LC Paper No. CB(1)900/98-99
(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, 14 December 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 Kenneth TING Woo-shou, JP
Hon David CHU Yu-lin
Hon Howard YOUNG, JP
Hon YEUNG Yiu-chung
Hon Emily LAU Wai-hing, JP
Hon CHOY So-yuk
Hon LAW Chi-kwong, JP

Members absent:

Dr Hon Raymond HO Chung-tai, JP
Hon Eric LI Ka-cheung, JP
Hon Fred LI Wah-ming
Prof Hon NG Ching-fai
Hon James TO Kun-sun
Hon Timothy FOK Tsun-ting, JP

Public officers attending :

For Item III

Mrs Jessie TING

Deputy Secretary for Information Technology and Broadcasting (2)

Mr K H LAU

Director of Information Technology Services

Mr Alan DIXEY

Assistant Director of Information Technology Services (Infrastructure)

For Items III and IV

Mr Alan SIU

Principal Assistant Secretary for Information Technology and Broadcasting (C)

For Item IV

Mr Kingsley FUNG

Assistant Director of Information Technology Services (Management Consultancy Services)

For Item V

Mrs Rita LAU

Deputy Secretary for Information Technology and Broadcasting (1)

Mr K S WONG

Assistant Director of Telecommunications

Clerk in attendance:

Miss Polly YEUNG

Chief Assistant Secretary (1)3

Staff in attendance:

Miss Connie FUNG

Assistant Legal Adviser 3

Ms Sarah YUEN

Senior Assistant Secretary (1)4

---

I Confirmation of minutes of meeting and matters arising
(LC Paper No. CB(1)426/98-99)

The minutes of the Panel meeting held on 10 October 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, 11 January 1999, at 2:30 p.m. -

1. 1998 Review of Fixed Telecommunications; and

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

   (Post-meeting note: As the Administration subsequently indicated that it would not be ready to brief the Panel on the results of the 1998 Review of Fixed Telecommunications at the above meeting, item (a) was withdrawn and replaced by two new items on "legal framework for electronic transactions" and "the Administration's decision on the proposed acquisition of the Internet-related business of Hong Kong Star Internet Limited by Hong Kong Telecom IMS Limited". Non-Panel Members were invited to join the meeting for discussion of the former item.)

3 In reply to the Chairman on whether the Panel would be briefed on the recently introduced Film Censorship (Amendment) Bill 1998, the Deputy Secretary for Information Technology and Broadcasting (1) (DS/ITB1) pointed out that the Amendment Bill was the result of the Administration's undertaking to improve the operation of the Film Censorship Ordinance and involved no major policy change. At members' request, she agreed to provide further information in writing on the Bill to facilitate members' consideration of whether a Bills Committee should be formed at the House Committee meeting to be held on 18 December 1998.

(Post-meeting note: The said information was circulated to all Members vide LC Paper No. CB(1) 648/98-99.)

4 As regards the legislative timetable for the omnibus Broadcasting Bill, DS/ITB1 noted members' concern to be briefed early on its major proposals in view of its complexity and to complete its scrutiny within the current term of two years. She assured members the Administration was making its best endeavour to expedite introduction of the Bill and would report further progress to the Panel as soon as practicable.

Admin.

III Electronic Service Delivery
(LC Paper No. CB(1)603/98-99(01))

5 The Deputy Secretary for Information Technology and Broadcasting (2) (DS/ITB2) briefed members on the information paper provided by the Administration. Members noted that a request for funds to implement the first phase of the Electronic Service Delivery (ESD) scheme (the Scheme) would be considered at the Finance Committee meeting to be held on 18 December 1998.

Public acceptance of the Scheme

6 On public awareness of the Scheme, DS/ITB2 reported that the Administration was planning to launch a series of publicity activities in 1999 to promote the Scheme, such as the Hong Kong Information Infrastructure Expo and Conference to be jointly organised with the Trade Development Council in March 1999.

7 As for concerns about the community's readiness to use the Scheme, having regard to the experience in launching the Community Electronic Trading Service (CETS) which had not been well received by some small companies not readily equipped for the service, DS/ITB2 clarified that there were considerable differences between the Scheme and CETS. While it was necessary to invest in specific software for the use of CETS, the ESD Scheme would adopt an open standard and users could obtain ESD services at no extra charge through various electronic channels. In addition, computer terminals would be installed by Government at convenient locations such as public libraries and the District Offices for public use.

8 In reply to the Chairman, DS/ITB2 highlighted the attractiveness of the ESD Scheme and citing Transport Department as an example, explained how renewal of driving licences and vehicle licences could be processed under the Scheme with the relevant fees paid electronically and the renewed licences sent to the applicants by registered mail. She confirmed that the applicants would not have to pay extra fees for the service because the transaction fees would be paid by Government to the ESD operator.

Performance indicators

9 Members raised concern about the Scheme's estimated transaction volume and the resultant cost savings which were important performance indicators. In response, DS/ITB2 advised that while the Administration was confident that the Scheme could improve the delivery of public services, it was difficult to forecast at the present stage how many users would switch to the Scheme to obtain Government services. Thus the Administration would not cut back the level of services to be delivered through conventional means upon the launching of ESD. It would, however, keep the situation under review to see if the conventional mode of service delivery could over time be reduced to achieve cost savings. Members noted the Administration's estimate of notional savings in the order of $5 million for the first year of implementation, to be increased steadily thereafter if the ESD Scheme was well received and more widely used. At members' request, DS/ITB2 agreed to provide further information on the basis for the estimates on transaction volume in para. 25 of the paper; and the possible savings achieved as a result. She however pointed out that as the Scheme also served as a catalyst to pump-prime the development of electronic commerce in Hong Kong, future progress in this area should also be regarded as a benefit arising from the Scheme.

(Post-meeting note: The said information was circulated to all Members vide LC Paper No. CB(1)657/98-99)

Concerns related to the engagement of a private sector operator

10 Noting the Administration's plan to contract a private sector operator to establish the ESD information infrastructure with its own investments, Mr Howard YOUNG was concerned about the availability of sufficient incentives to attract such substantial investments. In response, DS/ITB2 advised that as the scope of the ESD Scheme would cover a wide range of public services, its prospect should be promising enough to attract potential operators. The Administration was confident of a favourable response to the ESD tender. Referring to the invitation for expression of interest on the Scheme held in June - August 1998, DS/ITB2 said that the Administration had received 44 submissions, some from international operators.

11 Addressing the Deputy Chairman's concerns about security and confidentiality of data arising from the engagement of the service of private operators in the conduct of electronic transactions, DS/ITB2 assured members that specific requirements on security would be stipulated in the service contract to be awarded.

12 The Chairman suggested that to avoid giving any operator the advantage of an early head start in electronic commerce, the Administration should award the ESD contract to more than one operator so as to ensure a reasonable level of competition. In reply, DS/ITB2 confirmed that the contract for the first phase of ESD would be awarded to a single operator for an initial period of five years having regard to the need for a single entry point to provide services on a seamless basis to the community.

Financial implications

13 In reply to questions on the funding requirement, DS/ITB2 explained that the funding presently sought was smaller than the $173 million announced in the Chief Executive's Policy Address 1998 for launching the first phase of ESD because the present proposal had been prepared on the assumption of no Government investment. She further confirmed that the funds sought also covered possible payments to the potential operator, for example, part of the expenditure on implementation services, acquisition of computer hardware and software, etc.

14 Regarding plans, if any, on Government investment in the Scheme, DS/ITB2 advised that the Administration would consider making some form of investment in the project having regard to potential ESD operators' proposals and the overall interests of the community. Members noted that subject to the result of the tender exercise, the Administration would seek the approval of the Finance Committee for additional funding if it decided that Government investment should be made in the Scheme.

Other concerns

15 As to why ESD would not cover the search for details on land registration and property transactions, and why individuals could only book appointment for identity card registration instead of applying for the service electronically, DS/ITB2 pointed out that the Land Registry was already providing an electronic search service through its own contractor and could join the Scheme only upon expiry of the current service contract. As far as identity card registration was concerned, visit to offices of the Immigration Department in person was required due to the need to conduct interviews with applicants and for applicants to produce proof of identity for inspection.

IV Block allocation under head 710 - computerisation under the Capital Works Reserve Fund (CWRF)
(Information paper from the Administration tabled at the meeting and circulated to members thereafter vide LC Paper No. CB(1)640/98-99(01))

16 The Chairman pointed out that this item had been included at very short notice upon the request of the Administration for the purpose of briefing the Panel on the proposed increase of 50% in the block allocation under CWRF Head 710 Computerisation Subhead A007GX - New Administrative Computer Systems for 1999-2000 (the block allocation). Members noted that the proposal would be considered at the Public Works Subcommittee meeting to be held on 16 December 1998 and the Finance Committee meeting on 15 January 1999.

17 In explaining the proposed increase, the Principal Assistant Secretary for Information Technology and Broadcasting (PAS/ITB) said that the increase was necessary to meet the growing demand from bureaux and departments for the implementation of computerisation projects to enhance efficiency, for rectification of administrative computer systems which were not Year 2000 compliant, and for the extension of the Government Office Automation programme to 42 Government bureaux and departments.

18 As regards the scope of the block allocation, PAS/ITB explained that the block allocation only dealt with computer projects costing between $100,001 and $10 million each. Projects whose cost exceeded $10 million each were funded under separate subheads and subject to the approval of the Finance Committee individually on their own merits. The Administration would undertake prior consultation with the relevant LegCo Panels before submitting the funding requests for these major projects.

19 The Administration took note of Miss CHOY So-yuk's comment that computerisation should proceed according to needs, rather than for using up available funds. This was to ensure that no computer would be left idle and each user bureau/department would be able to purchase the latest model for use to minimise future upgrading needs and costs.

V 1998 Review of Television Policy
(LegCo Brief (File Ref.: T/C 126/98 in ITBB/B 203/2 (98) VII), LC Paper No. CB(1)624/98-99(01) and a set of power-point presentation material tabled at the meeting and circulated to members thereafter vide LC Paper No. CB(1)640/98-99(02))

Policy decisions involving Hong Kong Cable Television Limited (HKCTV)

20 Members were concerned about HKCTV's dissatisfaction over the policy decision requiring it to open up its broadband network for interconnection with other licensed networks and to return the Microwave Multipoint Distribution System (MMDS) frequencies currently used by it. In response, DS/ITB1 provided the following explanation -

1. The interconnection requirement had been provided under sections 36A, 36B and 36C of the Telecommunication Ordinance and section 20B of the Television Ordinance, which were applicable to HKCTV's broadband network. HKCTV, in rolling out its service, had also relied upon this interconnection requirement to gain access to buildings.

2. The requirement to return the MMDS frequencies was both reasonable and legitimate as it had been clearly stipulated in HKCTV's licence that it should operate cable TV service via its hybrid fibre coaxial cable network, and that the MMDS frequencies had only been assigned to it on a temporary basis to enable HKCTV to launch its service early while building its optic fibre network. Moreover, these MMDS frequencies had other designated uses and the deadline for their return had already been extended twice.

21 Mr YEUNG Yiu-chung sought legal advice on HKCTV's claim that the aforesaid policy decisions were incompatible with relevant provisions in the Basic Law. In reply, the Assistant Legal Advisor 3 (ALA3) advised in general that if HKCTV was aggrieved by such policy decisions, it could apply for judicial review. As regards compatibility or otherwise with the Basic Law, the Chairman and Miss Emily LAU considered that it might be inappropriate to seek confirmation from ALA3 impromptu in the absence of sufficient background information such as the relevant licence conditions etc.

22 With the aid of power-point presentation, the Assistant Director of Telecommunications (AD of T) briefed members on the present and planned allocation of MMDS frequencies and how interconnection was conducted. He stressed that recovery of HKCTV's MMDS frequencies was essential to the introduction of new services as many free TV and pay TV services used the frequencies between the 12.2 and the 12.5 GHz band. Members further noted that interconnection to HKCTV's cable network was also important to the introduction of new services as it could help solve the problem of limited capacity of the in-building distribution system and minimise the need for road-opening works.

Recovery of HKCTV's MMDS frequencies

23 In response to some members' comments that the Administration should exercise flexibility in recovering HKCTV's MMDS frequencies and if necessary, adopt a phased approach so as not to affect HKCTV's operation and their subscribers' interests, the Administration highlighted the following points -

1. The Administration would adopt a sensible and reasonable approach in recovering the relevant frequencies and was by no means demanding immediate return. Instead, the Administration would work out with HKCTV in the context of the mid-term review of its licence details of its commitments to further roll out its optical cable network to replace the MMDS network. In fact, the deadline for recovery of the MMDS frequencies had already been extended to late May 2001 to facilitate extension of its cable network with continued investment to maintain its subscriber base. Moreover, applications from HKCTV to use certain MMDS frequencies, e.g., frequencies in the 18 GHz band, to serve remote areas not accessible by cable would be favourably considered.

2. Where consumer rights were concerned, it had to be noted that at present, HKCTV's subscribers covered by microwave frequencies could have access to only 20 channels, whereas subscribers wired to HKCTV's optical cable network had a much wider choice of 36 channels. As HKCTV charged all its subscribers the same level of subscription fees, it was only fair to require it to switch to full optical distribution as soon as practicable.

3. The purpose of introducing cable TV service into Hong Kong was to provide Hong Kong with a broadband network in addition to that of the fixed telecommunications network so as to expand Hong Kong's information infrastructure. As such, the progress of network roll-out should not be unnecessarily procrastinated.

Interconnection

24 On the prevalence of cases where a commercial agreement on interconnection could not be reached and the Telecommunications Authority (TA) had to intervene, AD of T advised that so far, only two such cases had been referred to the TA. Both involved disagreement on the level of interconnection charges and the level was eventually determined by TA pursuant to sections 36A and 36B of the Telecommunication Ordinance.

Alternatives to facilitate the introduction of new services

25 In reply to members' questions, DS/ITB1 advised that as digital compression could increase the transmission capacity eight-fold, digitalisation of signals would release many more frequencies for television services and help relieve the in-building distribution systems for new and existing television and other multimedia services. She however pointed out that the initiative to invest in digital technology had to come from the operators and the Administration could only promote its development by giving priority in the allocation of frequency spectrum of in-building networks to services using digital and other advanced forms of technology.

VI Any other business - the proposed acquisition of the Internet services-related business of Hong Kong Star Internet Limited by Hong Kong Telecom IMS Limited (HKTIMS) (the proposed acquisition)
(LC Paper No. CB(1)587/98-99(01))

26 The Chairman referred members to the proposed wording of a motion which Miss CHOY So-yuk tabled and proposed to move at the meeting to state the Panel's opposition to the proposed acquisition.

27 Mr LAW Chi-kwong supported the proposed motion in principle but suggested some amendments. He referred to the statement therein that the proposed acquisition would inevitably affect fair competition and hence the public's choice, and proposed to replace 'inevitably' with 'most probably' to avoid making such a bold assumption and to change 'the public's choice' into 'consumer interests' since the latter seemed to be of a greater concern.

28 In reply to the Chairman, ALA3 pointed out that as LegCo Panels were monitoring Government policies, it might not be appropriate for the Panel to state its position on a particular case, especially as the present case was essentially a commercial transaction. However, the Panel was at liberty to make comments on policy issues such as safeguarding fair competition in the Internet services market.

29 Mr YEUNG Yiu-chung considered that it was controversial whether a majority market share would give rise to market domination and hence unfair competition. He concurred that the Panel should refrain from involvement in commercial transactions.

30 Mr Howard YOUNG and Mr Kenneth TING were of the view that it was inappropriate to conclude that the proposed acquisition would result in a market share of over 70%. Mr YOUNG opined that the Panel should comment on the relevant policies instead of on the proposed acquisition per se. He further pointed out that Members of the Liberal Party would not support making comments on commercial activities through formal procedures in the LegCo such as by way of moving a motion at a meeting of a LegCo Panel.

31 Whilst not insisting on moving a motion, Miss CHOY So-yuk maintained that the formulation of a consolidated view, if any, by the Panel on the proposed acquisition was important in view of the industry's grave concern about the proposed transaction. She considered that the proposed acquisition was not purely a commercial decision as consent of the TA was required for it to take effect.

32 In view of the profound implications of the proposed acquisition and the absence of a consensus on the proposed motion, members present at the meeting unanimously agreed that the Chairman should issue a letter to the TA on behalf of the Panel to convey the Panel's concerns and urge TA to take all relevant factors into consideration in deciding whether or not the proposed acquisition should be approved.

(Post-meeting note: A letter to that effect was issued on 17 December 1998 upon endorsement by Panel members. Members were subsequently informed of the Administration's decision on the proposed acquisition vide LC Paper No. CB(1)676/98-99)

33 The meeting ended at 4:45 p.m.

Legislative Council Secretariat
12 February 1999