Access Charge (LAC), DS/ITB2 and DG Tel reiterated the Administration's policy intention that the level of fees should provide commercial incentive for continued investment in the local infrastructure and that the external services providers (and consequently their customers) would not be overcharged. TA was in the course of examining the level of the LAC having regard to views and feedbacks it had received. Members also noted that both the Universal Service Contribution (USC) payable to HKT, which formed a significant part of the total cost of using local networks for the conveyance of external services, and the LAC would be reviewed from time to time. Moreover, with the rebalancing of local tariffs, the level of USC would also be lowered.

21 On whether it was appropriate for the Administration to license external services operators before the LAC issue was resolved, DG Tel emphasised this was necessary in order to allow prospective external services providers two to three months to prepare for the launch of their services on 1 January 1999. He added that since the policy decision had been announced to facilitate investment decisions and the licence application procedure would only take about 14 days, it would be up to prospective providers to apply for the licence before or after determination of the LAC level. Nonetheless, DG Tel informed members that a decision on the LAC level would be reached in two to three weeks.

The 1998 Review of Television Policy (the TV Review)

Opening up of Cable TV's network

22 In reply to members, DG Tel confirmed the need to require Cable TV to open its network for use by other service providers so as to enhance competition by highlighting the following points -

1. Where the Multi-point Microwave Distribution system was concerned, the current frequencies were assigned to Cable TV on a temporary basis to facilitate a faster rollout in the initial launch of the Cable TV service. These frequencies would be required for other telecommunication services. Some frequencies between 18 GHz and 50 GHz were available and could be considered for use in certain remote areas, but such an alternative to Cable TV's network was not cost-effective because a transmission system in these spare frequency ranges was less efficient while more expensive and complicated to build.

2. As for the Hybrid-Fibre-Coaxial system which used cables and wires for transmission, although the same spectrum could be re-used over and over again on separate cable facilities at the same location, such an alternative was undesirable as road-opening works to install separate cable facilities would be required.

3. Apart from doubts about the practicability of the above two alternative, it should be noted that the above systems could only carry the channels to either the roof or the ground floor equipment room of a building. The last drop coaxial cable in residential premises still remained the bottle-neck for the provision of broadcasting and telecommunications services because of its limited capacity. As such, there remained a need to require Cable TV to open its network to relieve the congestion problem.

23 A member stressed that while there might be a need to require Cable TV to open up its broadband network to facilitate market competition, it should be noted that unlike the case of HKT, which had been able to reap enormous profits through monopoly enjoyed over a long period of time, Cable TV had put in substantial investments in building its own network in a competitive environment in the last five years. As such, to be fair to Cable TV, greater prudence should be exercised in setting the relevant interconnection charge payable to it. The member also drew the Administration's attention to provisions of the Basic Law on protection of private properties, the likelihood of Cable TV litigating against the requirement to open up its network, and the adverse impact such a possible development might have on liberalisation of the market.

Other concerns

24 The Deputy Secretary for Information Technology and Broadcasting (1) (DS/ITB1) assured members that all responses to the TV Review would be carefully considered before arriving at policy decisions in this area. Moreover, the Administration would explain to the public the reasons for its policy stance.

25 In reply to the Chairman, DS/ITB1 advised that the omnibus "Broadcasting Bill" which would incorporate all provisions relating to broadcasting would be introduced into the LegCo in the 1999-2000 legislative session. In view of the Bill's complexity and the need to receive deputations, the Chairman urged the Administration to introduce the Bill early to enable the present LegCo to complete its scrutiny within its two-year tenure.

V Telephone charges of the Hong Kong Telecom (HKT)
(LC Paper No. CB(1)447/98-99)

Tariff revisions

26 In response to members' concern about the possible increase in tariffs for the rental of local telephone lines up to $90 in 1999, DG Tel said that HKT had not yet submitted to the TA its application for tariff revisions for 1999. While assuring members that they would be duly informed when the Administration received the application, DG Tel further explained the planned increase as follows -

1. With the opening of the external telecommunications market on 1 January 1999, HKT's income from external telecommunications services was envisaged to be reduced to such an extent that it would no longer be able to cross-subsidise the income from rental of local telephone lines.

2. In order that competition could develop in the local FTNS market, the tariffs for services in this market should reflect costs. The current rental of $68.90 for residential telephone lines was well below its cost of around $120 per month.

3. As set out in the Framework Agreement of 20 January 1998 between the Government and HKT for the early surrender of the licence of Hong Kong Telecom International (the Agreement), lifting of the price control over HKT was a condition precedent for the Agreement.

27 Some members were not convinced and called for postponement of the planned increase having regard to the present economic downturn. As HKT still had 98% of the market share, the impact of the opening of the external services market on HKT's business were yet to be ascertained. These members considered that if liberalisation was to be used to justify tariff revision, then, HKT should not use this same reason to lay off its staff or cut their wages. They also held the view that local tariffs should be kept below the claimed cost of $120 as a wide range of value-added services could be provided using the same local network.

28 A member questioned the claim that reductions in IDD tariffs as a result of the liberalisation of external services would more than offset rises in local telephone tariffs, pointing out that not all the 80% of residential households which had IDD connection would use IDD service. Along this line, he further proposed that differentiation should be made between households which had IDD connection and those which did not when revising the local tariffs. Commenting on the proposal and its rationale, DG Tel pointed out that even if local tariffs were increased up to $90, they would still fall short of recovering the $120 cost for providing the local service. It was thus not unfair to subject all households to the same level of tariff increase. Moreover, IDD usage might grow as a result of lower tariffs and that local tariffs in the long run might go down as a result of increased competition upon full interconnection. Nonetheless, DG Tel noted a member's suggestion that the telecommunications operators should be able to charge the disadvantaged groups in the community a lower tariff in return for fewer service options on top of the necessary services. He undertook to give this due consideration as and when he received such a tariff application. He further pointed out that HKT was already providing essential services to clients referred to it by the Social Welfare Department at concessionary rates.

Interconnection

29 Members were keen to ensure that HKT had made reasonable offers to the other FTNS operators which would, in aggregate, extend the reach of Type II interconnection to at least 50% of HKT's residential customers by 1 January 1999. In this regard, DG Tel reported that although only one new FTNS operator had accepted the offer, HKT was deemed to have fulfilled its obligation and the necessary work on the exchanges to implement its offer would be completed by 31 December 1998. Members noted that although HKT had applied for a judicial review of the decision of the TA to determine the terms and conditions of Type II interconnection, commercial settlement of the matter for determination might be possible. Meanwhile, the Administration was also actively liaising with HKT and the other two new FTNS operators in the hope that they too could enter into interconnection agreements with HKT within two to three months.

Payment of interest on prepaid tariffs

30 Members noted that despite the request for information on this area of concern, no information on this issue had been provided by the Administration in its discussion paper.

31 A member was gravely concerned that HKT was being unfair in requiring its customers to prepay three months' tariffs without paying them any interest accrued thereon. In response, DG Tel explained that customers of HKT might, in lieu of pre-paying three months' tariffs, sign up an autopay agreement with HKT for monthly payment of tariffs. The HKT would not require any pre-payment because autopay would save administrative cost and reduce risks of default payment. He further advised that the interest accrued on the pre-paid tariffs was regarded as part of HKT's revenue to be taken into account in ascertaining the financial position of the company, in particular in determining the USC payable to it. If HKT was required to waive the pre-payment of tariffs or pay interest on prepaid tariffs, it might charge higher tariffs to the detriment of the customers. At the member's request, DG Tel agreed to provide a paper to address his concerns, including information on determining the USC over the years.

(Post-meeting note: The Administration further advised that an information paper on the prepayment arrangements for telephone tariffs, including the information on the determination of the USC during the past few years, was being prepared. They aimed to provide the information paper to the Panel as soon as possible.)

32 As a possible option, the Chairman suggested that to ensure fairness to both the customers and HKT, the payment due date for the three-month pre-paid tariffs should be set on the 45th day so that the interest accrued thereon would be more or less the same for both the HKT and the customers. Some members, on the other hand, suggested that HKT should, as in the case of other public utilities, collect deposits which were interest-earning from their customers.

33 The meeting ended at 4:30 p.m.

Legislative Council Secretariat
15 December 1998