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Author: pburge
Service Area: Communications & Technology
Date: January 2002
Country: Hong Kong

 

Telecommunications in Hong Kong

SUMMARY OF CONTENTS

INTRODUCTION

The Policy Bureau/Communications Policy
The Regulator
The Legislation
Numbering

The Policy Bureau/Communications Policy

The spokesman of the Hong Kong SAR Government ("Government") on matters of policy affecting, amongst others, the telecommunications and broadcasting industries is the Information Technology and Broadcasting Bureau ("ITBB").

In the consultation paper issued by the Economic Services Branch ("ESB"), and dated 1 March 1997, the ESB stated that:

"the Telecommunications Industry has come to occupy a significant place in Hong Kong's economy. In its own right the telecommunication sector is directly responsible for 2.5% of Hong Kong's Growth Domestic Product ("GDP"). Furthermore these percentages are growing, as Hong Kong becomes more reliant on its services sector for the maintenance of Hong Kong's standard of living and the future prosperity of the community. In recent years the telecommunications sector in Hong Kong has grown by about 10% in real terms which is roughly twice as fast as the economy as a whole.

It is in the role as an underpinning and enabler of Hong Kong's services sector that the telecommunications industry demonstrates its true worth to the community. Services now constitute 83% of GDP and yet the health and competitiveness of the services (e.g. financial services, transportation, tourism etc.) depends critically on the quality of Hong Kong's telecommunications networks and telecommunications services."

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The consultation paper also made reference to the Government's position paper issued in January 1994, and in particular to the three policy objectives stated in that paper:

"(a) that the widest range of quality telecommunications services should be available to the community at reasonable cost;

(b) that telecommunications services should be provided in the most economically efficient manner possible; and

(c) that Hong Kong should serve as the pre-eminent communications hub for the region now and into the next century".

In his first Policy Address in 1997 as the Chief Executive of Hong Kong Special Administrative Region of the People's Republic of China, Mr. Tung Chee Hwa, amongst other things, addressed the issue of Information Technology. He said that in order to make Hong Kong a leader in this dynamic field, the Government will need to bring together the following things:

(i) the hardware of high capacity communications systems;

(ii) a common software interface mounted on established communications networks, through which individuals, businesses and government can interact easily and securely using their own systems;

(iii) people who know how to use the new technology; and

(iv) a cultural environment that stimulates creativity and welcomes advances in the use of this technology.

In order to achieve the above, the Chief Executive announced that responsibilities which were at that time divided between several bureaux (predominately the former Economic Services Branch, and the Broadcasting, Culture and Sports Branch) were to be regrouped so that one single Bureau Secretary would lead and co-ordinate the work of all those involved in IT and the related areas of broadcasting and telecommunications throughout government organisations. (This however did not mean merging the two independent regulators, the Broadcasting Authority and the Telecommunications Authority)

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The Chief Executive said that this Bureau was also to be responsible for co-ordinating overall IT development in Hong Kong.

The Bureau set up in April 1998 to lead and co-ordinate the work and achieve the objectives set out by the Chief Executive was the ITBB. The ITBB is headed by the Secretary for Information Technology and Broadcasting ("Secretary") who is currently Mrs. Carrie Yau.

To assist the ITBB in its task, the Information Infrastructure Advisory Committee ("IIAC") was set up in August 1998 under the auspices of the ITBB. As the name suggests, the IIAC has an advisory role. It advises the Government on the policy, regulatory and technical issues as well as the overall general development of the information infrastructure in Hong Kong.

Specifically, the Secretary is responsible for:

(i) formulating policies to facilitate the establishment of an open, common interface information infrastructure which shall be accessible throughout Hong Kong;

(ii) laying down an appropriate regulatory framework to remove obstacles to interconnection between networks, and enhance Hong Kong's external info-communication links;

(iii) developing a policy for accelerating the use of IT applications using the common interface in the public and private sector; and

(iv) commission pilot projects that make innovative use of the developing infrastructure.

Following this statement by the Chief Executive, there occurred two major policy reviews, prompted in part by the early surrender by Hongkong Telecom International Limited (as it was then) of its exclusive international licence. The Government conducted a review of the television and telecommunications markets, respectively, and its regulatory policy in respect of each. These reviews were conducted in parallel, and on 3 September 1998, the Government released its initial views on the licensing policy for each.

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In particular the Government's new policies were to emphasis the following elements:

  • a technology neutral approach to licensing and regulation;

  • an open licensing policy (with few exceptions, one of the most notable being of in respect free-to-air television licences); the promotion, and mandating if necessary, of interconnection across all networks and services; and

  • a comprehensive system of competition principles and regulation.

In a paper entitled Telecommunications: Policy Objective and Key Result Areas, ("Telecommunications Policy Objective Paper") the Secretary announced that the ITBB's Policy Objective for 2000 is "to facilitate the development of the telecommunications industry and enhance Hong Kong's position as a telecommunications hub".

The ITBB's targets for 2000 are:

  • to enable Hong Kong to be recognised as a world-class telecommunications centre for doing business;

  • to ensure that Hong Kong has available high quality telecommunications services at competitive prices; and

  • to ensure that Hong Kong has high performance in telecommunications as measured against the Organisation for Economic Co-operation and Development economies.

In her Telecommunications Policy Objective Paper, the Secretary set out the various initiatives and the target dates for achieving these initiatives for the telecommunications sector.

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Initiatives and targets:

The Office of the Telecommunications Authority ("OFTA") to implement the new regulatory framework and for OFTA to issue the guidelines on various subjects, as he is required to do pursuant to s.6D of the Telecommunications Ordinance ("Ordinance")  to include, amongst the things, guidelines for licence applications under the streamlined licensing regime;

OFTA to implement the licensing framework for 3G mobile communications services and for OFTA to issue licences for 3G mobile communications services in 2001;

OFTA to set quality standards for metering and billing accuracy for public telecommunications operators and to stipulate the required standards and implement a quality control system in 2001;

the ITBB to promote fair competition in the telecommunications sector by reviewing the regulatory framework to ensure effective competition in light of 3G mobile communications services, in 2000-2001;

OFTA to introduce further competition in the local wireline-based FTNS market and to invite licence applications for operation of local wireline-based FTNS from 1 January 2003;

OFTA to facilitate improved access to buildings for the extension of coverage of the broadband telecommunication networks and in 2000-2001, to increase publicity to facilitate the wireline and wireless broadband operators to have access to buildings to extend the coverage of their networks; and

OFTA to improve the radiocommunications environment and in 2001, to implement an automated Direction Finding System to enhance the efficiency of interference investigation activities. Further, OFTA to establish an information database on radio stations in Hong Kong and Guangdong to handle cross-boundary interference more effectively.

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The Secretary stated in the Telecommunications Policy Objectives Paper that it was very important to continue to develop Hong Kongs telecommunications infrastructure in order to be competitive. To this end, the Secretary is committed to continue the existing policy of liberalisation, especially of the local fixed telecommunications market to accommodate the broadband technologies. As indicated above, the Secretary intends to issue new local wireline-based fixed telecommunication licences for operation from 1 January 2003 and plans to invite applications for the new licences in 2001.

The Secretary stated that the target is to licence 3G operators in 2001 and in light of this, the Telecommunications Authority ("TA") is currently undertaking a consultation exercise to determine an appropriate regulatory and licensing framework that is conducive to the development of 3G mobile networks and services.

In order to achieve the ITBB's Policy Objective, Hong Kong will continue to implement a pro-competition and open regulatory regime. The Secretary's opening statement to the Telecommunications Policy Objective Paper stresses the importance of introducing more competition and securing and maintaining such competition in the market by way of the enhanced competition safeguards now contained in the Ordinance in the pursuit of liberalisation of the telecommunications industry.

The Secretary stated that the ITBB will continue to review and update the pro-competition regime and is firmly committed to providing a level playing field in order to maintain the most favourable environment for private investment.

Competition is clearly a very important issue given Hong Kong's Policy Objective and Hong Kong's competition with Singapore to attract private investment to the telecommunications industry. Ultimately, a liberalisation policy coupled with pro-competition policy and provisions in the Ordinance will be beneficial to the development of the industry in Hong Kong and ensure that consumers get the best service at competitive prices.

The Secretary's role is recognised within the legislative framework. Pursuant to s.6A of the Telecommunications Ordinance "The Secretary may issue written policy directions to the [Telecommunications] Authority pursuant to which the [Telecommunications] Authority is to carry out his functions and exercise his powers". This means that the Secretary's policies are to be implemented by the TA, and her policy directions are given legal recognition by the legislation.

In the Legislative Council Brief dated 30 April 1999 entitled 1998 Review of Fixed Telecommunications, Telecommunication (Amendment) Bill 1999 submitted by the Secretary, it was stated that the ITBB expects that this power of policy direction would be exercised only rarely and it was important for the TA to be, and to be perceived to be, independent.

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The Regulator

The telecommunications sector in Hong Kong is now a fully liberalised and open market, regulated by the Telecommunications Authority ("TA"), an independent industry-specific regulator (although the TA is a public officer appointed by the Chief Executive pursuant to s.5 of the Telecommunications Ordinance ("Ordinance")).  The current TA is Mr. Anthony S. K. Wong, who is at present, also the Director General of Telecommunications of the Office of the Telecommunications Authority ("OFTA"), the TAs executive arm. OFTA was established following publication of the Governments Position Paper on Hong Kongs Telecommunications Policy in 1994. The Telecommunications Ordinance was most recently subjected to an extensive overhaul.

There are three branches of OFTA:

The Regulatory Affairs Branch

Responsibilities:

the development of a fair and competitive operating environment for the telecommunications industry in Hong Kong;

to oversee the regulation and licensing of public telecommunications services;

to enforce licence conditions and fair competition rules;

to administer the telecommunications numbering plan; and

to resolve interconnection disputes between operators.

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The Support Branch

Responsibilities:

to oversee technical standards, international affairs, public relations and internal administration of OFTA;

to regulate and licence communications satellite systems and services;

to ensure compliance with various international agreements;

to develop technical standards and approve related equipment; and

to handle consumer complaints concerning public telecommunications services.

The Operations Branch

Responsibilities:

to manage Hong Kong's radio frequency spectrum;

to provide advisory and planning services to the public sector;

to provide technical support in the regulation of broadcasting services;

to licence private telecommunications services;

to investigate complaints regarding interference; and

to launch prosecutions against the illegal use of telecommunications equipment.

There are also four advisory committees (set up in 1994) to provide a forum for the exchange of ideas between the industry and OFTA, namely the Telecommunications Standards Advisory Committee, the Radio Spectrum Advisory Committee, the Telecommunications Users and Consumers Advisory Committee and the Telecommunications Numbering Advisory Committee.

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The Legislation

Following the 1998 Review of Fixed Telecommunications, and the 1998 Review of Television Policy ("1998 Reviews of Policy"), the Telecommunications (Amendment) Ordinance was gazetted on 16 June 2000, and the Broadcasting Ordinance was gazetted on 7 July 2000.

In brief, 'carriage' is now fully regulated under the Telecommunications Ordinance, while the provision of broadcasting services is regulated under the Broadcasting Ordinance. One of the policy decisions to arise out of the 1998 Reviews of Policy, was to provide, in the Broadcasting Ordinance and through amendments to the Telecommunications Ordinance, a framework that enables transmission facilities to be regulated and licensed separately, from the provision of broadcasting services

Accordingly, the principal legislation governing the telecommunications industry in Hong Kong is the Telecommunications Ordinance (Cap. 106) ("Ordinance"), which, as noted above, was recently substantially amended by the Telecommunication (Amendment) Ordinance.

Amongst other matters, the Ordinance includes provisions dealing with each of the following:

  • classes of licences (including provisions which are yet to be gazetted) dealing with "carrier licences", and "class licences" (s.7B-s.7D), the issuing of telecommunications licences (s.7), and sound broadcasting licences (s.13) although this later provision may be reviewed pending the Government's formulation of a policy on digital audio broadcasting;

  • Section 6C provides that before performing any function or exercising any power under the Ordinance, the TA may consult with persons who may be directly affected by the performance of that function or the exercise of that power or members of the public. Before this section was enacted, it was in fact the TA's practice to undertake such a consultation process before implementing matters of major policy;

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  • Section 6D(1) provides that the TA may issue such guidelines that are in its opinion suitable for the purpose of providing practical guidance in respect of any provision of the Ordinance. Before issuing such guidelines, s.6D(3) provides that the TA shall carry out such consultation with persons who may be affected by the operation of s.14 (1A) and other factors which should be taken into account. Before s.6D was enacted, it was in fact the TA's practice to issue guidelines on matters of significance arising out of the licences or regulation, and to carry out a consultation process before issuing those guidelines;

  • prohibitions on anti-competitive behaviour and practices, consumer protection and dominant party regulation (s.7K to s.7N), the main provisions of which have close equivalents in the Broadcasting Ordinance (the "Competition Provisions"); 

  • provisions giving "a person sustaining loss or damage from a breach of the [Competition Provisions] or a breach of a licence condition, determination or direction relating to the [Competition Provisions]", the right to "bring an action for damages, an injunction or other appropriate remedy, order or relief against the person who is in breach" (s.39A). This statutory tort was introduced, along with the Competition Provisions, in June 2000;

  • an appeals process from decisions, determinations or opinions of the TA arising from the Competition Provisions (s.32L to s.32U);

  • the very wide powers of the TA to, and to authorise licensees to gain access to land or the seabed ("land" being very broadly defined) in order to place, maintain and inspect telecommunications lines, and radiocommunications installations, subject to the payment of access fees in certain circumstances, and compensation to land owners for physical damage suffered as a result (s.14);

  • offences and the TA's powers of enforcement and penalties for breach of the Ordinance and/or the licence conditions (s.20 to s.32C, s.32S);

  • the powers of the TA to prescribe standards and specifications of a number of technical matters (s.32D and s.32E), to manage the numbering plan (s32F) and the radio spectrum (s32H);

  • the power of the TA to impose a universal service obligations ("USO") on fixed carrier licences (s.35B));

  • the power of the TA to determine the terms of interconnection (including network unbundling) and facilities sharing (s.36A and s.36AA); and

  • the power of the TA to issue directions requiring a licensee to take such action as the TA considers necessary (s.36B), to impose financial penalties where a licensee has failed to comply with such directions (s.36C), power to require persons who provide or offer a public telecommunications service (which would include licensees and persons other than licensees) to disclose certain information to the TA (s.7I) and conduct inspection of licensees' premises (s.7J).

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Numbering

In early 1994, the TA commissioned a feasibility study and cost benefit analysis of number portability in Hong Kong. The conclusion of the consultant's report was that number portability for FTNS would be feasible and there would be an immense net benefit to the Hong Kong economy as a result of the introduction of number portability. The TA's Statement No. 1 on Interconnection and Related Competition Issues on the implementation of number portability reported that there was a favourable response from the telecommunications industry and following this, on 3 January 1997, Hong Kong successfully achieved full number portability using the intelligent network and database technique. Hong Kong was the first city in the world to do so. Number portability means that fixed telephone users can keep the same telephone numbers when they switch to another network provider.

On 11 July 1997, the TA issued a consultation paper entitled Number Portability for Mobile Services in Hong Kong whereby he sought the views of the mobile industry and interested parties on whether Hong Kong should have number portability for mobile services (mobile number portability or "MNP"), and if so, how it could be achieved and implemented. In this consultation paper, the TA considered, amongst other things, MNP in other countries, the demand for MNP in Hong Kong and the benefits of MNP to Hong Kong.

As a result of the consultation process whereby the TA issued, amongst other things, various consultation papers on the cost recovery framework, MNP was introduced on 1 March 1999, allowing users who decide to switch mobile networks to keep the same number. Number portability is now part of the conditions of different types of licences. Furthermore, s.32F(3)(b) of the Telecommunications Ordinance provides that the TA may issue codes of practice relating to, amongst other things, the use of numbers and such codes of practice may include provisions relating to number portability. There is a legal obligation on a licensee to adhere to the codes of practice if the TA exercises his powers under s.32F(4)(c) to issue directions to require a licensee to observe the codes of practice.

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LICENSING

Introduction

Main Classes of Licence under the Existing Licensing Regime

The New Licensing Regime

Introduction

Hong Kong has a facilities-based licensing regime.  The Telecommunications Ordinance provides that, except in accordance with the appropriate licence, no person in Hong Kong shall, amongst other things, establish or maintain any means of telecommunications. (Emphasis added)

While telecommunications is defined very widely for the purposes of the Ordinance, "means of telecommunications" is not defined. 

However, "means of telecommunications" was considered by the Court of Final Appeal in Uniglobe Telecom (Far East) Limited and HKSAR, decided in 1999, and  that phrase was given a very expansive meaning.  In the circumstances of that case, Uniglobe was found guilty of maintaining a "means of telecommunication" without a licence. 

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While what is "maintaining a means of telecommunication" is a question of fact, in that case it included:

  • the computer facilities at Uniglobes premises for validating calls and recording numbers (Uniglobe was a provider of international calling card services); 

  • interconnections and facilities maintained by FTNS licensees used to carry Uniglobe's traffic to the international gateway of Hong Kong Telecom International Limited (as it was then); and

  • the interconnection with and facilities provided by an unlicensed third party (Bestlong International Limited) which was using radiocommunications equipment to carry Uniglobe traffic illegally into China (thereby by-passing HKTI's international gateway).

The Court found it was artificial to view the service offered by Uniglobe as limited to those pieces of equipment that Uniglobe actually controlled (i.e. its computers).  Rather it 'maintained' all the interconnections and facilities by which its subscriber's traffic were carried to its destination.

Section 7 currently provides that the Chief Executive-in-Council, and the Telecommunications Authority ("TA") (subject to regulations) may grant the appropriate licences.  Services ancillary to the "means of telecommunications" can also be licensed by the TA.

However a new Section 7 has been recently been inserted to replace the existing Section 7, but is not yet in force.   The new Section 7 specifies in some detail, which licences may be issued by the Chief Executive-in-Council (exclusive licences), which by the TA (all others), that the Secretary may specify the General Conditions of the carrier licence, that the TA may specify Special Conditions of the carrier licence (as long as they are not inconsistent  with the General Conditions), and the form and conditions of licences other than carrier or exclusive licences. The new licensing provisions enacted by the Telecommunication (Amendment) Ordinance 2000 (gazetted on 16 June 2000) will come into operation on a date to be appointed by the Secretary for the Information Technology and Broadcasting Bureau.

Section 8(1)(aa) of the Ordinance (which has not yet come to force) provides that any person who "offers in the course of business a telecommunications service" will also require to be licensed.

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There is no restriction on foreign ownership of telecommunications operators and service providers (except as to some restrictions on foreign ownership of some licences under the Broadcasting Ordinance, which are also deemed to be licences under the Telecommunications Ordinance), but an applicant for a licence should be a company registered under the Hong Kong Companies Ordinance (Cap 32).

The existing facilities-based licensing regime is  constituted by various classes of licences.  As noted above, under the current licensing regime, the TA's power to grant licences is restricted to those licences specified by the Chief Executive-in-Council  in the Telecommunications Regulations ("Regulations").  The Regulations specify the form, General Conditions, validity periods and licence fees of the various licences.  While the TA needs to incorporate into the licences the General Conditions specified in the Regulations, he does have limited powers under the Ordinance to add additional Special Conditions that he regards as necessary.  These Special Conditions are imposed by the TA pursuant to his powers under s.34(3) of the Ordinance which provide that "Any licence ... granted under this Ordinance by the [Telecommunications] Authority shall be subject to ... such other conditions that the [Telecommunications] Authority specifies on the grant or renewal thereof, being conditions that the [Telecommunications] Authority considers necessary for the purpose of carrying out the objects of this Ordinance".  As the General Conditions form part of the Regulations, they are legislative in character, whilst the Special Conditions result from the exercise of the TAs executive powers under s.34(3) of the Ordinance.  This means that there is a fundamental difference in their respective legal characters.

Under the current regime, telecommunications transmission facilities are regulated under the FTNS licence for fixed networks and the PRSL licence for mobile networks. As with all the other licences, the form and General Conditions of each are specified in the Regulations.

The term "licensee" is used throughout the Telecommunications Ordinance ("Ordinance") and is defined to mean the holder of a licence under the Ordinance and includes:

(i)         the holder of a licence granted under s.8 of the Television Ordinance (Cap. 52); and

(ii)        a person given a right under a class licence.

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Main Classes of Licence under the Existing Licensing Regime

Fixed Telecommunication Network Services ("FTNS")

Under the FTNS licensing framework, more stringent conditions are applied to the dominant operator only (currently being Cable & Wireless HKT which was recently acquired by Pacific Century CyberWorks ("CWHKT")).  Under General Condition 44, if the TA has formed the view that a licensee is not dominant in the market, the TA may waive the application of certain licence conditions (mainly to do with tariffing obligations).

There are currently five types of FTNS licences issued (however, all  the services and facilities currently offered under the various types of FTNS licence will be regulated under the new carrier licence when that licence is established). 

The types of FTNS licenses currently in existence are:

(1)        wireline-based FTNS licences of which there are currently four; 

(2)        local wireless FTNS licences of which there are currently five;

(3)        cable-based external FTNS licences of which there are currently three;

(4)        satellite-based external FTNS licences of which there are currently twelve; and 

(5)        an FTNS Licence issued to provide telephony over the Hybrid Fibre Coaxial Cable Network of Hong Kong Cable Television Limited.

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Wireline FTNS (local and international)

Following the conclusion of the Framework Agreement between the Government of HKSAR and Hong Kong Telecommunications Limited (as it was then), in January 1998 (the "Framework Agreement"), the terms of which dealt with the early termination of the exclusive international licence of Hong Kong Telecom International Limited, the liberalisation of the market for the provision of external telecommunication services to/from Hong Kong was implemented, with effect from 1 January 1999, and the external facilities market was liberalised on 1 January 2000. 

The FTNS licenses were originally issued to each of Hutchison Communications (Hong Kong) Ltd. (as it was then), New T&T Hong Kong Ltd., and New World Telephone Company Ltd. at the end of June 1995 to allow only the provision of local (domestic) fixed telecommunication network services ("FTNS"), in competition with those provided by Hong Kong Telephone Company Ltd. (as it was then), which also held an FTNS licence  to provide domestic fixed telecommunications network services.  The three licences held by the non-dominant operators were amended on 19 June 1998 to entitle their holders to provide both domestic and international fixed telecommunication network services. After providing further undertakings on network roll-out, the other three FTNS licences issued to each of Hutchison Communications  (Hong Kong) Ltd (as it was then), New T&T Hong Kong Ltd and New World Telephone Ltd. were revised to enable them to provide external telecommunication facilities with effect from 1 January 2000.

There is a moratorium on the issue of further local FTNS licences until 31 December 2002 by order of the Chief Executive on 4 May 1999. The Government wants the FTNS licensees to roll-out their respective networks during the moratorium period, and to recover their costs before further competition is introduced to the local fixed wireline-based network market.

The incumbent operators, and those with the most comprehensive network are the subsidiaries of Pacific Century CyberWorks ("PCCW"), namely Cable & Wireless HKT Telephone Limited, Cable & Wireless HKT International Limited and Cable & Wireless HKT CAS Limited, which together hold an FTNS licence jointly and severally ("CWHKT" - the names of the subsidiaries have not been changed on the FTNS licence following the acquisition of the CWHKT Group by PCCW).  As noted above, previously Hong Kong Telephone Limited held one of the local (domestic) wireline FTNS licences, while Cable & Wireless HKT International Limited held an exclusive international licence. Pursuant to the terms of the Framework Agreement, and as with the other local wireline FTNS licences, CWHKT's licence now allows it to provide both international and domestic fixed telecommunications networks services pursuant to the one licence.    

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The FTNS licence-holders are licensed, subject to the General Conditions and Special Conditions of their respective licences, to provide a public fixed telecommunication network service ("Service"), establish and maintain a telecommunication network ("Network"), and may deal in, import and demonstrate, with a view to sale in the course of trade or business, such apparatus or material for radiocommunication as may be necessary to supply customers of the Service. 

The scope of the Service covers all internal and external telecommunication services between fixed points capable of being provided utilising the fixed Network (i.e. as distinguished from services utilising a network established pursuant to a Public Radio Communication Service Licence or a Radio Paging System Licence), other than telecommunication services the subject of, amongst other classes of licence, an exclusive licence issued under the Ordinance.  Currently, no exclusive licences have been issued. 

Main features of the wireline FTNS licence including some of the most important General Conditions ("GC") and Special Conditions ("SC") contained in the licence: 

  • the licence is valid for a term of 15 years from the day on which it is granted and renewable for a term not exceeding 15 years at the discretion of the TA (Telecommunications Regulations ("Regulations") sub-regulation 2(2B)); 

  • a fee of HK$1,000,000 is payable on the grant of an FTNS licence and on the anniversary of the grant of the licence in each year while the licence remains in force (Schedule 1 Part II of the Regulations); 

  • General Conditions, relating to issues such as compliance with the licence conditions and international conventions, control of interference and obstruction, provision of as good and efficient service, requirements for interconnection, conformance to the numbering plan, prohibitions against anti-competitive conduct and abuse of dominant position, tariffing obligations, provisions in relation to network location and changes to the network, road opening, works in public streets, provision and use and sharing of certain facilities, installation of lines or cables; 

  • obligations to publish and charge no more than tariffs (GC20(1)); 

  • a general requirement not to bundle services together under a simple tariff (GC 20(5)); 

  • where the licensee is dominant, it cannot discount service charges from published tariffs other than in accordance with formulas or methodology approved by the TA (GC 20(4)); and 

  • an obligation to share facilities where TA issues the appropriate directions (which will be where he is of the opinion that it is in the public interest to do so) (GC 31). 

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As the dominant operator, CWHKT has certain Special Conditions attached to its licence which relate to such matters as the provision of the Basic Service as defined in the licence (which includes the provision of a public switched telephone service, public payphones, directory enquiries, thunderstorm warnings).  The provision, maintenance and operation of the relevant parts of the Network and of the Basic Service together constitute the Universal Service Obligation ("USO").  As noted above, other more stringent conditions apply to CWHKT as the dominant operator.  Although these conditions are generally set out in all the wireline FTNS licenses, under General Condition ("GC") 44, the TA may waive the application of certain licence conditions to the licensee if the TA forms the opinion that the licensee is not dominant in the relevant market.  The TA may direct that either one or any combination of GC 17 (accounting practices), GC 20 (tariffs), GC 21 (tariffs revisions), GC 22 (tariffs for new services), and GC 23 (trials) shall not apply to the licensee where it is not dominant.  Given that they are non-dominant the other 3 wireline FTNS licensees are excused these conditions. 

The other FTNS licensees (each of Hutchison Global Crossing Ltd., New T & T Ltd., and New World Telephone Ltd., are obliged to, among other things, pay the Universal Service Contribution ("USC") to CWHKT.   

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Wireless FTNS (local/domestic)

The number of wireless local fixed networks is limited by the available spectrum.  The wireless-based FTNS licences were issued with a view to providing consumers with alternative access (to the wireline networks of CWHKT, Hutchison Global Crossing Ltd., New T&T Hong Kong Ltd. and New World Telephone Ltd.) to voice and non-voice services, including broadband services.  The licence allows the licenceholder to provide a public fixed telecommunication network service ("Service").  Schedule 1 of the licence sets out the "Scope of the Service" and entitles the licence-holder to provide all local telecommunications services between fixed points in Hong Kong, capable of being provided utilising the "Network" which is described in Schedule 2 of the licence as "all such telecommunication installations and telecommunication lines established, maintained, possessed or used whether owned by the licensee, leased, or otherwise acquired by the licensee for the purpose of providing public fixed telecommunication network services specified in Schedule 1".  

Notwithstanding that the expansive wording of Schedules 1 and 2 would suggest that the wireless FTNS licence entitles its holder to do everything that a wireline FTNS licence would entitle it to do, it is clear from the provisions of the Special Conditions, the relevant Guidance Notes and Statements, that the intention behind the issue of the wireless FTNS licences is clearly that the networks established pursuant to them are to be based on wireless not wireline technology. 

Main features of the wireless FTNS licence including some of the most important General Conditions ("GC") and Special Conditions ("SC") contained in the licence: 

  • the term and fee payable is the same as a wireline-based FTNS; 

  • form and content of the General Conditions are based on wireline-based FTNS,  whilst Special Conditions and Schedules are tailored for the wireless FTNS licence and each particular licensee; 

  • the licensee will not be authorised to operate external services, but of course may choose to operate such external services under a PNETS licence which it can apply for separately; and 

  • examples of some of the obligations set out in the Special Conditions specifically include network and service roll-out obligations, and the obligation to establish a certain number of hubs to send signals within the radio spectrum for the Local Multipoint Distribution System ("LMDS") for the provision of the licensee's Service.  All of this is set out in the Schedules to the licence, along with the number of buildings to be served by the Network. These obligations must be performed within a certain time frame.  The licensees were also required to put up a performance bond to secure its obligations under the licence.  Special Conditions also cover such matters as technical standards and a requirement that customer premises equipment conform to certain standards.  The licensee can only provide the service within In-Building Coaxial Cable Distribution Systems ("IBCCDS") using such channels as may from time to time be assigned by the TA.  Where directed by the TA, the licensee must also pay USC to the incumbent;

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The Legislative Council Brief dated 18 January 2000 entitled Licensing of Local Fixed Telecommunication Network Service by Wireless Transmission, External Fixed Telecommunication Network Services by Satellites and Hong Kong Cable Television Limited ("HKCTI") to provide Telecommunications Services, stated that neither local wireless FTNS licensees nor external satellite-based FTNS licensees will be allowed to open up roads for environmental reasons. The TA has since re-iterated that the holder of an FTNS licence for local wireless FTNS will not be granted any authorisation to lay telecommunications lines in public roads and unleased government lands under s.14 of the Ordinance.  However, the TA has also indicated that the Government will conduct a review in due course to determine whether such a restriction may be lifted after the end of 2002.   

Further, the TA has indicated that he will not make a determination in favour of a wireless FTNS operator for Type II Interconnection to the local loops (or customer access networks) of the wireline FTNS operators.  Licence-holders must use local circuits leased from the four fixed line operators or Hong Kong Cable Television Limited for interconnection with other telecommunication network providers or service providers. This is of course to be expected given that the purpose of the issue of these licenses is so as to create alternative access networks to the existing wireline FTNS operators, an imperative given the built-up urban environment of Hong Kong.  

To reach end-customers, licence-holders will need to access common areas within the building being served (such as rooftops, cabling facilities, ducts or equipment room) to install customer-side equipment and interconnect with either the IBCCDS or the in-building blockwiring systems.

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Cable-based External FTNS Licence

The issue of such licences was designed to encourage investment in external cable capacity, with the aim being that the licensees would bring new physical cables into Hong Kong (but note the TA's statement dated 8 May 2000 on Use of Capacity Under Indefeasible Rights of Use for Submarine Cables landed in Hong Kong - see below).  

The scope of the service licensed under the cable-based external FTNS licence is the provision of all external telecommunications services between fixed points (i.e. (a) between one or more points in Hong Kong and one or more points outside Hong Kong and (b) between two or more points outside Hong Kong but routed in transit via Hong Kong), capable of being provided utilising all such telecommunications installations established, maintained, possessed or used whether owned by the licensee, leased, or otherwise acquired by the licensee (for the purpose of providing the public external telecommunications network services).  The licensee is not authorised to establish or maintain any physical facilities for the supply of external telecommunications circuits (as defined in the licence) to customers, before the capacity for external telecommunications circuits available from the Submarine Cable to be landed in Hong Kong by the licensee has been brought into Hong Kong.  In other words, before the appropriate time, the licence holder cannot rely on Indefeasible Rights of Use ("IRUs") or international lease capacity from other FTNS licence holders.  After such capacity has been brought into Hong Kong, the licensee may then establish and maintain an external telecommunications circuit based on an external cable network (as defined in the licence) or non-cable based external network (as defined in the licence) at the Hong Kong end. 

The TA has specifically indicated in the relevant Guidance Notes that, while it would issue licences for the operation of external telecommunications facilities based on submarine or land cables, or for satellite based external FTNS, it would not allow those who acquired capacity through the purchase of IRU to provide external telecommunications facilities into Hong Kong.  The Government has stated that it would only consider applications from persons acquiring for licences for the operation of external facilities based on IRUs,  with  effect from 1 January 2003.    Invitations for proposals for licences for external FTNS were issued in July 1999 and then again in April 2000.  In both cases it was again indicated that it would be for the purpose of bringing new physical cables into Hong Kong.  The new external cable-based FTNS licences would become effective when the new submarine cable capacity proposed and accepted is actually brought into operation. 

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However, on 8 May 2000 the TA issued  a Statement entitled Use of Capacity under Indefeasible Right of Use for Submarine Cables landed in Hong Kong, in which he substantially derogated from this previously stated restriction.  In that Statement, the TA commented that he believed that owners of IRU in these cables should be allowed to utilise that capacity "through a licensed FTNS operator ... in Hong Kong".  Those licensed FTNS operators would of course include the existing wireline-based FTNS licensees, all of which now have authority to operate external facilities, along with cable-based external FTNS licensees (submarine and land), when their respective licences became effective upon commissioning of their cables.

This use of capacity by FTNS licensees would include the termination of the capacity of the non-licensee IRU owners, for the purposes of routing traffic terminated in or originating from Hong Kong, or for the purposes of routing traffic in transit through Hong Kong.  Usage in both cases should be permitted subject to entry into commercial agreements between the IRU owners and the FTNS licensees. 

The TA was of the view that, as a matter of law, mere ownership of the apparatus for telecommunications, was not subject to licensing under the Telecommunication Ordinance, and accordingly as a matter of law the owner of the IRU does not operate a means of telecommunications, and is not subject to licensing.

Accordingly, where the owner of the IRU enters into a contract with an FTNS licensee to terminate cable capacity in Hong Kong, the FTNS licensee itself is treated as operating external circuits through the cable capacity.  In respect of traffic originating or terminating in Hong Kong, the FTNS licensee establishes an external circuit between Hong Kong and that other place.  Where the traffic is to be transited through Hong Kong the FTNS licensee establishes external circuits to more than one place outside Hong Kong and links the two circuits together in Hong Kong.  

The TA found an analogy for its analysis in the establishment and maintenance of external circuits through satellites.  The earth station in Hong Kong must be operated by an FTNS licensee, but the transponders on the satellites are not owned by FTNS licensees.  The FTNS licensee is nonetheless regarded as establishing and maintaining the external circuits simply through the capacity provided by others, and there is no requirement for the owners of the transponders to obtain a telecommunications licence in Hong Kong (with the exception of owners transponders on Hong Kong registered space objects). 

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The TA also expressed the view that the arrangement was in fact one in which the FTNS licensees were supplying external circuits to IRU owners in their capacity as a particular type of customer.  In other words, the FTNS licensee was supplying external circuits regulated under those conditions of the FTNS licence concerning provisions of service and tariffs for those services.  Further, as the owner of the IRU was not the operator of a licensed system within the meaning of s.36A of the Ordinance, the TA was not in a position to determine terms and conditions of interconnection between the IRU capacity and the facilities of the FTNS licensee.  In this regard, it is also interesting to note the Uniglobe case. 

As of 1 February 2000 the TA had issued Letters of Intent ("LOIs") to 13 applicants for cable-based external FTNS licences.  The LOIs specify that the TA intends to issue to holders of the LOIs external cable-based FTNS licences, upon completion of their successful negotiation with overseas regulatory authorities and other relevant parties.  The LOIs are valid for 18 months, which period may be extended by the TA at his discretion, if the circumstances warrant such an extension.  As at 22 November 2000, three cable-based external FTNS licences have been issued. 

Main features of the cable-based FTNS licence including some of the most important General Conditions ("GC") and Special Conditions ("SC") contained in the licence: 

  • the term and fee payable is the same as the wireline-based and wireless FTNS licence; 

  • like the wireless FTNS licence, the form and content of the General Conditions are based on the wireline-based FTNS licences, whilst the various Special Conditions and Schedules are tailored for the cable-based external FTNS licence and each particular licensee; 

  • An example of the Special Conditions obligations include network and service roll-out such that the service is launched no later than the deadlines for compliance set out in Schedule 4 of the licence, and that the capacity for external telecommunications circuits available from the network is no less than that specified in Schedule 4 of the licence.  Each licensee is required, amongst other things, to put up a performance bond to secure its obligations under the licence, show that it has expended capital for the purpose of developing, establishing and maintaining the Network within a particular time frame, pay the USC to CWHKT. 

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Satellite-based external FTNS

In response to an invitation for licences applications issued on 15 July 1999 (the application closing date being 30 September 1999), the TA had received a total 20 proposals for external satellite-based FTNS licences.  The TA decided to issue licences to all applicants which met the evaluation criteria laid down in the Guidance Note for the Submission of Proposals for the Operation of Local Wireless FTNS in Hong Kong dated 15 July 1999, as he considered that there was no physical constraint on the number of such licences that could be issued in this round.  In a press release published by OFTA dated 18 January 2000, it was stated that the TA would shortly invite new applications for external satellite-based FTNS licences.  On 18 April 2000, the TA issued a new invitation for proposals to operate external telecommunications facilities based on satellites and cables.  As of 22 November 2000, there were 12 satellite-based external FTNS licences issued. 

The "scope" of the service licensed under the satellite-based external FTNS licence is the same as that of the cable-based external FTNS licence, but of course the network is to be based upon access to transponder capacity. The licensee cannot provide an external telecommunications circuit based on an external cable network at the Hong Kong end. 

Main features of the licence including some of the most important General Conditions ("GC") and Special Conditions ("SC") contained in the licence: 

  • the term and fee payable is the same as the wireline-based and wireless FTNS licence; 

  • like the wireless FTNS licence, the form and content of the General Conditions are based on the wireline-based FTNS licences whilst Special Conditions and Schedules are tailored for the Satellite-based external FTNS licence and each particular licensee; 

  • An example of some of the Special Conditions obligations include network and service roll-out such that the service is launched no later than the deadlines for compliance set out in Schedule 4 of the licence and that the capacity for external telecommunications circuits available from the network is no less than that specified in Schedule 4 of the licence.  Each licensee is required, amongst other things to put up a performance bond to secure its obligations under the licence, show that it has expended capital for the purpose of developing, establishing and maintaining the Network, pay the USC to CWHKT.

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Hong Kong Cable Television Limited ("HKCTV")

It was stated in the Secretary's 1999 Policy Objective Paper for telecommunications that the Government had decided to allow HKCTV, which is the existing subscription television licensee, to offer telecommunications services over its hybrid fibre coaxial cable network subject to satisfactory commitments on network roll-out, in return for the surrender of its Microwave Multipoint Distribution System frequencies.  Subsequently, the TA issued an FTNS licence to HKCTV on 18 January 2000.  In an OFTA press release of the same date, it was stated that "HKCTV's hybrid fibre coaxial network will roll-out from 957,000 premises at the end of 1999 to 1,737,000 by the end of 2002, involving a investment of about HK$580 million.  HKCTV has offered a performance bond of HK$50 million for its commitments". 

Under its licence, HKCTV is licensed to provide a public fixed telecommunication network service ("Service"), the scope of which includes all local telecommunication services between fixed points capable of being provided utilising the hybrid fibre coaxial cable network.  Both voice and non-voice telecommunication services are within the scope of its Service. 

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Public Radio Communication Services Licences ("PRSL") 

Soon to be regulated under the ubiquitous carrier licence, (like the FTNS licences), the PRSL allows for the provision of public non-exclusive services using radiocommunications technology, (including voice and data).   The number of licences granted is subject to the availability of spectrum.   Services currently covered by the PRSL include the so-called PCS cellular services (17-19 GHz) as well as the earlier cellular services in the 800/900 MHz range, and radio paging. 

The PRSL entitle their holders to provide a public radiocommunications service as described in the Schedule to each licence, and to establish, maintain, possess and use radiocommunication apparatus, and to deal in and demonstrate apparatus or material for radiocommunication as may be necessary to supply customers.  While there are various types of the PRSL, the most significant of which currently are the PRSL for Public Mobile Radiotelephone Service ("PMRS") (of which there are currently 5 licensees), and the PRSL for Personal Communications Service ("PCS") (of which there are currently 6 licensees). 

All mobile services will continue to be licensed under the PRSL (including 3G services, should licences for 3G services be issued before the implementation of the carrier licensing regime) until the carrier licence replaces the PRSL, as proposed by the Secretary in her Consultation Paper on the implementation of Carrier Licence under Telecommunications Ordinance as Amended by Telecommunication (Amendment) Ordinance 2000 dated 8 September 2000.  The importance placed on mobile services by the Government is reflected in the new s.14(1A) of the Telecommunications Ordinance which provides that any licensee may be authorised by the TA for any particular occasion if he is satisfied that it is in the public interest, to place and maintain a radiocommunications installation in, over or upon any land (as defined) for the purpose of providing a radiocommunication service to a public place, and also to enter any such land for the purpose of inspecting it or other activity which is incidental to the maintenance and installation of the installation. 

The TA's Consultation Paper dated 21 July 2000 on the Guidelines on the Application of the Principles to be Applied in the Determination of Fees for Access to Confined Areas by Mobile Services envisaged that "land" which would satisfy the factors for granting access under s.14(1A) would include "tunnels, railway premises, airport terminals and large shopping arcades".           

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Main features of the licence including some of the most important General Conditions ("GC") and Special Conditions ("SC") contained in the licence: 

  • a PRSL is generally valid for 10 years from the day on which it is granted and can be extended for a further period of up to 3 years at the TA's discretion (Regulation 2(2A) of the Telecommunications Regulations); 

  • the General Conditions of the various types of PRSL licences are the same whilst the Special Conditions are specific to each particular licence and tailored to each particular licensee; 

  • the General Conditions include requirements that a licensee can only transfer the licence and any permission, right or benefit under it with consent of the TA;  the apparatus of the licensee must be operated only on such radio frequencies as the TA assigns; and that the licensee is prohibited from entering any agreement which in any way prevents or restricts competition in relation to the operation of the service or any other telecommunications service licensed by the TA; and 

  • the Special Conditions include requirements that the licensee must prepare a customer charter; that the licensee has an express obligation of confidentiality regarding the customers' information; the licensee must interconnect service and network with the external public telecommunication network/services of CWHKT and any other fixed telecom networks services authorised under the Ordinance; the licensee disclose information as required to the TA; the TA may impose obligations to share facilities; and the TA may make the terms of the licence public. 

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Public Non-Exclusive Telecommunications Service ("PNETS") Licence

There are various different versions of the general PNETS licence form, depending on the type of service to be provided under it, but generally, services licensed under a PNETS licence are services to be provided to the public which utilise the fixed networks of the FTNS operators, or the facilities of other licensees. 

The following are the two most commonly issued  forms of PNETS issued: 

  • PNETS for External Telecommunication Services ("ETS").  In accordance with the Government's policy of liberalising the telecommunications sector generally, and introducing competition to the external telecommunication market in Hong Kong specifically with effect from 1 January 1999, the Government  determined that the TA should issue licences for the provision of external telecommunications services to take effect from that date.  These licences (the form and general conditions of which are based on the types of PNETS licenses already in issue) license the holder to provide an external public telecommunications service (which may be for voice, facsimile, data or any combination of them) operated over external leased circuits supplied by an FTNS licensee at the Hong Kong end or over other external switched telecommunications services lawfully operated in Hong Kong at the Hong Kong end (the "Service").  The Services which may be operated include call back services, International Simple Resale, and Internet Access Services operated over external leased circuits supplied by an FTNS licensee authorised to supply such circuits.  The ETS licence also covers the provision of  Virtual Private Networks, which were previously licensed under a separate type of PNETS licence ("VPN").   The VPN service enables a customer to establish what would amount to a private network over the VPN service for the purpose of "carrying out both voice and non-voice telecommunications between members of a corporate group or organisation of a customer made in the course of business of that corporate group, or for the pursuance of the common interest of that organisation" (see the TA's Guidance Note for the Application for Licences for the provision of Virtual Private Network Services dated 27 May 1997).  The TA's Guidance Note for the Application for Licences for the Provision of External Telecommunication Services dated 12 December 1998 states that as the PNETS ETS licence already covers the activities of the VPN services, the licensees for VPN services will be required to return their VPN licences to the TA for cancellation upon the grant of a PNETS ETS licence, or 1 January 1999, whichever is later;   

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  • PNETS licence for International Value-added Network Services ("IVANS") allows the holder to, amongst other things, provide local value added network services, accessed by its customers via, and provided over, circuits provided by public telecommunication network operators (such as the FTNS licensees) and / or public telecommunication services licensed under the Ordinance.  IVANS includes non-real time voice services such as store and forward fax, electronic data exchange and database access and retrieval. International private leased circuits ("IPLC") can be used for the provision of the service provided that the services conveyed over the IPLC fall within the scope set out in the Third Schedule of the licence.  IVANS licence-holders must apply for an ETS licence if they wish to provide external telecommunication services for real-time voice and fax transmissions.  It is arguable therefore, that the importance of the IVANS has diminished, as all of the activities licensed under an IVANS licence are already covered by the ETS licence.   The PNETS IVANS licence covers the activities of Internet Service Providers ("ISP").  If the ISP provides services falling outside the IVANS licence scope, to the extent that it is considered that the ISP is providing external telecommunication services, then the ISP will need to obtain an ETS licence.  The ETS will allow the licensee to do everything it can under the PNETS IVANS for ISPs.  

The general criteria for the application of a PNETS is that the service must be technically sound and comply with the relevant industry technical standards.  Technical expertise and previous experience will be taken into account. If interconnection with other public telecommunication networks/services is required, the equipment must meet the technical specifications for interconnection. 

Main features of the licence including some of the most important General Conditions ("GC") and Special Conditions ("SC") contained in the licence: 

  • a PNETS licence is valid for 12 months and is renewable on payment of a fee on or before the expiry date (Regulation 2(2) of the Telecommunications Regulations "Regulations").  Currently, the annual fee is HK$750 (Part 1 of Schedule 1 of the Regulations); 

  • there is no limit on the number of licences that can be issued - number of licences determined by market demand; 

  • the PNETS licence does not allow the establishment or building of infrastructure for the carriage of public telecommunications; 

  • General Conditions include conditions relating to such matters such as the provision of service in a manner satisfactory to the TA; that necessary apparatus complies with technical and performance standards;  the imposition of restrictions on transfer of the licence, and any permission or any right or benefit arising therefrom unless with the prior written consent of the TA; and prohibitions on entering into anti-competitive arrangements, general prohibition on anti-competitive behaviour (including preferential treatment from or to associates) and; 

  • Special Conditions may include provisions relating to matters such as the provision of service in a manner satisfactory to the TA; and requiring that the licensee comply with any technical specifications prescribed by the TA.

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The New Licensing Regime

The Telecommunication (Amendment) Ordinance (gazetted on 16 June 2000) introduced a new licensing framework to the Telecommunications Ordinance ("Ordinance").  These licensing provisions (s.7 to s.7E) will come into operation on a day to be appointed by the Secretary to the Information Technology and Broadcasting ("Secretary") by notice in the Government Gazette, which is anticipated to be in December 2000.  This will occur after the TA has conducted a public consultation process and developed an appropriate set of guidelines. 

The new licensing regime will provide for exclusive licences (of which currently there are none), carrier licences, class licences, and miscellaneous licences falling outside these categories.  

The object behind the new licensing regime is to enable the TA to make prompt responses to new technology and services by streamlining the licensing process, that is, to be better equipped and regulate for, amongst other things, convergence and the technological evolution of the industry.

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Carrier licences

The Licensing Framework for Carrier Licences under the Ordinance 

"Carrier licence" is defined in s.2 of the Ordinance to mean a licence issued for the establishment or maintenance of a telecommunications network for carrying communications to or from the public between fixed locations, within Hong Kong, or between Hong Kong and places outside Hong Kong, on a point-to-point, point-to-multipoint or broadcasting basis, such locations within Hong Kong being separated by unleased government land, but does not include the licences listed in the Schedule. 

The Schedule attached at the end of the Ordinance lists out those licences, which are not services that will be licensed under a carrier licence.  The definition of "carrier licence" is wide enough to encompass services produced currently under a number of different types of telecommunications licences including the FTNS and the PRSL.  The scope of services set out in each of these licences is tracked fairly closely by the definition of "Carrier Licence" in Section 2. 

The 'carrier licence' concept is really a formalisation of the TA's existing policy of treating network operators of significance in the industry, with special rights and obligations.  See in particular the TA's series of  ten Statements on Interconnection and Related Competition Issues issued throughout 1995.  The carrier licences will allow the grouping under one single licence, providers of the whole range of telecommunications transmission facilities across unleased government land.  Facilities within building in single property developments that do not touch unleased government land will not be covered by the carrier licence.  Where transmission facilities crossing unleased government land are not significant enough to warrant regulatory control they may be set out as one of the exemptions to the carrier licensing regime set out in the schedule. 

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In the document published by the Information Technology and Broadcasting Bureau ("ITBB") dated 10 December 1998 (and amended on 23 December 1998) entitled Policy Decisions arising from the 1998 Review of Television Policy and the paper setting out the Policy Objectives for Telecommunications for 1998 published by the ITBB at the same time as the Chief Executive published his 1998 Policy Address, it was indicated that the Government had decided that there was a need to separate the regulation and licensing of transmission facilities from that of the service provision of television broadcasting.  Transmission facilities are now regulated under the Telecommunications Ordinance, while the provision of broadcasting services is regulated under the Broadcasting Ordinance.  Henceforth establishment or maintenance of television broadcasting transmission facilities will be regarded as the establishment of a means of telecommunications, and it is proposed to be licensed pursuant to the carrier licence.  Broadcasting licences such as the commercial television broadcasting licence, subscription television broadcasting licence and satellite television uplink and downlink licence will, as licences to operate transmission facilities, be licensed or deem to be licensed under the Telecommunications Ordinance, and will be covered by the proposed carrier licence. 

The TA will be able to issue  "carrier licences", and the Secretary for the ITBB is empowered under s.7(2) of the Ordinance to make regulations to prescribe the general conditions, including the period of validity and the annual licence fees. 

On the 8 September 2000, the TA  published a Consultation Paper on the Implementation of Carrier Licence under the Telecommunications Ordinance as Amended by the Telecommunication (Amendment) Ordinance 2000. 


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Class Licence

Under s.7B of the Telecommunications Ordinance, the TA will be able to create class licences covering a variety of telecommunications networks, systems, installations or services.  Before creating a class licence, the TA must seek the views of the members of the industry on whether to create one at all and on what  terms and conditions if he were to create a class licence.  This consultation process has not yet begun. It is intended that any person who wishes to provide certain specified services or operate certain specified facilities which are the subject of a class licence, will be able to do so automatically without the need to apply for an individual licence, provided that they comply with the criteria set out in respect of the relevant class licence.  If a party engages in activities that are covered by one of the class licences but fails to comply with the conditions of the relevant class licence, then they will be in breach of the licence under the Telecommunications Ordinance.  The Legislative Council Brief dated 30 April 1999 entitled 1998 Review of Fixed Telecommunications, Telecommunication (Amendment) Bill 1999 states that the TA may require persons intending to operate such facilities or services subject to a class licence to register their contact details with him.  The class licence system will also replace the system of Exemption Orders (subsidiary legislation to the Telecommunications Ordinance) over time. 

It is envisaged that initially, three class licences will be created covering:           

1.         a Class Licence covering In-building wiring systems.  The class of persons likely to be subject to such a licence will likely be landlords or developers who have installed such systems on or in their own properties.  It is proposed that it will be required that interconnection between such networks and other licensed networks will take place on a non-discriminatory basis, and that the customer will maintain a direct contractual relationship with the interconnecting network operators and service providers outside of the properties; 

2.         a Class Licence covering the "offering of telecommunications services in the course of business" as defined under s.8(1A) of the Ordinance.  This would extend the licensing requirement to (and hence the ability of the TA to regulate) persons who provide non-facilities-based services such as the supply of international calling cards marketed in Hong Kong.  The purpose of this new provision is to allow the TA to regulate to protect consumers; and 

3.         a Class Licence covering the supply of customer equipment connected to carrier licensees' facilities that are not for public telecommunications services, for example from operating a telephone or similar equipment (e.g. at home), then the equipment and the use of it would be covered under a class licence.  This is to replace the current scheme of Exemption Orders covering customer equipment connected to FTNS and PRSL.

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3G

In his second consultation paper on the proposed licensing of third generation mobile services dated 3 October 2000 the TA analysed all the submissions received in response to his first consultation paper, the latest developments in the regulation of 3G overseas, and the market generally before coming to the preliminary views set out in this paper.  The TA is seeking further views and comments on his preliminary views and intends to finalise the consultation process by the end of this year or early next year and issue the licences in 2001. 

The TA was of the view that adopting any "purist" approach, that is, whether it is selection by merit, cash auction or reverse auction, would be inappropriate, as each had their drawbacks.  The TA felt that as the 3G business and services are not clearly defined at this stage, it would be difficult to judge without too much subjectivity the criteria to be met in the selection by merit process or to create an effective model for reverse auction.  A pure cash auction might delay the roll-out of 3G services and therefore adversely affect Hong Kongs economic development. 

The TA has therefore proposed a so-called hybrid option which includes (a) elements of prequalification, i.e. requiring the applicants to fulfil the minimum requirements set out by the TA, and (b) the spectrum auctioning approach.  Accordingly, applicants who have pre-qualified would be invited to bid in an auction for a 3G licence.

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'Open network'

The TA has also proposed that the 3G licences will include an "open access" requirement.

This requirement refers to the separation of the provision of services from the operation of the network so as to ensure that there is effective competition and that any barriers to entry  that may prejudice service providers from having access to the networks operated by the network operators are eliminated.  Various submissions stressed the importance of Mobile Virtual Network Operators ("MVNO") and how important it was for regulation to be in place so as not to hinder MVNO development.  

In the proposed licensing framework, network operators will be required to open up their 3G networks to 3G service providers.  If the licensee is a 2G operator as well as 3G, the licensee will only need to open up its 3G network under the 'open network' concept.  Under the 3G licensing regime incorporating an 'open network' requirement, network operators will be allowed to be service providers as well.  The TA recognises that network operators are the ones committing to the investment and therefore has stated that network licensees may retain certain network capacity for their own use or use by their affiliated companies to provide 3G services. 

In order to strike a balance between encouraging investment in 3G networks and the need to make the open network requirement meaningful, the TA considers that the percentage of network capacity which must be open to any non-affiliated service providers should be between 30% to 50%.  The availability of any network will be assessed during the busiest peak hour traffic.  The TA has invited industry comments on this proposal. 

The TA's view in relation to the wholesale price of 3G network services to service providers (whether MVNOs or resellers), is that this should be left to commercial negotiations.  If negotiations fail and he is requested to exercise his powers under the Telecommunications Ordinance ("Ordinance"), then he will do so, considering both the 'retail minus' approach and the 'cost plus' approach when making a determination.  He has sought the industrys views on which approach is preferred.  The fact that he has allowed the network licensee to reserve certain capacity for use by its own affiliated service providers does not mean that the TA will allow any discriminatory behaviour by the network providers.  Conditions will be incorporated in the licence requiring accounting separation to allow for monitoring. 

The number of licenses to be issued for network operation will be limited to spectrum availability and the TA has proposed that four licences should be granted in this round of licensing.  This wording suggests that the TA has not ruled out the possibility of issuing further licences in the future.  In this round, the TA proposes that each licensee will be awarded 2 x 15 MHz paired spectrum plus 5 MHz unpaired spectrum.

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The hybrid approach - pre-qualification and auction 

In the pre-qualification stage, applicants will need to submit their business plans and proposed commitments for the TA's assessment.  The TA has set minimum requirements including: 

1.         a detailed statement which would be able to substantiate the bidder's financial and technical capability;

2.         a business plan which demonstrates such financial and technical capability together with proposals as to network roll-out, service level and coverage;

3.         an agreement to a minimum level of roll-out access the HKSAR over the period of 5 years and the provision of domestic roaming by the 2G operator to any new 3G new entrant;

4.         financial guarantees;

5.         an agreement  on the "open network" requirements; and

6.         lodging with the Government of a specified amount of deposit 

Essentially, the pre-qualified bidders who offer the highest payment would be granted 3G licences.  The TA has set out four possible methods by which applicants may bid in an auction, namely (i) upfront lump sum, (ii) deferred payment, (iii) royalties and (iv) royalties with guaranteed minimum payment.  The TA has set out what he considers are the advantages and disadvantages of each method and has sought the industrys views on the preferred approach. 

As yet, the TA has not formulated any auctioning rules or the actual auctioning procedure itself.  The TA has indicated that he may adopt the multi-round ascending auction mechanism, which was used in the UK and Germany. 

The TA is seeking the industry's views on his proposed hybrid auction approach.

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Other Regulatory Issues 

  • The TA was of the view that due to the level of competition in Hong Kong in the 2G services market, it was not necessary to reserve spectrum for any new entrants. 

  • In relation to 3G standards, the TA reiterates his views already expressed in the first consultation paper which is that operators can use any IMT-2000 standard adopted by the International Telecommunication Union ("ITU") within their own assigned 3G frequency bands for 3G mobile services so long as the TA is satisfied that operators technical standards are compatible from the users viewpoint. 

  • In the World Radiocommunication Conference 2000 held in May, the ITU has allocated additional spectrum for 3G services.  New bands for mobile services have been allocated.  The TA anticipates that the newly allocated 2,500 - 2,690 MHz range will probably not be made available for 3G or similar services within the next 3 years as there will be discussions in the Radio Spectrum Advisory Committee and a full consultation process will be conducted.  The other two bands are the 806 - 960 MHz band and 1,710 - 1,885 MHz band, which are currently used by 2G operators. 

  • The TA intends to allow existing operators to use any IMT-2000 standards within their assigned 2G frequency band for 3G mobile services during the validity of their existing licences, subject to the TA having been satisfied that technical standards are compatible from the user's viewpoint and that existing 2G consumer interests were adequately safeguarded.  The TA will tackle the issue of how to deal with 2G licences when they expire nearer the time via the consultation process. 

  • Regarding mobile number portability ("MNP") the TA considers that MNP should be available from the launch of 3G services and that it should be made a mandatory requirement for 3G services.  As an illustration of the importance the TA attaches to this requirement, if necessary, he will set up a specialist group to work on any technical difficulties which may hinder early MNP implementation. 

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  • The numbering practice in Hong Kong is that the leading digit "6" and "9" are allocate to mobile services.  The TA took the view that this should continue and therefore both number levels should be usable for 2G and 3G services. 

  • The TA affirms his views expressed in his first consultation paper that there should be mandatory roaming allowed by successful new 3G entrants into the networks of  2G operators who have been successful in obtaining a 3G licence.  This would allow effective competition between incumbent operators and new entrants in the 3G market. The TA has proposed a "sunset" date of maybe 5 years after the launch of the new entrants' service as the time when this roaming arrangement should end.  The purpose of this is to provide an incentive for 3G new entrants to roll out their own networks. 

  • In his first consultation paper, the TA invited views on whether both 2G and 3G services should be regulated under the same existing regulatory framework.  The TA pointed out that the Secretary of the Information Technology and Broadcasting Bureau had proposed in the consultation paper on the implementation of carrier licences dated 8 September 2000 that 2G and 3G services would be regulated under the carrier (mobile) licences.  Appropriate special conditions will be incorporated to each issued licence that will be specific to the particular licensee.

In summary, the TA has further sought industry's comments on: 

1.         the percentage of network capacity which must be open to any non-affiliated service providers; 

2.         whether the industry prefers the TA to take the 'retail minus' approach or the 'cost plus' approach when making a determination under the Ordinance regarding the wholesale price of 3G network licensees to service providers; 

3.         which method out of the four possible methods by which applicants may bid in an auction is preferred; 

4.         his proposed hybrid auction approach; 

5.         on his analysis of the submissions received to his first consultation paper and the preliminary views which he has set out in this paper.  

The consultation period ended on 13 November 2000.

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COMPETITION

Backgound, legislation and interpretation of provisions dealing with anti-competitive behaviour, and misleading and deceptive conduct

Background, legislation and interpretation of provisions dealing with anti-competitive behaviour, and misleading and deceptive conduct

Background

In its telecommunications review V a consultation paper issued in January 1994, the  Economic Services Board ("ESB") stated:

"while competition has not been an explicit policy objective of the Hong Kong Government, progressive liberalisation and the licensing of competitive suppliers have been important aspects of the development of the [Telecommunications] Industry.  Competition is viewed as a mechanism, which  engenders economic and efficient supply of services and which discipline suppliers' behaviour such that prices to consumers are fair and reasonable.  The policy framework adopted to-date by the Hong Kong Government, therefore, seeks to create an environment which creates opportunity for entry by new suppliers, allow a fair rate of return by investors (subject to competitive market disciplines) and it is pro-consumer at the same time". 

In its Policy Statement of 20 January 1998 the ESB stated:

"the Government's objectives is to ensure that a fair and competitive environment is created and that Hong Kong's international obligations (for example, under the General Agreement on Trade and Services and the World Trade Organisations Basic Telecommunications Agreement) are satisfied. ... the fourth FTNS form of licence contains within it a substantial set of competitive safeguards".

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As regards competition policy in general, the Statement on Competition Policy ("COMPAG Policy Statement") issued in May 1998 by the cross-department Competition Policy Advisory Group ("COMPAG") (currently headed by the Financial Secretary Donald Tsang) (the purpose of which is to provide a co-ordinated and focused forum to discuss policy issues on the promotion of competition generally) provides in part:

"The Government considers competition is best nurtured and sustained by allowing the free play of market forces and keeping intervention to the minimum. [emphasis added] ... We will take action only when market imperfections or distortions limit market accessibility or market contestability, and impair economic efficiency or free trade, to the detriment of the overall interest of Hong Kong."

In keeping with Hong Kong's generally liberal regulatory framework and highly competitive economy, the Government does not, currently see the need for a general competition law or a competition authority.

Rather, the Government adopts a sector-specific approach whereby bureaux and departments are responsible for overseeing competition issues within their portfolios.  Where necessary, the Government will take sector-specific actions such as licensing conditions, codes of practice, legislation etc. to rectify anti-competitive behaviour and/or to promote competition.

In the Legislative Council Brief entitled 1998 Review of Fixed Telecommunications, Telecommunication (Amendment) Bill 1999 dated 30 April 1999 ("LegCo Brief on Telecommunications"), it was stated that one of the main aims of the Bill (which became law on the 16 June 2000) was to incorporate licence conditions found in a number of different types of licences issued by the TA over the years, prohibiting anti-competitive conduct and abuse of a dominant position, into the legislation, in a strengthened and expanded form.

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The Competition Provisions in General

Sections 7K to s.7M are new provisions of the Ordinance and introduced into legislation a framework for the prohibition and regulation of anti-competitive behaviour. This is the first time that prohibitions on anti-competitive behaviour have appeared in legislative form in Hong Kong. Substantially similar provisions now appear in the Broadcasting Ordinance. 

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Section 7K- Anti-Competitive Practices

Section 7K (which is very similar to Section 13 of the Broadcasting Ordinance) has much in common with Article 81 (formerly Article 85) of the Treaty establishing the European Community ("European Treaty").  The elements of Section 7K are as follows:

  • a licensee

  • shall not engage in conduct

  • which in the opinion of the TA

  • has the purpose or effect of

  • preventing or substantially restricting competition

  • in a telecoms market

Section 7K(2) of the Ordinance sets out "relevant matters" to be considered - in reality three are examples of potentially anti-competitive behaviour (see equivalent phrases in Article 81).

Section 7K(3) prescribes particular conduct as anti-competitive including tying arrangements, and the giving of an undue preference to, or receiving an unfair advantage from an associate, if the effect would be to unfairly prejudice the "competition", or its effect is generally anti-competitive.

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Section 7L - Abuse of Dominance

Section 7L (which is closely replicated in Section 14 of the Broadcasting Ordinance) is remarkably similar to Article 82 (formerly Article 86 of the European Treaty).  The elements of Section 7L are as follows:

  • a licensee

  • in a dominant position

  • in a telecommunications market

  • shall not abuse its position

Section 7L(2) provides that the licensee is in a dominant position:

  • when in the opinion of the TA, it is able to act without significant competitive restraint from competitors and customers.

As a matter of practice, the TA presumes a party to be dominant if it has greater than 75% market share, presumes it to be non-dominant if it holds less than 25% market share, and where the licensee has between 25% - 75% market share, makes no presumption as to dominance.

Section 7L(3) sets out a non-exclusive list of criteria which the TA shall take into account in determining dominance:

  • the market share of the licence

  • the licensee's power to make pricing and other decisions

  • the degree of  product differentiation and sales promotion

  • the barriers to entry to competitors into the relevant market

  • such other criteria as are set out in the guidelines to be issued by the TA

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Section 7L(4) provides that if a party is in a dominant position, and engages in anti-competitive behaviour it is deemed to have abused its dominant position.

The type of conduct which may constitute an abuse of a dominant position is set out in Section 7L(5), and includes the following:

  • predatory pricing

  • harsh contractual conditions or conditions unrelated to subject matter of the contract

  • price discrimination

  • tying arrangements

  • discrimination in supply of services to customer

It is not immediately clear whether a party can be "dominant", other than in the circumstances prescribed in Section 7L(2).  The term "dominance" is used in several contexts (Section 7G - price control, Section 7N - Non-discrimination).  One can only assume that the test of "dominance" for the purposes of each of these provisions is also the opinion of the TA formed pursuant to Section 7L(2).

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Section 7M - Misleading or deceptive Conduct

Section 7M provides that:

  • a licensee

  • shall not engage in conduct

  • which in the opinion of the TA

  • is misleading and deceptive

  • in providing or acquiring

  • wide range of telecoms networks or services

The wording of s.7M is very similar to that of s.52 of Australia's Trade Practices Act ("TPA").

Section 52 of the TPA provides that

"(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

At present, there are no clear guidelines as to the ambit of s.7M and the likely attitude of the TA in its interpretation as to what type of conduct would be considered misleading or deceptive.

It is expected that the TA will look to the treatment of the relevant phrases in s.52 of the TPA by the courts in Australia, for some guidance when applying the wording of s.7M.

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Section 7N - Non-discrimination

The elements of Section 7N(1) are:

  • a licensee

  • who is in a dominant position

  • in a telecoms market

  • shall not discriminate in respect of charges or the conditions of supply

  • between persons who acquire the services in the market

  • when, in the opinion of the TA, this has the purpose or effect of preventing or substantially restricting competition

Section 7N(2) provides that:

  • exclusive licensee/carrier

  • shall not discriminate between end-users and service provider

  • as regards the provisions of access to telecoms networks, systems, installations, customer equipment or services

  • when, in the opinion of the TA, it has the purpose or effect of preventing or substantially restricting competition

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General Comments

It may well be the case that Section 7N adds little or nothing to Sections 7K and 7L.

Section 7K and s.7L  of the Ordinance reflect to a large degree, General Conditions  15 ("GC 15") and 16 ("GC 16") of the FTNS licence.

As with the equivalent licence conditions set out in each of the FTNS and PNETS licences, much depends on "the opinion of the TA".  For example:

  • for the purposes of s.7K(1),

whether or not the conduct has the necessary purpose or effect is a matter for the opinion of the TA;

  • for the purposes of s.7K(3),

whether a licensee's undue preference to, or receipt of an unfair advantage from, an associated person could place a competitor at a "significant disadvantage, or competition would be prevented or substantially restricted" will be a matter of opinion for the TA;  

  • for the purposes of s.7L, he refers a breach to the courts/or the imposition of a higher penalty than he can impose; 

whether or not a licensee is in a dominant position depends on whether, "in the opinion of the [Telecommunications] Authority, it is able to act without significant competitive restraint from its competitors and customers,"; and

  • for the purposes of s.7M whether or not conduct is misleading or deceptive is a matter of opinion for the TA.

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As the formation of the appropriate opinion by the TA is a pre-requisite for conduct following foul of the prohibitions as set out in s.7K through 7M, some interesting questions are raised as to the width of TA's discretion, and the ability to review his "opinion".  Further, in the event that he refers a breach to the court for the imposition of a higher penalty, the question arises as to whether the court will only be entitled to deal with the appropriate remedy, and not the fundamental question of liability?

Having said that, the appeals process provides for an appeal from any such opinion of the TA to the Appeal Board.  Although the Appeal Board has not yet been set up, nor have any guidelines as to how it will be conducted been issued (as it is required pursuant to Section 6D of the Telecommunications Ordinance), it appears that the Appeal Board will be able to replace the opinion of the TA with its own opinion.  During the Bills Committee stage there was some consternation about the width of the TA's discretion to determine these matters in light of the potentially severe consequences (including the rights of the third parties to take action).  Although the legislation includes some limits on the  discretion of the TA, including:

  • the need to issue guidelines;

  • the need to give reasons  for any opinion formed;

  • the need to indicate why the TA has deviated from any guidelines, when he does so; and

  • the stipulation in 7K and 7L of certain matters to be taken into consideration by the TA;

it is no doubt as a result of such concerns about the width of his discretion that the appeal process was inserted.

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It is generally considered that the appeal process will force the TA to engage in some degree of intellectual  rigour before forming opinions in respect of relevant matters, and will need to be able to justify,  to some degree, such opinions in writing.

As regards the questions of an abuse of dominance in particular, it should be borne in mind that dominance in a marketplace is not per se a breach of the Ordinance, nor does it of itself provide grounds for any third party proceedings.  Rather it is the abuse of that dominance that is a breach of the Ordinance.

The COMPAG Policy Statement stated that the Government recognised "that scale of operation or share of the market per se does not determine whether a business is anti-competitive or not.  The determining factor is whether a business, through abusing its dominant market position, is limiting market accessibility and contestability and giving rise to economic inefficiency or obstruction of free trade to the detriment of the overall interest of Hong Kong.  Each case has to be examined on its own."

As with any competition analysis, the analytical framework within which the TA should determine whether or not a breach of Sections 7K, 7L and 7M has occurred, will involve 3 stages (although the 3 stages are not mutually exclusive):

  • firstly the TA will need to determine the relevant market;

  • the TA will then to determine the structure of the market (including the subject licensee's place in it, and its degree of market power); and

  • finally to determine the effect of the behaviour on competition the market, or whether the behaviour constitutes an abuse of a dominant position, as appropriate.

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It is expected that there will be some degree of reliance on the approach adopted by overseas authorities, and particularly European and UK authorities, in the analysis of competition issues.

Interestingly, well before the introductions of the competition provisions, in a draft paper entitled Enforcement of the FTNS Tariffing Rules in a Developing Competitive Environment dated 1 June 1996 issued by OFTA, it was stated that Hong Kong's approach to introducing competition to the telecommunications sector was, by contrast to the United States' approach, less intrusive in that the HKSAR Government intended to dismantle competitive barriers voluntarily through the issue of Codes of Practice and Guidelines issued by the TA, or if called upon, for the TA to make determinations. 

The Consultation Paper on the Implementation of Carrier Licence issued on 8 September 2000, makes it clear that it is proposed that the competition provisions in the current licence conditions will slowly be phased out.


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APPEALS PROCESS

Telecommunication (Competition Provisions) Appeal Board
(Quasi-judicial review)

         

An appeal from an opinion,   determination, direction or decision of the TA relating to:

s.7K - anti-competitive practices

s.7L - abuse of position

s.7M - misleading or deceptive conduct

s7N - non-discrimination (s.32N(a))

Telecommunications (Competition Provision) Appeal Board (s.32M)
An appeal from any sanction or remedy imposed by the TA in respect of matters set out in s.32N(a) (s.32N(b)).

The Appeal Board may refer any question of law to the Court of Appeal at its discretion although there is no right of appeal from a final determination by the Appeal Board on any matter including a question of law (s.32R)

i.e. its decision is final (s.32Q)

 It can award costs (it is a costs jurisdiction)

(s.32O(1)(d)(v)+(vi) and s.32O(3))

 

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Any person aggrieved by a decision, opinion, direction, decision of the TA relating to  s.7K, s.7L, s.7M or s.7N, or any license condition, or any sanction or remedy imposed by TA may proceed as follows:

Appeal Board

(within 14 days)

 

Judicial Review
- if seeking a decision of fact or law

- the Appeal Board may vary or question the appeal subject matter

- limited rights of appeal  i.e. not to be used if seeking a decision of fact.

- if there has been ultra vires, unreasonableness or denial of natural justice in the TAs decision making process

- if seeking prerogative remedies or injunction or declaration

         
Note:  s.32O(4) of the Ordinance - some Appeal Board powers are similar to prerogative powers.

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ACCESS TO PROPERTY - SECTION 14

Section 14(1)

Section 14(1A)

Section 14(1) 

Given the urban density of Hong Kong, not surprisingly, the ability to access land and buildings to place and maintain telecommunications and radiocommunication equipment and installations is one of the most important factors in determining whether the Government's Policy Objectives will be achieved. The right of the Telecommunications Authority ("TA") and any licensee authorised by the TA to enter upon land and buildings to place and maintain telecommunications lines is provided for in s.14(1) of the Telecommunications Ordinance ("Ordinance"). By way of example, the wireline FTNS licensees have such an authorisation in respect of road openings. 

There is no general definition of land given in the Ordinance, but s.14(10) of the Ordinance provides that for the purposes of s.14(1) and s.14(1A), land "does not include land for the exclusive occupation or use of any person whilst the land is being so occupied or used". "Land" would almost certainly include common property, such as is commonly found in apartment blocks. 

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Section 14(1A) 

In order to attain the Government's objective of ubiquitous coverage for mobile telecommunication services, s.14(1A) was added to the Telecommunications Ordinance. Section 14(1A) of the Ordinance gives the power to the TA to authorise any licensee to place and maintain a radiocommunication installation in, over and upon any land for the purpose of providing a radiocommunication service to a public place, and enter any such land for the purposes of inspecting it or other incidental activity to the maintenance and placement of the installation. This is to be contrasted with s.14(1) of the Ordinance which provides that the TA has the power, and the power to authorise any licensee, to enter onto any land for the purposes of establishing, maintaining and inspecting any telecommunications lines

Of particular distinction between the two provisions is that a s.14(1) authorisation does not entitle the land owners to charge the licensee an access fee, whereas a s.14 (1A) authorisation does. A licensee gaining access pursuant to Section 14(1A) is required to pay an access fee to the land owners or other person with a lawful interest in the land. 

In the 1998 Review of Fixed Telecommunications, Legislative Council Brief dated 30 April 1999, it was noted that mobile telecommunication operators have experienced problems in gaining access to shielded areas of public places. One of the objectives of the amendments to the Ordinance promulgated in June was to overcome this problem.

In the TA's Consultation Paper dated 21 July 2000 on the Guidelines on the Application of the Principles to be Applied in the Determination of Fees for Access to Confined Areas by Mobile Network Operators for Extension of Coverage of Public Mobile Services ("Consultation Paper on the Determination of Fees for Access"), the TA stated that he envisaged that "land" which would be subject to a grant of access under s.14(1A) would include "tunnels, railway premises, airport terminals, large shopping arcades". This is curious given the wordings of s.14(10) referred to above. Despite the TA's expansive statement, it is unclear what would be all the possible categories of real property, which constitute "land" for the purposes of the Ordinance. The uncertainly arises because any land the subject of a long term grant from the Government (being all "private" land in Hong Kong, with one not notable exception) would be held for the "exclusive use or occupation" of the grantee. Therefore, if the definition of land in s.14(10) is strictly construed, then very little land, would be accessible by the TA or any licensee authorised by the TA pursuant to s.14(1) and s.14(1A), and probably not all of the "tunnels, railway premises etc". It is likely, therefore, that "land" is intended to be used in its non-technical sense for the purposes of the Ordinance. By comparison the term "land" is very comprehensively and clearly defined in the Conveyancing and Property Ordinance. 

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The TA has sought views from the industry on any other possible scenarios that may fall within the scope of s.14(1A). The TA published the submissions received in respect of the Consultation Paper issued on 26 September 2000 but has not yet published his analysis of the comments received and his preliminary conclusions, as has been his practice for other consultation papers. 

The TA's intention is that if a licensee wishes to gain access to such "land" they should firstly approach the landowner or persons having a lawful interest in the land to negotiate terms of access. These terms would include, amongst other things, the level of fees payable to gain access. Now that s.14 has been enacted, PRSL licensees should not encounter the same degree of difficulty that they have experienced in the past in gaining access, but the level of access fee payable will, of course still be a "real" issue. However, if the landowner or persons having a lawful interest in the land not allow the licensee to exercise its right of access, the licensee may apply for an authorisation by the TA under s. 14. The TA will not grant authorisation for access to such land if he forms the opinion that it is not in the public interest to do so. If the landowner or persons having a lawful interest in the land prevents or obstructs the licensee so authorised by the TA from gaining access, the licensee may apply to a magistrate for an order that the relevant person shall not prevent or obstruct access (s.14(4)). 

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Access Fee 

Section 14(2) provides that where a licensee seeks to gain access, the requesting licensee must pay a fee that is fair and reasonable in all the circumstances of the case to the owner or person having a lawful interest in the land concerned. The parties should reach an agreement between themselves as to the level of access fee payable (s.14(5)(a)), but the TA has the power under the Ordinance to determine the relevant terms and conditions of access and the amount of an interim fee payable if the parties fail to reach a commercial agreement, and if he believes it is in the public interest to do so (s.14(5)(b)). Section 14(5)(b)(i) provides that in the absence of any agreement on the level of fees payable within a reasonable time, then the final fee, and the terms and conditions in accordance with which it is payable will be determined by arbitration pursuant to the Arbitration Ordinance. Section 14(5)(b)(ii) provides that the parties are deemed to have made an arbitration agreement which shall be deemed to include that the dispute be determined by a single arbitrator and other provisions as set out in s.14(7). The TA explored the issues relating to the calculation of these access fees in the Consultation Paper on the Guidelines to be Issued on the Application of the Principles to be Applied in the Determination of Fees for Access to Confined Areas by Mobile Network Operators for Extension of Coverage of Public Mobile Services dated 21 July 2000. 

The underlying principle in determining the access fee is that the access fees shall be that which is "fair and reasonable in all the circumstances of the case". These words are set out in the relevant provisions of the Ordinance (Section 14(2)(b)(ii)(A)) and repeated in the Consultation Paper. Such circumstances would include factors relating to

  •  cost; 
  •  property value; and 
  •  the benefits to be derived from the authorisation. 

The arbitrator shall have regard to any guideline issued by the TA, and indeed the TA is required to issue the relevant guidelines as soon as it is practicable (s.6D). 

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Access to Buildings 

Up until 30 June 1995, property developers provided access facilities only for Hong Kong Telephone Company Limited as it had an exclusive concession to operate the only local fixed telecommunication network in Hong Kong. Since 1 July 1995, there have been four wireline-based Fixed Telecommunication Network Services ("FTNS") operators. In addition to the four FTNS licensees, since November 1993, Wharf Cable Limited (as it was then) has been operating a network providing subscription television broadcasting services in Hong Kong. The Guidelines for Property Owners, Developers and Managers for the Provision of Facilities within Property Development for Access to Public Telecommunication and Broadcasting Services issued by the TA on 18 May 1995 ("Guidelines") explain the Government's policy and legislation (at that time) and sets out, as the title of the Guidelines suggests, how property owners, developers and managers should provide access to the telecommunications and broadcasting networks in the new competitive environment starting from 1 July 1995. As of September 2000, the Office of the Telecommunication Authority ("OFTA") was conducting an exercise to revise the building access guidelines. The final building access guidelines have not yet been published by OFTA.  It was and still is the Government's policy that all consumers in Hong Kong should have unimpeded access to the full range of public telecommunications and broadcasting services of their choice. One of the initiatives to achieve this policy objective is to improve customer access to telecommunications services by making the provision of in-building access facilities for fixed telecommunication networks a mandatory requirement for new building. The task of implementing this initiative was given to the Planning and Lands Bureau and the ITBB. Amendments to the Buildings Ordinance to make the provision of in-building access facilities for fixed telecommunication networks a mandatory requirement for new buildings came into operation on 1 November 2000 (see Buildings (Amendment) Ordinance 2000). 

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Summary of the Existing Building Access Guidelines dated 18 May 1995 ("Guidelines") 

The Guidelines are intended for property owners, developers and managers ("Developers") in the public and the private sectors, including developers who are statutory or public corporations like the Housing Authority, MTR Corporation, Kowloon-Canton Railway Corporation and the Airport Authority. The purpose of the Building Access Guidelines is to assist Developers in the planning and provision of access facilities within their property developments to a standard which the Developers consider desirable for their future customers' needs. The Government felt that it was in the mutual interest of the Developers and the FTNS operators for adequate facilities (cable ducts, risers and equipment rooms etc) to be provided to enable occupiers in the property developments to access the full range of public telecommunications and broadcasting services. The addition of access facilities after completion of the construction phase will result in delays, disruptions and inconvenience. It may even be physically impossible to add access facilities after construction is completed. 

The four FTNS operators and Hong Kong Cable Television Limited have all been given the "utility" status by the Government, which means that they have the right to install their network in public streets, unleased Government land and leased land subject to the necessary approval under the law. In pursuit of its policy to ensure fair competition among the four FTNS operators, the Government, through legislation and licence conditions, has tried to ensure that the network operators will be treated on a non-discriminatory basis in gaining access to their customers in property development.

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The Guidelines provide, amongst other things, that occupiers of a property should have non-discriminatory access to the telecommunications and broadcasting services of their choice over the Developer's cabling, or over cabling of the network operators installed within the property using the Developer's access facilities. The Guidelines also state that the Government intended to review the Telecommunication Ordinance and incorporate suitable provisions to nullify any term in any lease agreement, deed of mutual covenant or commercial contract that restricts or deprive the right of individual occupier to access public telecommunications or broadcasting services of their choice. Following the recent amendments to the Telecommunication Ordinance in June 2000, this has now been provided for in new Section 19B of the Telecommunications Ordinance. 

The Guidelines also provide that Developers should also provide access facilities for public telecommunications and broadcasting services. These access facilities include cabling facilities to enable the network operators to install their cables and ancillary equipment to each customer in the property. Some Developers may also choose to provide cables and ancillary equipment to connect the occupier of the property to the public telecommunications and broadcasting networks. The cable and ancillary equipment operated by the Developers for the provision of "through connections" for direct access to public telecommunications and broadcasting services is anticipated to be covered by the proposed class licensing system

According to the Guidelines, network operators have a statutory right of access to install their network within property developments to serve their customers. Again according to the Guidelines, the "utility" status of network operators allow them access to the "common part" of a property to install the cables and equipment necessary for the provision of service to occupiers of the property. "Common part" means all areas within the property development except those areas, which are for the exclusive use, occupation or enjoyment of an occupier. In the case of a building within the meaning of the Building Management Ordinance, a list of the "common part" is given in the First Schedule to that Ordinance. The Telecommunications Ordinance as amended makes it clear that "land" includes the common parts of buildings, so accordingly the statements about statutory rights of access to the common parts of properties for the FTNS licensees are probably beyond doubt. 

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The network operators are expected to exercise their statutory right of access reasonably. If the network operators cause any damage, they are liable to pay full compensation to the Developers or occupiers.

Access facilities should be available to network operators on a non-discriminatory basis. The Guidelines set out four principles:-

- there should be no exclusive deal or restrictive agreement; 

- there should be no discriminatory treatment; 

- there should be no access charge for cabling facilities; and 

- access should be granted for roll-out of networks 

Cable and ancillary equipment operated by Developers should be interconnected with the public network on a non-discriminatory basis. The powers of the TA under Section 36A with respect to determining the terms of interconnection, extend to the interconnection of cables and ancillary equipment operated by Developers and the public telecommunications and broadcasting network outside the property, so any doubt about the width of s.36A in this regard (or in many others) have arguably been removed as a result of the amendments to the Ordinance promulgated in June 2000. 

In keeping with the TA's policy of light-handed regulation, the Guidelines state that network operators and Developers should first negotiate and come to a commercial agreement as to the terms and conditions for interconnection. If a commercial agreement cannot be reached within the reasonable time, if requested to do so, the TA may make a determination under Section 36A. 

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The Guidelines further state that Developers should consult and co-ordinate with the network operators in the provision of access facilities. Access facilities should meet certain technical standards in terms of size, capacity, technical parameter, quality and safety standard. New s.32D of the Telecommunications Ordinance now empowers the TA to prescribe standards and specifications of telecommunication networks, systems, installations, customer equipment and services, and other non-telecommunications equipment. Further, s.32E provides that the TA may test or require the testing of equipment or installations against prescribed specifications. The Developers should notify all network operators of the planning and development of a property, and ask the network operators to provide their requirements for access facilities. The Developers should discuss and agree with the network operators the requirements for access facilities and incorporate the requirements into the design. The party may seek the assistance of OFTA if a commercial agreement cannot be reached after reasonable period of active negotiation. If the access facilities provided by the Developers are inadequate, network operators may exercise their statutory right of access to install the cabling facilities. In relation to existing buildings, the owners or managers should allow all network operators to have access to existing access facilities of the property on a non-discriminatory basis. According to the Guidelines in respect of telecommunications lines, owners, developers or managers of existing buildings are not entitled to charge for the space to be provided for additional access facilities (in contrast to the installation of radiocommunications installations), but if network operators install their own access facilities under s.14(1) (or new s.14(1A)), they are required to compensate the landowners for any damage caused in installation or operation of the access facilities. 

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Summary of the revised Guidelines for Property owners, Developers and Managers for the provision of in-building systems within property developments, for access to telecommunications and broadcasting services ("Revised Guidelines")

In September 2000, the TA issued revised guidelines in draft, to a select number of developers, for comment. Once finalised, these guidelines will replace the existing guidelines. Once again, the over-riding theme is that while the appropriate standard required of an in-building systems is a matter for developers, public policy dictates that there be a minimum standard to enable occupiers to have "unimpeded access to public telecommunications and broadcasting services provided in Hong Kong". 

In the Revised Guidelines, the TA identifies a number of benefits both to the developers and consumers in ensuring that there are adequate in-building systems in place including that: 

  • the value of the property is enhanced; 

  • delays, disruptions and inconvenience of having to add in-building systems after completion of construction projects are avoided. 

"In-building system" is defined in the Revised Guidelines as "a system consisting of facilities for the routing, housing and mounting of cables and ancillary equipment to provide the connections between the public telecommunications and broadcasting networks and the individual premises of the occupier within the premises". 

Given that there is now a multi-operator environment for the provision of alternative access for telecoms and broadcasting services, there is even greater need to co-ordinate the provision of access to in-building blockwiring and cabling facilities. 

For the purposes of the proposed Revised Guidelines, the TA grouped these providers into: 

  • Group One Operators, which provide services to residents of particular buildings and include wireline and wireless FTNS operators, and other broadcasting operators; and 

  • Group Two Operators, which provide services to residents outside particular buildings and includes the public mobile radiotelephone service operators, the radio paging operators and the 3rd generation mobile operators. 

The Revised Guidelines reiterate that all operators will be treated on a non-discriminatory basis in respect of access to their customers in public developments, and that the occupiers of such properties should have non-discriminatory access to public telecommunications and broadcasting services of their choice over the networks installed within the property. These networks would include in-building telephone cable networks, in-building coaxial cable distribution systems ("IBCCDS"), and relevant "facilities" would include basic rooftops, telecommunications and broadcasting equipment rooms and other common parts. 

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What the Developer must provide 

At the minimum, the Revised Guidelines indicate that Developers should provide the facilities for the routing, housing and mounting of cables and ancillary equipment. Developers may also choose to actually provide the cable and ancillary equipment to connect the occupiers to the relevant public telecommunications and broadcasting networks. 

The cable and ancillary equipment to be provided by Developers should not provide aggregation or switching of telecoms traffic originating from or terminating with the occupiers. The Government may issue a class licence covering such in-building networks. However, the occupiers will remain the customers of the providers of the telecommunications and broadcasting service. The developers' networks will simply deliver the public services to the occupiers using developers' in-building networks, including providing cable and ancillary equipment. 

As yet no access to the common parts of developments will be provided pursuant to Section 14 of the Telecommunications Ordinance to any of the Group Two Operators, but the TA has authorised some of the Group One Operators to install and maintain cable and ancillary equipment. 

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Obligations of Operators 

The Revised Guidelines reiterate that Group One Operators are expected to exercise the statutory rights of access reasonably, minimising disruption and inconvenience to the developers and occupiers, and are fully liable to compensate developers and occupiers for any physical damage resulting from the exercise of access rights. 

Section 36A provides that the TA may, if he considers it is in the public interest to do so, determine the terms and conditions of interconnection which may include any technical, commercial and financial terms and conditions the TA considers fair and reasonable. The terms and conditions of such a determination shall be deemed to be of the essence of any agreement as to interconnection and override any contrary term to the extent where there may be any inconsistency. Furthermore, the types of interconnection in respect of which he expressly has these powers includes an arrangement among two or more parties for access to, or interconnection with any element of a telecommunications network, system, installation or service on an unbundled basis at any point that is technically feasible. "Element" is defined in s.36A(3E) of the Ordinance to mean "any cable, component, unit, equipment, hardware or software used to provide a telecommunications service and includes the facilities referred to in section 36AA". 

The costs of a determination are a debt recoverable from the relevant parties. The sharing of in-building systems should include in particular ducting, on fair commercial and technical terms and conditions. The regulatory framework with regard to sharing facilities is provided for under Section 36AA of the Telecommunications Ordinance. Where operators are unable to reach agreement on the sharing of facilities in the course of the usual commercial negotiations, the TA may intervene to impose terms and conditions if there is no reasonable alternative i.e. the facilities that are to be subject to sharing constitute a bottleneck in the provision of access to customers. In determining the sharing of facilities, the TA may have regard to the interest of customers, operators and to the wider public interest. As noted above, the TA's policy is that such in-building systems should be made available to Group One Operators on a non-discriminatory basis. No in-building system installed and maintained by developers should be reserved for the exclusive use of the particular operator. 

The proposed Revised Guidelines stipulate that there will be no access charge allowed for in-building systems. In practice the costs of providing such an in-building system are expected to be passed on to the purchasers or occupiers in the similar fashion as other utility services i.e. water, gas and power. The hope is that developers will respond to operators' request for access to the in-building access in no more than one month's time. 

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Interconnection 

The in-building systems operated by developers should be opened for interconnection with Group One Operators on a non-discriminatory basis. Developers should also be encouraged to maintain an inventory record on spare resources for the in-building systems. In the Revised Guidelines, the TA reminds us that under Section 36A of the Ordinance, the TA has the power to determine the terms and conditions for interconnection between any cables and ancillary equipment operated by developers and public telecommunications and broadcasting networks. Again developers are encouraged to pass the costs attributable to interconnection, onto the purchases or occupiers of the property. 

Code of Practice 

The TA will develop and maintain a code of practice establishing the technical standards - (the "Code of Practice for In-building Systems of Buildings for the Provision of Telecommunications and Broadcasting Services"). This Code will specify as a design requirement for new buildings certain minimum requirements for in-building systems based on the size of the building and anticipated number of occupiers which will need to be served by the Group One Operators. As part of the planning of a new development, developers should notify Group One Operators and ask for their requirements in relation to in-building systems. Relevant plans or drawings should be provided for network operators, and the network operators must then co-ordinate their requirements amongst themselves and provide the developer with consolidated requirements for the in-building systems. If an agreement on in-building systems cannot be reached after a reasonable period of active negotiations, the parties may seek the assistance of OFTA. Given the Group One Operators' statutory rights of access, if in-building systems provided by developers proves inadequate, the authorised Group One Operators may exercise their statutory rights of access to install their own in-building systems directly to customers, bypassing the developers-provided in-building systems. 

As regard existing buildings, where practicable developers of existing buildings should allow network operators to have access to existing in-building systems on a non-discriminatory basis. The procedures for selection of the co-ordinator (one of the operators elected) are apparently to be set out in the Guidelines for Access to the In-building System by FTNS operators to be issued by the TA. These Guidelines provides that should the existing in-building system be inadequate to meet the requirements of the Group One Operators, upon receipt of any request from the operator for the installation of additional in-building systems, the developer should consider whether similar requests from other operators could be entertained in the future. If there are constraints in allowing other network operators to have separate in-building systems, the developers should ask the requesting operators to co-ordinate requirements with other operators. 

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While developers do not have a right to charge for the space provided for the addition of in-building systems, if as a result of inadequate existing in-building systems, operators installed their own in-building systems, the operators concerned are required to compensate the landowners for any physical damage caused in the installation or operation of the in-building system. The TA identified that there are three possible modes of the operation of cable and equipment provided by the developers: 

(a) that the operators take over responsibilities for the operation of the cable and equipment; 

(b) the developers hand over responsibilities for the cable and equipment to the occupiers, and such cable and equipment will become part of the customers equipment directly connected to the public networks; and 

(c) the developers continue to operate the cable and equipment as part of the amenities of the property development. 

Furthermore, a Code of Practice for Access Facilities of Building for the Provision of Telecommunications and Broadcasting Services was issued by OFTA in September 1995 ("Code of Practice"). This Code of Practice sets out the normal requirements for the facilities in buildings which are to be provided by the developer to facilitate the provision of the telecommunications and broadcasting services to the occupants of the property. The Code of Practice encourages building design and construction professionals to design into new building adequate in-building cabling facilities so that the four FTNS operators, together with Hong Kong Cable Television Limited can install their network and provide their services in the most efficient manner. Developers are strongly advised to follow this Code of Practice when new buildings are designed and constructed. For existing buildings, developers and building management are strongly encouraged to follow the Code of Practice when construction of new or additional cabling facilities are planned.

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INTERCONNECTION AND THE SHARING USE OF FACILITIES - SECTION 36A AND SECTION 36AA

Introduction

Section 36A

Broadband Interconnection - Summary of the Statement by the Telecommunications Authority on Broadband Interconnection - dated 14 November 2000

Section 36AA

Access to and co-location at cable landing stations

Introduction

General Condition 13 of the FTNS licence requires the licensee to, amongst other things, interconnect its services and network with the external public telecommunications network. to networks and services operated by the incumbent, to other fixed telecommunication networks and services licensed under the Ordinance, and such other telecommunications licensees and networks licence under the Ordinance, as directed. The FTNS licensee is under an obligation to use all reasonable endeavours to ensure that interconnection is done promptly and efficiently at charges that are reasonable. Under GC 31 of the FTNS licence, where the TA reasonably forms the opinion that it is in the public interest, he may issue directions to a licensee requiring that specified facilities operated by that licensee be shared with other licence-holders. 

The principles that TA has followed in regulating narrowband interconnection are for the most part set out in a series of TA Statements (No.1 to No.10) issued by the TA during the period 28 March 1995 - 21 June 1995 on Interconnection and Related Competition Issues. These statements set out the relevant principles, including charging principles, for seeking and effecting interconnection. In these statements, the TA has noted that the requesting party and the party from which interconnection is sought should initially try to reach a commercial agreement, but in the event that agreement is not reached within a reasonable time, the TA has the power under Section 36A of the Ordinance to determine such terms and conditions. 

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Section 36A

Under the newly amended Section 36A of the Telecommunications Ordinance ("Ordinance"), the powers of the Telecommunications Authority ("TA") to determine the terms and conditions of interconnection have been clarified, expanded and strengthened. "Interconnection" (previously undefined) has now been defined in the Ordinance to mean any connection between systems or services or any elements (emphasis added) of systems or services for the delivery of any communication, message or signal over the connection and, without the meeting the generality of the foregoing, includes interconnection to a system, to a service, between systems, between services and between a system and a service. 

Section 36A provides that the TA may, if he considers it is in the public interest to do so, determine the terms and conditions of interconnection which may include any technical, commercial and financial terms and conditions the TA considers fair and reasonable. The terms and conditions of such a determination shall be deemed to be of the essence of any agreement as to interconnection and override any contrary term to the extent where there may be any inconsistency. Furthermore, the types of interconnection in respect of which he expressly has these powers includes an arrangement among two or more parties for access to, or interconnection with any element of a telecommunications network, system, installation or service on an unbundled basis at any point that is technically feasible. "Element" is defined in s.36A(3E) of the Ordinance to mean "any cable, component, unit, equipment, hardware or software used to provide a telecommunications service and includes the facilities referred to in section 36AA". 

The clarification, or expansion of section 36A of empowering the TA to mandate interconnection to any element of a telecommunications network clarifies the position as to whether or not the TA has the power to mandate the terms of so-called Type II Interconnection (that is, unbundling of the local loop), and to mandate network unbundling. Statement No.6 of a series of statements made by the TA on Interconnection and Competition Related Issues ("Statement No.6") identified the two types of interconnection in respect of which the TA has traditionally claimed to have powers of determination arising from s.36A, and GC13 (requirements for interconnection) and GC31 (provision, use and sharing of certain facilities) of the FTNS licence. These two types of interconnections are "Type I Interconnection" and "Type II Interconnection". 

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Basically, Type I interconnection is interconnection between Network gateways, whilst Type II interconnection is concerned with direct access to the customer access network, and other examples of network unbundling. 

Needless to say, the TA's reference to and description of Type II interconnection has raised certain controversies from time to time since 1995, particularly in relation to attempts by the three wireline FTNS operators (Hutchison, New World and New T&T) to get access to CWHKT's local access lines. In line with concerns in other jurisdictions, such local loop unbundling has raised issues of regulatory taking without fair compensation, and the appropriation of property. 

The four wireline-based FTNS operators have consistently claimed that they have had difficulties coming to an agreement in relation to interconnection to CWHKT's Local Access Link ("LAL") (also known as "the local loop" and "the last mile"). Statement No.6 described a Type II interconnection arrangement as one that allowed the end user connected to the LAL to be able to choose the network over which services are supplied using the LAL. To facilitate this type of interconnection and supply the necessary supporting facilities for interconnection, it is essential, amongst other things, to co-locate equipment at local exchanges of the operator which owns the LAL (i.e. inevitably CWHKT, as most of the other wireline FTNS operators have relied on 'fibre-to-the building' technology and not copper local access lines). To try to overcome such problems, OFTA published an Industry Code of Practice for the Interconnection of Local Access Link in April 1999 ("Code of Practice"). The Code of Practice was developed by OFTA in consultation with the four wireline-based FTNS operators and sets out the technical procedures and implementation details for the interconnection of the LAL and the provision of related supporting facilities. The TA encourages the FTNS operators to refer to the Code of Practice when negotiating their commercial agreements. 

The TA may determine the interconnection charges on the relevant reasonable costs, and in doing so, he may choose from amongst alternative costing methods that he considers to be fair and reasonable. The TA has consistently emphasised a preference for interconnect pricing, at least in the fixed networks markets, based on the long run average incremental costs ("LRAIC") methodology (see Guidelines to Assist the Interpretation and Applications of the Interconnection Provisions of the Telecommunications Ordinance and the FTNS licence published in June 1995 ("June 1995 Guidelines"). However see the TA's Consultation Paper on the Review of the Methodology for the Calculation of Interconnection Charges between Fixed Networks and Mobile Networks dated 25 October 2000. 

Interconnection agreements must be filed with the TA within 14 days of it being made (s.36A(5A) of the Ordinance) and the TA may publish all or any part of an interconnection agreement if he considers it is in the public interest to do so, after having considered representations from the parties (s.36A(5C)). 

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Broadband Interconnection - Summary of the Statement by the Telecommunications Authority on Broadband Interconnection - dated 14 November 2000

Background 

Perhaps nowhere is the issue of local loop unbundling more sensitive, than with respect to the issue of the provision of facilities (including the operation unconditioned local loops) capable of conveying broadband services. 

The statement on broadband interconnection issued by the Telecommunications Authority's ("TA") on 14 November 2000 follows 33 responses from the industry to the consultation process undertaken by the TA. The first and second consultation papers on broadband interconnection, were issued on the 3 November 1999 and the 14 June 2000 respectively. Amongst the issues considered in the two consultation papers were 

  • whether regulation was necessary at all, 

  • if regulation was necessary, then what should be the proposed regulatory framework for broadband interconnection, 

  • whether the broadband interconnection regime should differ from the narrowband interconnection regime currently in place, 

  • whether both so-called Type I and Type II Interconnection should be mandated, 

  • the general principles of any interconnection determination undertaken by the TA, and 

  • the relevant charging principles. 

In the second consultation paper, the TA published a summary of all the submissions received to the first paper, reached some preliminary conclusions and asked for further comments. 

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In this statement the TA came to the following conclusions: 

1. Definition of broadband 

The TA confirmed that interconnection of services of transmission rates of and above 144kbps (the basic ISDN rate) ("broadband services") should be considered separately from services with transmission rates below 144kbps ("narrowband services"), and if appropriate, dealt with under a separate broadband interconnection framework to be developed. Having said that, the TA made it clear that while broadband interconnection issues would be defined and examined as distinct from narrowband interconnection issues, the TA may conclude that the principles for both broadband and narrowband interconnection should be the same. All narrowband services will continue to be subject to the narrowband interconnection framework, and this includes, of course, PSTN services. 

2. Is regulation necessary? 

While accepting that overseas regulators had adopted a cautious approach to broadband regulation, those same authorities had mandated unbundling of the local loop. The TA likewise felt that a certain degree of regulation was necessary, at least initially, because alternative customer access networks would take some time to develop, and bottlenecks facilities potentially existed in, such facilities as in-building wiring systems. The TA reached the conclusion, therefore, that some basic ground rules for regulation was needed and he was prepared to step in, utilising his powers under section 36A and 36AA of the Telecommunications Ordinance ("Ordinance"), to determine the terms and conditions of broadband interconnection should commercial negotiations fail. 

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3. Types of Interconnection Configurations to be Available 

3.1 Type I Interconnection 

As noted above, Type I interconnection is defined by the TA as interconnection at the switching level between networks (or between the 'gateways' of core networks), so as to enable "any-to-any" connectivity i.e. to ensure that customers of one network could have access to customers or service providers connected to another network. 

The TA decided that: 

  • he would only mandate Type I interconnection between broadband networks if it was necessary to achieve "any-to-any" connectivity; and 

  • the Telecommunications Standards Advisory Committee ("TSAC") will undertake a study of the technical standards for Type I interconnection in detail, and would try to determine these in light of the availability and effectiveness of alternatives (e.g. interconnection through IP networks - IP backbones and local internet exchanges), and whether these alternatives would provide end-to-end connectivity of the required capacity and efficiency for customers. Further, it was important to bear in mind that these alternatives might constitute bottleneck facilities. Without direct interconnection between Asynchronous Transfer Mode ("ATM") core networks, it would not be possible for subscribers on one ATM network to be connected to Internet Service Providers ("ISP") connected to another ATM network. 

In the second consultation paper, the TA had already opined that the answer would probably be dependent upon the availability of broadband ISDN intercarrier interface specifications, and the capability of interconnections of IP networks. The TSAC would be specifically required to study Private Network-to-Network Interface ("PNNI") as a stop gap Type I interconnection amongst public ATM core networks. The TSAC would also be required to monitor the development of international standards setting bodies, such as the ITU and ATM forum. 

In response to submissions regarding whether or not mobile operators should be granted 'carrier status' as FTNS operators, the TA stated this had been covered in the TA's Consultation Paper on the Review of the Methodology for the Calculation of Interconnection Charges between Fixed Networks and Mobile Networks, dated 25 October 2000

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3.2 Type II Interconnection 

Type II interconnection is interconnection to the customer access network for the purposes of allowing broadband network operators without their own customer access networks to access end customers. Examples of this include unbundling of the local loop currently being mandated by the Federal Communications Commission in the USA, the Office of Telecommunications in the United Kingdom, the Australian Competition and Consumer Commission, the European Commission, and the Ministry of Posts and Telecommunications in Japan. The object of Type II interconnection then is to prevent broadband networks (as it is when applied to narrowband networks) from being operated in isolation.

The TA took the view that Type II interconnection should be mandated at any technical feasible points along the local loops of all of the wireline-based fixed networks. However, this right would not be extended to the wireless-based FTNS operators, as this would defeat the purpose of licensing them. The purpose behind licensing them was so that the wireless FTNS licensees would roll-out customer access networks in competition with and as alternatives to the local loop. In the second consultation paper the TA opined that Type II interconnection clearly falls within the definition of 'interconnection' for the purposes of the Ordinance, and is of a type which the TA may determine the terms of pursuant to section 36A of the Ordinance. 

The TA concluded that the right to Type II interconnection will be available for interconnection to the local loops of all local wireline-based fixed networks, although realistically, at least during the initial years, it would be Cable & Wireless HKT's (now merged with Pacific Century CyberWorks ("PCCW HKT") network which would be subject to local loop unbundling, because the wireline fixed networks of the non-dominant wireline FTNS operators were based predominantly on fibre-to-the-building technology (and hence they had few copper wire local loops), and given of the width of PCCW HKT's coverage, both in absolute terms and relative to the other FTNS operators. 

However, the TA did not feel that Type II interconnection arrangements need to be mandated as regards the wireless sections of the wireless fixed networks, as he felt that unnecessary intervention might hinder any incentive to invest in the wireless infrastructure. The TA was of the view that as alternatives of more extensive coverage were available (i.e. PCCW HKT and Hong Kong Cable Television Limited ("HKCTV")), and in view of the commercially delicate nature of the wireless fixed networks, interconnection should be achieved to the customer access networks of the wireless FTNS operators through commercial negotiations. The power of determination was available, but would only be used if the TA determined that without it the level of competition would be significantly impacted. However, the TA stressed his comments only applied to interconnection to the wireless hubs of the wireless networks. 

Type II interconnection would be mandated if necessary, in respect of the in-building block-wiring systems, the In-building Coaxial Cable Distribution Systems ("IBCCDS"), and Satellite Master Antenna Television ("SMATV") which he considered to be bottleneck facilities. As regards access to in-building block-wiring systems, this would be mandated, if necessary, even if those systems were owned and operated by the wireless FTNS operators. 

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4. Configurations for Type II Interconnection 

The consultation papers have identified three possible configurations for Type II interconnection: 

a. full capacity of copper wires - "full bandwidth option"; 

b. partial capacity for a defined bandwidth ("partial bandwidth option"); and 

c. transmission service based on a defined transmission rate - "transmission service option". 

In the Statement, the TA indicated his preference that both the full bandwidth options and the partial bandwidth options should be available. In particular, it was noted that in overseas jurisdictions, access was generally allowed to the unconditioned local loops. Were the partial bandwidth option to be accepted, a lower bandwidth limit rather than an upper limit may be set, so as to allow the lines to be shared with conventional narrowband telephone services, and at the same time leaving open the option to carry higher bandwidth services such as HDSL. The TA indicated that a technical specialist group (including participants from industry) to be convened by TA staff would examine any technical constraints on, and problems associated with, each option as well as consider appropriate technical standards and co-ordination, and the issue of line-sharing. At the end of the day, however, decisions as to the appropriate configuration of Type II interconnection and whether it would be full bandwidth option or partial bandwidth option would depend on consumer choice. 

At present the TA believed Type II interconnection should be required in respect of copper local access line only, the fibre-to-the-building networks not having been sufficiently rolled out to make it necessary or appropriate. The TA indicated he was prepared to revisit whether Type II interconnection should apply to such technology, in a further round of consultation. 

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5. When is Type II interconnection available? 

Type II interconnection will be available for all local wireline-based fixed networks only after the end of February 2001. This is because on 16 July 1997, the TA issued a Statement that he would not consider making a determination for Type II interconnection for certain types of infrastructure for broadband services within 3 years of the commencement of operation of broadband conveyance services of Cable & Wireless HKT. The operation of those services commenced in March 1998. In the case of copper local loops, the Statement applied in respect of "cables newly installed for broadband conveyance services". Arguably, therefore Type II interconnection should be available immediately for any cables existing at the time that Statement was issued, because presumably investment decisions were not based on that Statement. However, in view of the difficulty in distinguishing between local access lines installed before and after the time of the Statement, and the short time until the moratorium on Type II interconnection is up, the TA has decided that he will not consider applications for determinations for Type II interconnection in respect of broadband before February 2001. 

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6. Interconnection between Networks and Service Providers 

Not surprisingly those providing submissions to the first consultation paper fell into 2 camps: 

a. those (on the whole being network operators possessing "carrier status" who felt that broadband service providers should not be provided with interconnection services on preferential terms (i.e. on a carrier-to-carrier basis), but rather that they should be offered those services as "tariffed services" (reference should be made to the Guidelines to Assist the Interpretation and Applications of the Interconnection Provisions of the Telcommunication Ordinance (Cap. 106) and the FTNS Licence and Statements No.5 and 6, 1995; and 

b. service providers who felt that they should be able to interconnect to the network at any technically feasible point. The TA recognised that the existing regulatory regime distinguished network operators and service providers, on the basis that there were substantial differences in the level of investment between infrastructure roll-out and service provision, and therefore a substantial difference in the risk assumed by the network operators and service providers. The TA was of the view that in fact service providers were in practice the customers of network operators in the wholesale market, and therefore "interconnection arrangements" between broadband networks and broadband service providers should be dealt with by way of a tariff-based arrangement (as they are currently in both the narrowband environment and in respect of PCCW HKT's broadband service offerings), taking into account the market conditions at the time. This would, the TA felt, better encourage investment infrastructure. However, the TA indicated that he would exercise his powers to determine interconnection terms between networks and service providers if it was in the public interest to do so e.g. if the tariffs were unreasonably and unjustifiably high. (Interestingly in the second consultation paper, the TA had stated that he could not mandate the provisions of tariff-based interconnection services, however he would be able to rely on his powers of determination of interconnection between networks and service providers, if the situation warranted it). The TA further stated that the relevant tariffs for network/service provider interconnection do not require his approval, other than where it concerned the dominant network operator. However, although he noted the distinction between the so-called tariff-based interconnection service, and carrier-to-carrier interconnection at any technically feasible point, the TA will use the charging principles developed through this consultation exercise as the basis for working out the appropriate charging rate. 

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7. Open access to HKCTV's network 

The TA reaffirmed the policy of "open access" to the cable modem services operated by HKCTV over its cable television network, and pointed out that this was a condition of the approval of HKCTV'S FTNS licence to operate telecommunication services over its cable television network. 

In the second consultation paper, in response to arguments that parallel or dual-cable rises would overcome the bottleneck characteristics of the single IBCCDS, the TA pointed out that HKCTV's network was one of the two networks constructed under the protection of monopoly rights (the other of course being the networks of Cable & Wireless HKT) and that they both occupied various public resources, such as ducts underneath public road which could not be duplicated easily. 

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8. Other types of interconnection 

The TA indicated that he would regard both : 

  • interconnection by local wireless fixed network operators to trunk transmission networks, or 

  • interconnection by external facilities operators through backhaul facilities to gateway facilities, 

as forms of interconnection in respect of which he had powers under section 36A of the Ordinance to make determinations. He felt that there was no technical reason why interconnection to backbone and trunk networks was not technically feasible. As to whether or not he would mandate such interconnection would depend on whether he needed to do so in order to promote fair competition and consumer interest. Obviously, one major consideration would be whether there was any competing or alternative supplier for the backbone or trunk networks to which interconnection could be sought (i.e. whether it was a "bottleneck" facility). 

The burden of proof as to whether or not such facilities constituted a "bottleneck" would be on the party requesting interconnection that those facilities such as to justify the TA's intervention. The TA pointed out that (given the moratorium on the issue of further domestic wire-line FTNS licences) until 2002, no other operators other than the wireline-based FTNS licensees, would be given the right to open roads to install backbone and trunk fibre networks for the purpose of operating local fixed networks. It was therefore necessary for him to check the market power of the four wireline-based local fixed network operators by the possibility of the TA's intervention should negotiations for interconnection fail, or interconnection charges prove to be unreasonably high. 

Further, the TA noted that the wireless FTNS licensees and external FTNS operators, are regarded as "carriers" in recognition of the substantial investment and level of risk assumed by them, and therefore could seek interconnection with backbone and trunk fibre networks on a "carrier-to-carrier" basis. The TA indicated that he would address the issue of whether dark fibre constitutes telecommunications networks or elements of telecommunications networks when the issue arose (see Interconnection and Access), and that at this stage he did not exclude the possibility of determining interconnection to dark fibre of a backbone or trunk network. 

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9. General Principles of interconnection determination 

It was recognised as a general principle that the TA needed to ensure that the appropriate pricing for broadband interconnection balanced the need to promote public access to broadband services at affordable prices, with the need to ensure that there was a commercial incentive for further roll-out and upgrading of networks and related infrastructure. It was appreciated that these two objectives were often in conflict. The TA believes that an appropriate charging model incorporating capital and operating costs plus a reasonable cost of capital taking into account investment risk, should produce levels of interconnection charges which fairly compensate network investors, provide incentives for new entrants and offer opportunities for service providers to expand their service to end-users. 

Consistent with his attitude of light-handed regulation, the TA expressed a preference for interconnection arrangements to be settled by commercial negotiations and to keep regulatory intervention to a minimum if possible. It is only when attempts to reach a commercial agreement fail that he would step in to mediate or make a determination. This would obviously be the case where the asymmetric market power of small network operators or service providers vis-j-vis the incumbents would not enable them to complete successful commercial negotiations in a timely fashion. 

n the second consultation paper, the TA, while acknowledging the disparity in bargaining power and incentive to achieve interconnection, had expressed the view that as the broadband market matures, network operators would recognise that extensiveness of coverage and connectivity would only enhance the value of their networks, in both the whole and retail sectors, and that wholesale services would become a more significant part of their business. In his view, broadband network operators would seek interconnection traffic across their networks. Further, the advent of new delivery technologies enhancing competition in the network access market would act in favour of the smaller network operators or service providers at the negotiation table. The TA stated that he would seek to ensure the terms and conditions for access and interconnection set by network operators with a degree of market power, would be no less favourable to third parties than those provided to their own service arms at the wholesale and retail levels. He would consider separation of financial accounts for such network operators and their affiliates, to ensure that effective competition could be maintained at the wholesale and retail levels. 

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10. Charging principles 

In the first consultation paper, the TA considered 4 charging options available to the industry: 

  • long run average incremental cost ("LRAIC"); 

  • fully distributed costs ("FDC"); 

  • retail minus approach (which sets the price kept for interconnection at the level of retail price minus costs incurred by the retail activities of the network operators own service provider); and 

  • Efficient Component Pricing Rule ("ECPR") i.e. LRAIC plus an element for opportunity cost, i.e. lost profit. 

After considering the various submissions, and those views expressed in response to the first consultation paper, the TA confirmed his view expressed in both consultation papers, that a LRAIC based pricing model would be the most appropriate pricing model in the determination of charges for broadband interconnection for the following reasons:

  • it would provide fair compensation to the network operators and preserve their investment incentive; 

  • LRAIC closely simulates the price that would be adopted by participants in a competitive market environment, regardless of the maturity of the investment or products, operating in an efficient manner; and 

  • through the adjustment of the cost of capital in the calculation of LRAIC, the TA will have taken into consideration the risk associated with different technologies or different stages of investment. 

Having said that, in order to maintain the commercial incentive for investment in network infrastructure, it was necessary to ensure that interconnection charges be set not on the "marginal cost basis" (which in the case of a copper loop using ADSL would be just the cost of the splitters), but rather that "the incremental cost" approach should be used, the incremental cost being that of the entire service in the long run, i.e. the cost of setting up and maintaining entire local loop. The cost elements to be covered should include all costs that could be avoided if interconnection services were not provided in the long run. These would include the costs of cables, the ducts, supporting facilities in the local exchanges. 

While the TA accepted that in economic theory "sunk" costs should play no role in pricing decisions, he did accept that the decision of new entrants to "buy" or "build" would be affected by "sunk costs". The TA believes that by adopting the "long run" incremental cost approach, the LRAIC pricing model adequately covers all avoidable cost in providing the interconnection services, and that in the long run the initial capital costs associated with provision of the interconnection service are also avoidable. Therefore the LRAIC pricing model would cover "sunk cost". The TA concluded that the inclusion of an element for the initial capital cost (regardless of the technology or maturity of the company) in a LRAIC pricing model would appear to be the most suitable approach for dealing with this issue. 

In keeping with his previous comments on the subject, the TA re-iterated the view that ECPR perpetuates monopoly profits in network operators. He also noted that ECPR had not been adopted by other regulators around the world with similar pro-competitive policies for narrowband or broadband interconnection. 

The TA took the view that the retail minus approach should not be adopted because: 

if an unstable or negative profit pattern arose in the retail segment of the broadband services market (especially prior to real competition, when the retail market is mature enough or before a critical mass of subscribers could be recruited), this could result in a price with low or even negative profit margins that would under-compensate the network operators and create disincentives for investment; and 

if retail prices contained a monopoly profit element, retail minus would preserve a monopoly profit element. 

The TA noted that there was little support for the FDC model amongst the submissions he had received in response to the two consultation papers. The TA felt that the FDC approach need not be adopted to provide an incentive for new entrants or new investments, but rather the adjustment of the costs of capital elements of the LRAIC model would allow the risk associated with different technologies or different stages of investment to be adequately reflected. Given the arbitrary allocation of the indirect fixed costs, and the adoption of historical cost, using an FDC based model would result in interconnection charges that would not provide the correct 'buy' or 'make' pricing signals. The excessive level of interconnection charges based on an FDC approach might also act as a barrier to entry, thereby reducing the effectiveness of a competitive market. The TA indicated that FDC would not (like ECPR) be a methodology he would consider unless the future development of the broadband market suggested that it would be more appropriate. 

While the TA saw this Statement as the first step, he accepted that detailed costing guidelines might be required in the future. 

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10.1 Costing standards 

In respect of the appropriate cost standards to be applied in determining LRAIC, the TA indicated (and most of the submissions he received supported this), that he would rely on forward-looking or replacement costs in the context of broadband interconnection, because this would reflect the current costs of investment and operation of the network infrastructure, and therefore send the most efficient investment signals to 'buy' or 'make' the necessary network. The TA has defined "Replacement costs" as the current costs of the replacement of the network assets in their current configuration and using current technology. He has defined "Forward-looking cost" as the current cost of replacing those assets with assets of the same or greater functionality, again based on the most cost-effective technology used in configurations available. Determining these costs accurately would depend of course on proper accounting reporting procedures being followed and continual input from the industry. 

Not surprisingly, most of the industry comments focused on how forward-looking or replacement costs should be determined. The TA indicated that he would be prepared to refine the reporting procedures under the accounting manuals and consider, along with industry and external consultants if necessary, the most efficient current costs for the determination of interconnection charges. He would also base his evaluation on "best practice" and compare the costing among various network operators to determine a fair and optimal costing. 

For existing networks, where it may not be practicable to accurately determine forward-looking costs or replacement costs, especially given rapid developments in the broadband environment, the TA would, where necessary choose to use costs reported by network operators, which may include some historical costs, as the basis of estimation, taking into account the latest inflation or price increases. 

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10.2 Cost of capital 

The TA distinguished between components in the access networks that are technology-dependent and therefore of higher risk and those components that are less vulnerable to obsolescence and therefore need a more modest risk factor in determining the cost of capital. The TA identified as a major problem the identification of components in the existing infrastructure that must be upgraded to cater for broadband applications, and to separately access the appropriate risk factor associated with them. 

The issue of determination of the appropriate cost of capital is an important element in the calculation of a cost-based access or interconnection charge and there was much concern expressed in the submissions received. As he has done with determinations relating to the Local Access Charge, the TA will consider engaging external consulting firms to help him formulate a methodology. However, he felt that a LRAIC-based interconnection charge should incorporate a compensatory element for totally new networks built or new equipment installed. He also felt that it was important to assess the appropriate risk factor associated with upgraded components to be inserted in the existing infrastructure in order to cater for broadband application. The existing network operators would need to be able to record such risk as part of the incremental costs incurred in the provision of broadband access and interconnection services to other parties. 

The TA said he would take into account all the relevant risks in investment by incumbent and new entrants, and conduct studies into the appropriate level of costs of capital commensurate with those risks. 

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10.3 Responsibility for bearing costs 

In restating the principle that operators must pay for relevant costs incurred by others as a result of interconnection, he distinguished (as he does in the regulatory framework for narrowband interconnection) between establishment costs and usage costs. 

Establishment Costs 

Establishment costs are those incurred in order to make network interconnection operational, and includes the costs of establishing and maintaining physical links and network conditioning costs. The TA's view is that establishment costs should be considered as part of the investment in the network and thus should be funded by the operator of the network initially. However, the party requesting interconnection must pay for all the incremental costs for establishing the interconnection plus an appropriate cost of capital of the network operators in proportion to the usage or capacity shared. 

Usage costs 

Usage costs are traffic sensitive or volume-based charges and cover the recurring costs incurred by carriers in passing traffic from one network to another. 

Some submissions to the TA suggested that he consider an "inter-offset" settlement or "peering arrangements" typically entered into between ISPs (i.e. no interconnection charges required for a subsequent exchange of traffic related to broadband applications, regardless of the volume and direction of traffic). 

The TA did not come to any firm conclusions on the appropriate charging arrangement between operators, including the so-called "peering arrangements", and felt that it would take some time for the industry to develop such arrangements. In the narrowband environment, traffic-sensitive or volume-based costs are based on concepts of traffic origination and traffic termination. The TA considered that perhaps such concepts were of less relevance in the broadband environment where the networks were "always on", and end-users may not necessarily be "requesting parties" i.e. service providers would initiate traffic in the form of advertisements to end-users. 

The TA simply indicated that further studies were required in order to determine the appropriateness of such arrangements in this context. 

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10.4 Structure of charges 

The primary consideration for structuring charges in the narrowband environment is that the structure of interconnection charges must reflect the behaviour of underlying costs. However, different technologies may be associated with different cost characteristics and behaviours. Where a cost-based charging model was used, whether or not to use fixed or volume-sensitive charges, symmetric or asymmetric charges, single or multi-layered charges, would depend on whether those structures adequately accounted for actual differences in cost behaviour. Given the administrative burden of examining each cost structure and access charge individually and given the dynamic evolution of broadband technologies, the TA took the view that he would not specify a particular interconnection charge structure to be applied generally to the broadband environment, although he left open the possibility that he would do so after detailed examination of particular cases. At this stage he simply reiterated the underlying principle that the cost structure should reflect cost behaviour. 

10.5 Essential support elements 

The TA defined essential support elements (in the first consultation paper) as passive, fundamental network elements made available by network operators to operators seeking interconnection, and for which no cost-effective, viable alternative exists. He saw these as analogous to bottleneck facilities for existing narrowband networks, and believed that a similar principle should be applied. Examples of such elements would be equipment rooms, cable entry points, risers, ducts and conduits, access to which is essential in order to affect interconnection. He felt that the costs of establishing and maintaining such elements should be shared among interconnecting operators on the basis of the relevant proportion of capacity being requested, and the cost of any necessary modification, should be borne by the party seeking interconnection. The TA decided that given their relative importance to the roll-out of broadband networks and services and broadband interconnection, the determination of the conditions of interconnection should also cover the provisions of these essential support elements where necessary. 

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11. What's next? 

In order to ensure that Type II interconnection will be implemented successfully, the TA will review the existing Industry Code of Practice for the Interconnection of Local Access Lines. 

Further, the TA expressed his intention that this Statement was to be regarded as setting out the regulatory framework for broadband interconnection. The TA encouraged network operators to negotiate with each other and agree on a commercial basis, the terms and conditions for broadband interconnection, and they could, if necessary, refer to the principles set out in this Statement in order to facilitate the conclusion of commercial agreements. 

Where commercial agreement would not be reached within a reasonable time the TA is prepared to mediate, or consider determination of the relevant terms pursuant to section 36A, based on the principles set out in this Statement or established following further consultation with industry. 

The TA will formulate more detailed guidelines or codes of practice on various aspects of broadband interconnection, including guidelines on the application of LRAIC methodologies and the appropriate level of cost of capital in the determination of charges. 

The TSAC will commence work on the technical standards for Type I interconnection, and set up a specialist group on the prevention and resolution of interference problems that may arise from Type II interconnection and the review of the existing Industry Code of Practice for Interconnection. 

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Section 36AA

Section 36AA empowers the TA to direct a licensee to co-ordinate and co-operate with another licensee if it is in the public interest in sharing the use of any facility owned or used by it. "Facility" very widely is defined under Section 36AA(7) of the Ordinance and includes, amongst other things, a cable, wire, telecommunications line, duct, pipe, tunnel, antenna, land, buildings and ancillary equipment at sites on which radiocommunications facilities have been established, reasonable space within a carrier licensees exchange buildings or other sites to locate equipment of another licensee, other installations including in-building risers, cable trays and cable entry points into buildings. Such a shared facility may include a building, place or premises that is exclusively occupied and operated by one of the parties to the sharing agreement. 

In considering whether it is in the public interest to make such a direction, the TA, shall pursuant to Section 36AA(3), take into account the following non-exhaustive matters: 

  • whether the facility is a bottle-neck facility; 

  • whether the facility can be reasonably duplicated or substituted; 

  • the existence of technical alternatives; 

  • whether the facility is critical to the supply of services by the licensee; 

  • whether the facility has available capacity having regard to the current and reasonable future needs of the licensee or person to whom the facility belong; 

  • whether joint use of the facility encourages the effective and efficient use of telecommunication infrastructure; 

  • and the costs, time, penalty and inconvenience to the licensee and the public of the alternatives to share provision and use of the facility. 

The licensees should first try to reach a commercial agreement between themselves (Section 36AA(4)), and if the parties do not reach an agreement within a reasonable time and the TA requires shared use of the facility, then under Section 36AA(6), the TA may determine the terms and conditions for the shared use of the facility, and such determination shall include terms and conditions providing for fair and reasonable compensation payable and all circumstances of the case for the shared use of the facility. The compensation payable will include the relevant reasonable costs attributable to the provision, use or sharing of the facility, and in calculating these reasonable costs, the TA may select from alternative costing methods that he considers to be a fair and reasonable costing method. 

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Access to and co-location at cable landing stations

On 8 May 2000, the TA issued a consultation paper on Issues Connected with the Implementation of Competition in the External Facilities Market: Access To and Co-location at Cable Landing Stations.

Prior to issuing the consultation paper, the TA had approached the four wireline FTNS licensees on issues regarding access to co-location at submarine cable landing stations. 

Given the planned landing of submarine cables in Hong Kong pursuant to cable-based FTNS licences issued by the Government during 2000, the TA stated that he believed it was necessary to consider the circumstances in which access to cable landing stations operated by the existing FTNS licensees would be made available by external cable-based FTNS licensees landing their cable in Hong Kong. In some circumstances sharing of cable landing stations for the purposes of co-locating equipment might be necessary, and the operators of landing stations might also provide backhaul facilities.

Following the end of the consultation period, the TA issued his second statement on Issues Connected with the Implementation of Competition in External Facilities Market with a statement entitled Access To and Co-location at Cable Landing Stations dated the 19 September, 2000 ("Statement"). The Statement sets out the principles that the TA will apply in any determination of the issues relating to access to the cable landing stations (which are constructed and operated by the wireline-based FTNS licensees) by other licensees which own capacity in the cables. 

As mentioned above, facilities sharing is specifically covered by s.36AA of the Ordinance (inserted in June 2000). "Facilities" is defined extremely widely for the purposes of the Ordinance. Prior to its insertion, the power of the TA to mandate facility sharing rested on General Condition ("General Condition") 31 of the FTNS licence. Section 36AA(1) provides that "The Authority may direct a licensee to co-ordinate and cooperate with another licensee specified by the Authority in the public interest to share the use of any facility owned or used by it". As noted above, the power of the TA to determine the terms of "interconnection" will also be relevant in the context of access to submarine cable landing facilities in Hong Kong. Therefore both s.36A of the Ordinance, (pursuant to which the TA may determine the terms and conditions of interconnections), and General Condition 13 of the FTNS licence (requirements on interconnection) need to be borne in mind. 

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Generally 

The principles set out in the Statement are applicable to all FTNS licensees and not just Cable & Wireless HKT International Limited ("CWHKTI") (who was the exclusive licensee for external facilities until 1 January 2000). Having said that, the fact that land upon which cable landing stations were granted to CWHKTI on arguably preferential favourable terms, in view of the fact that at the time of grant, Cable & Wireless (HK) Ltd. (as it was then) was the exclusive licensee for external facilities, may be relevant in the determination of the level of rental or access fees payable to CWHKTI. 

The TA will need to consider on a case-by-case basis, whether there is enough space in CWHKTI's cable landing station for co-location by other operators. 

Use of Access/Co-location Facilities for the Routing of Traffic over Capacity Not Owned by the Licensee 

The TA confirmed that facilities owned by an FTNS licensee ("co-locating licensee") co-located at another FTNS licensee's cable landing stations, could be used for the handling of traffic to and from the capacity of the non-licensee IRU owners who have contracted with that co-locating FTNS licensee.  

Further, it should make no difference in terms of the fees charged for the co-location of facilities, whether the traffic terminated being on the FTNS' own network belonged to the co-locating FTNS or the IRU owner. 

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Co-location within the Main Equipment Room 

The TA was of the view (as expressed in the consultation paper) that the equipment of one FTNS licensee could be co-located in the cable landing station, with the same equipment of the FTNS licensee supplying the co-location space, subject to any particular security concerns in respect of a particular landing station. 

However, the TA felt that as there were no insurmountable security issues in co-locating the equipment of one FTNS licensee within the equipment room of another FTNS licensee's local exchange, for the purposes of Type II Interconnection at local exchanges, there equally should be no insurmountable security issue in respect of co-location at a cable landing station. 

Grooming Service Charge and the Right to Perform Grooming 

The operator of a cable landing station may provide a "grooming service" to licensees seeking access. "Grooming services" are simply the breakdown of higher capacity outputs from the submarine cable, into lower capacity channels for connection to the backhaul facilities of FTNS licensees who have access to IRU capacity. The TA felt that if a grooming service was not included in the cost of acquisition of an IRU, but was left to be agreed between each operator acquiring the IRU, and the operator of the cable landing station, then the "grooming service" was an "interconnection" service, subject to his powers of determination under s.36A of the Telecommunications Ordinance, and accordingly should be charged for on the same basis as any other interconnection service between licensed carriers (i.e. determined on carrier-to-carrier cost based interconnection principles). 

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Minimum Commitment Period of the Co-location Service 

The TA took the view, as he did in the Consultation Paper of 8 May 2000, that he did not consider it appropriate to make a ruling on minimum commitment periods for co-location space but, that if he was approached to make a determination on this issue, he would do so after taking into account a number of different considerations: including the length of minimum commitment period on competition in the market, economic characteristics of the services contracted for, and the availability of shorter term contracts for the same service. 

Having said that, the TA was of the view that fairly short contracts would be expected and their absence, or excessively costed co-location services over a long term would be likely to raise significant concerns. Co-location services, contracted for periods in excess of 3-5 years would need to be objectively justified by a party seeking to impose such terms, and this may be the case where there were significant sunk or dedicated costs, or the price differential between long and short term contracts reflected real cost differences. Having said that the TA indicated that he would leave a reasonable time for the parties to reach agreement before he would consider making a determination. The terms and conditions for interconnection to backhaul facilities would be covered in the broadband interconnection consultation exercise.

Obligation for the Cable Landing Station Operator to lease the Backhaul for the Interim Period 

The TA agreed with some of the submissions to the Consultation Paper that the terms and conditions for leasing of backhaul capacity were a matter for commercial negotiations, subject to his powers under s.36A of the Ordinance, to determine the issue if the parties failed to reach agreement. 

The current on-going consultation process on broadband interconnection will also consider the issue of determining the terms and conditions for interconnection to backhaul facilities 

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Co-location Site Access Lead-Time 

The TA also considered that GC15 (dealing with conduct which has the purpose or effect of preventing or substantially restricting competition, and which is covered by s.7K of the Ordinance) may be breached where access lead times were discriminatory, and did not reflect the lead time taken by the staff of the operator of a cable landing station, when attending to its own equipment, or cable station faults. Similarly if the FTNS licensee operating or owning the cable station offered terms and conditions the effect of which was that the response times would be longer than that which it offered itself or its affiliates or associates there may be a need to consider if it was anti-competitive in affect; if licensees could not have access to their facilities with the same speed as the licensee operating the cable landing station, that would put them at a disadvantageous position, as they would be unable to meet the same quality of service standards as the licensees. Further, even better response times would presumably be available for those licensees who are willing to pay increased cost for a better service. 

The TA also considered the operator of cable landing station should exercise reasonable flexibility in working out practicable working arrangements with operator seeking access in co-location.

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CHARGES

Universal Service Obligation and Universal Service Contribution

Local Access Charge and Modified Delivery Fee Arrangements

Principles for setting the local access charge

Interconnection arrangements and charges for mobile network operators

Tariff Rules


Universal Service Obligation and Universal Service Contribution 

Section 35B(1) of the Telecommunications Ordinance ("Ordinance") provides that the Telecommunications Authority ("TA") may require that one or more fixed carrier licensee have a Universal Service Obligation ("USO"). 

Currently, CWHKT is the only operator charged with the USO to provide good, efficient and continuously basic telecommunications services at reasonable cost on a non-discriminatory basis to all persons in Hong Kong. Although the other three wireline-based FTNS licences contain the same General Conditions of CWHKT's FTNS licence, only CWHKT's FTNS licence contains a Special Condition imposing and setting out the USO. 

Given this designated licence obligation, currently, CWHKT is entitled to receive contributions (the Universal Service Contribution ("USC")) from other operators (including other FTNS operators and PNETS ETS operators) to assist it in meeting its USO. The TA has the power to direct which licensees shall pay the USC. One of the Special Conditions contained in the FTNS licence of non-dominant licensees provides that where directed by the TA, the licensee shall pay to CWHKT its relevant share of the USC to assist CWHKT to meet its USO. 

The USC is collected by an intermediary appointed by OFTA. OFTA has appointed Citibank N.A. as the intermediary for the period from January 1999 to March 2000. Previously, the USC was collected by Cable & Wireless HKT International ("CWHKTI") as it was the sole public external telephone service provider. However, it was feared that post liberalisation of the external services market, potentially sensitive commercial information about its competitors could be exposed to CWHKTI during its course of collection of the USC. In light of this, the TA felt it appropriate to appoint an independent and neutral intermediary party for the settlement of the USC between CWHKTI and the contributing parties. Now s.35B, amongst other things, provides that the TA may establish and manage a fund to deposit the USC collected before paying it to the carrier licensee with the USO. 

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Local Access Charge and Modified Delivery Fee Arrangements

Prior to the liberalisation of the external telecommunications services market on 1 January 1999, the charging regime governing the payments between the external network and local network operators for the delivery of traffic was pre-dominantly regulated by the delivery fee arrangement. The delivery fee arrangement was a revenue sharing agreement which was designed to use revenue generated by CWHKT as a result of payments to it under the international accounting rate system to subsidise the operation of the local networks. However, given that external public services would be able to completely bypass CWHKT's gateways and circuits from 1 January 2000, and given the enormous pressure internationally to move the international accounting rates towards cost-oriented levels, this arrangement was no longer sustainable. The TA embarked upon a series of consultations in 1998 to work out the arrangements for interconnection between the external services / gateway operators and local network operators which would be suitable for the liberalised external services sector. As a result of the consultation process, beginning 1 January 1999, traffic routes to and from locations external to Hong Kong have been divided into two categories depending on whether genuine price competition could take place on those routes. The tests as to whether there is effective price competition are:

(i)   whether a service provider in Hong Kong may physically establish connections to and from a particular location without transiting the gateway of CWHKT (usually a matter of regulatory restrictions); 

(ii)  whether the cost of utilising these connections would allow genuine price competition in the supply of external services to and from that location; and 

(iii) and since 1 July 2000, whether physical connections could be established to and from gateways in Hong Kong competing with CWHKT's gateway. 

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Genuinely competitive routes have been classified as "Category A" whilst "Category B' routes are those remaining to be provided by a single external gateway operated by CWHKT.  The TA has also set up an "Observation List" under Category B to identify potentially competitive routes.  In particular, he is looking at the possibility of price competition occurring as a result of indirect ISR (that is International Simple Resale utilising refiling arrangements through a third location). 

The TA monitors on a monthly basis the volume of incoming and outgoing gateway traffic over the routes on the Observation List. Once indications of genuine price competition over that route appears and evidence of this kind has been established, or upon receipt of representation from the industry, the TA will initiate a fast track consultation process to determine whether or not to reclassify the route from Category B to Category A. Parties opposing such reclassification are given 7 working days to raise any objections. Unless the objections are proved to be valid, the TA will reclassify the route from Category B to Category A in the following 3 working days. For routes which are not on the Observation List, the party wishing to reclassify the routes from Category B to Category A must follow the usual procedure to apply for route reclassification. The applicant should make its application to the TA, supported by evidence of any justification, and if the TA determines these to be valid and sufficient, he will then initiate an industry consultation. The TA can also commence the consultation process on his own initiative. The industry is given 15 working days to respond to the reclassification proposal, after the end of which period the TA will then conclude the issues within another 10 working days.

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Principles for setting the local access charge

The Local Access Charge ("LAC") is designed (introduced on 25 November 1998) to compensate the FTNS operators for the use of their local network facilities by CWHKT (as it was then) to deliver external telecommunications traffic to and from end customers in Hong Kong. The LAC therefore should represent the cost that would be incurred by external services / gateway operators if they had to construct the local network themselves. The TA has determined that the LAC will be calculated based on the forward-looking cost standard which would include a cost of capital commensurate with the risk faced by the FTNS operators in investing in the local fixed network services market. The LAC will also include an element for the cost of using the customer access network (i.e. "local loops").

Calculating the LAC 

In calculating the LAC, elements are included for traffic sensitive costs ("TSC") and non-traffic sensitive costs ("NTSC"). TSC includes switching and transmission costs, the cost of number portability incurred in routing external calls, and various traffic metering cost. NTSC includes billing costs, administrative costs of the FTNS operators and the costs of the local loop and any customer line terminating equipment. The TA only sets the level of the LAC for CWHKT, due to its dominant position in the market for local fixed network services. The other FTNS licensees are at liberty to set their own levels of LAC. 

While the LAC is designed to fairly and adequately compensate the FTNS operators for the provision of local network facilities in the delivery of external traffic to and from end-customers in Hong Kong, the FTNS operators providing any intermediate or transit networks (if any) are entitled to a transit charge. In order to ensure cost-based local access, the TA also sets the transit charge that can to be imposed by CWHKT on other local network operators, for using CWHKT's local network to deliver external traffic terminating or originating on those other operator's local networks, to and from the international gateway. 

The TA considers that the LAC should not be compared with the local interconnection charge, as he is of the view that the LAC is a charge to encourage investment in local network infrastructure using revenue from external telephone services, whilst the level of the local interconnection charge is designed to encourage competition between local fixed network. 

Since 1 January 1999, and at least until currently, the external traffic carried by CWHKT's competitors over the Category A routes was carried mainly through ISR or refile operations. Some of the ISR operations have been pure resellers of external services, while others are also holders of an FTNS licence. The local network operators should charge these two types of ISR operators the same level of LAC, unless it can be established that costs of providing the local interconnection services for them are substantially different. Similarly, from 1 January 2000, the facilities - based gateway service operations are also subject to the same LAC. 

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Modified delivery fee arrangements for Category B routes 

As mentioned above, Category B routes are those routes on which CWHKT is dominant, and in respect of which, the TA believes that there is no real price competition (CWHKT being the only external facilities operator providing service on those routes). The LAC does not apply to Category B routes; instead a modified delivery fee system has been put in place for routes which are categorised as Category B routes. 

Basically, as regards in-bound traffic on Category B routes, the profits generated as a result of international in-payments (over and above pure cost recovery) are shared equally between the sole external network operator (CWHKT) and the local network operators to whose local networks that in-bound traffic is delivered. As such, the delivery fees applicable to the incoming traffic over the Category B routes is set by the TA based on the following formula: 

Fifty per cent (50%) x (settlement in payment - the costs of external switching and transmission - the costs of domestic connection (i.e. the LAC set by the TA for the Category A routes)) + LAC. 

As for outbound traffic on the Category B routes, the TA stipulates the wholesale prices that can be charged by CWHKT for delivering traffic through CWHKT's gateway. This is set at an amount equal to the rate of settlement outpayment plus the costs of external switching and transmission. Once the wholesale prices of the CWHKT's external gateway are set, all the local network operators can effectively compete for the outgoing traffic through direct or indirect access to the external gateway. Therefore, the setting of a delivery fee for the conveyance of outgoing traffic over the local network becomes unnecessary. The market will set the retail prices for the Category B traffic, which should be equal to the wholesale rate imposed by the external gateway operator plus a margin to be received by the respective local network operators to cover their network costs, including the cost of capital and other operating expenses. However, the retail prices to be charges by CWHKT are monitored by the TA to guard against predatory pricing by comparing the retail prices with the wholesale prices. 

Both the LAC and the modified delivery fee are charged on a per second basis so as to be in line with the current practice for interconnection charges. 

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Interconnection arrangements and charges for mobile network operators

Mobile network operators may apply for a PNETS ETS licence to operate external services. For outgoing traffic from the mobile networks on Category A routes, the TA does not feel it is necessary to determine a LAC, due to the mobile usage charges payable by mobile subscribers, and the presence of heavy competition in the mobile market. 

As for incoming traffic on Category A routes to be delivered to mobile customers, external facilities operators could terminate it directly on the mobile network or route it through a fixed network. No LAC is determined by the TA. Again market forces would set the prices mobile operations could charge. Again, the absence of an LAC set by regulation for the mobile networks, should not undermine the operation of the LAC arrangement for the local fixed networks, as mobile operators do not have the right to deliver traffic to or from customers on fixed networks. 

In relation to incoming traffic over the Category B routes, mobile network operators are, like fixed network operators, beneficiaries of the modified delivery fee arrangement. According to the TA's Statement dated 28 August 1998 entitled Number Portability for Public Mobile Services in Hong Kong: Cost Recovery Framework, mobile network operators should fund the number portability charge out of the delivery fees received from incoming traffic on Category B routes. 

As regards outgoing traffic on Category B routes, mobile operators must pay the wholesale prices charged by CWHKT. 

On 25 October 2000, the TA issued a statement entitled Review of Methodologies for Calculation of Interconnection Charges for Valued-added Services and Public Mobile Radiotelephone Services and Local Access Charges.  In relation to interconnection charges, the TA determined the existing cost model will continue to be used for the setting of the interconnection charges for interconnection between CWHKT and VAS or mobile operators. The "Fully Distributed Cost" approach remains a cost standard in calculating the interconnection charges for VAS and mobile operators under the tariff for interconnection services of CWHKT. The TA considers that the present commercially negotiated arrangements in relation to transit arrangements utilising CWHKT's local network are not transparent (and that the terms and conditions for interconnection to a dominant operator should, in principle, be publicly available), and therefore the TA considers it appropriate to introduce a separate charge for the provision of transit services. 

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The TA has indicated that he will continue to closely monitor the development of the external and local telecommunications market to determine when and if it is appropriate to replace the LAC with interconnection charges. The LAC will continue to include an element to allow the recovery of a fair proportion of the cost of the local loop. The TA stated that he will update the determination of relevant costs in calculating the new LAC levels and will take into account industry submissions to the TAs Consultation Paper entitled Review of Methodologies for Calculations of Interconnection Charges for Value-Added Services and Public Mobile Radiotelephone Services and Local Access Charge dated 8 February 2000. The TA indicated that he will engage financial consultants to update the costs of the incumbent operator and new entrants in the review of the level of LAC. 

In the TA's statement of 25 October 2000 entitled Charges for Interconnection between Public Mobile Radiotelephone Services, Personal Communications Services and Value-Added Services and the Public Switch Telephone Network operated by Pacific Century CyberWorks HKT, the TA sets out his review and revision of the actual levels of the interconnection charges for VAS providers and mobile operators. 

Following the TA's review of the relevant charging methodologies in his Statement, the TA required CWHKT to revise its current traffic dependant costs element of its calculation of tariffs for interconnect services provided to PMRS/PCS and VAS service providers, as these costs have declined.

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Tariff Rules 

Section 7F of the Ordinance generally requires that: 

  • a licensee shall publish its tariffs in accordance with the requirements of its licence or directions issued in writing by the TA; 

  • a licensee shall include in the published tariffs the terms on which telecommunications service is provided including: 

  1. a description of the service; 

  2. discounts, allowances, rebates or credits given or allowed on the supply of the service; 

  3. the supply of goods or other services related to the service; 

  4. the payment for goods or other services related to the service; and 

  5. any other relevant information that the TA considers necessary as a party of the terms and conditions; 

  • a carrier licensee shall not, without the TA's prior written consent, combine a number of telecommunications services into a single tariff without offering to its customers the services separately at individual tariffs; and 

  • the TA may require a carrier licensee to provide a telecommunications service, which the licensee includes in a tariff for a combination of a number of telecommunications services, separately at a specified single tariff. 

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Section 7G of the Ordinance provides that: 

The Secretary may by regulations provide: 

  • for a fixed carrier licensee who is a dominant position in a telecommunications market to be subject to the price control measures that the Secretary determines on the advice of the TA; and 

  • for a carrier licensee who is in a dominant position in a telecommunications market specified by the TA for the purposes of tariff control not to charge more or less than its published tariffs. 

FTNS Licence Tariff Rules 

Section 7F is a reflection of General Conditions ("GC") 20 to 23 of the FTNS licence provides: 

  • that the licensee shall not charge more than nor discount against the published tariff for an existing service (GC 20); 

  • the process for revision of the tariff for an existing service (GC 21); 

  • the process for the production of a tariff for a new service (GC 22); 

  • the process for the production of a tariff for a trial service (GC 23); and 

  • the process for the introduction of new charging options or billing schemes for existing services (GC 23) 

If the TA forms the opinion that a licensee is not in a dominant position, the TA may by direction in writing direct that either one or any combination of (together with GC 17 which concerns accounting practices) shall not apply to the licensee. 

Unlike CWHKT, as it is the dominant operator in respect of most local services provided under its FTNS licence, the other FTNS licensees have been released of some of these obligations pursuant to directions made by the TA under GC 44).

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POWERS OF ENFORCEMENT BY DIRECTIONS AND FINANCIAL PENALTIES

Pursuant to section 36B of the Ordinance, the TA may issue directions in writing to a licensee or such other person as mentioned in the Ordinance requiring it to take such action as the TA considers necessary.

In case where the licensee or such person fails to comply with any of the following, the TA may, according to section 36C of the Ordinance, by notice in writing addressed to a licensee, require the licensee or such person to pay to the Government of HKSAR the financial penalty specified in such notice:

  • any licence condition;

  • any provision of the Ordinance or any regulation made thereunder; or

  • any direction issued in respect of the licensee by the TA under the Ordinance

Without prejudice, the TA may also require the licensee or such person:

  • to disclose to the public such information that relates to the breach; and

  • to publish in newspapers corrective advertisements in such manner as the TA may specify

Where the TA considers that if the TA were to impose a financial penalty under the Ordinance, it would not be adequate, the TA may make an application to the Court of First Instance (the "Court") and upon such application, the Court may impose upon the licensee or such other person a financial penalty of a sum not exceeding ten per cent (10%) of the turnover of the licensee in the relevant telecommunications market in the period of the breach or HK$10,000,000, which is the higher.

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UPDATES

July

August

September

October

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July

Summary of the Consultation Paper on the Guidelines to be Issued on the Application of the Principles to be Applied in the Determination of Fees for Access to Confined Areas by Mobile Network Operators for Extension of Coverage of Public Mobile Services dated 21 July 2000

This consultation paper was issued in order to give the industry the opportunity to present its views on the relevant principles for the determination of fees payable under s.14(1A), in order that the Government can facilitate the provision of ubiquitous coverage of public mobile radio services. 

In accordance with the provisions of s.14(6) the arbitrator in determining the final fee payable, shall have regard to any guidelines issued by the TA, and indeed the TA is required to issue such guidelines as soon as reasonably practicable (s.6D) following the gazetting of the amendments to the Ordinance on 16 June, 2000.  The TA is required, before issuing the guidelines, to carry out a consultation process (s.6C), and this  Consultation Paper is the commencement of that process. 

The TA proposed that "land" which would be subject to authorisation under s.14(1A) of the Ordinance includes confined areas  such tunnels, railway premises, airport terminals, large shopping arcades, etc. to which mobile coverage cannot be extended unless radiocommunication equipment of the network operators is  physically installed.  The "land" owner of such confined areas would include tunnel operators, railway operators, the Airport Authority and owners of shopping arcades. 

The consultation paper expresses the TA's view that the arbitrator should consider those factors set out in s.14(2)(b)(ii)(A)(being factors relating to costs, property value, and the benefits to be derived from the authorisation) before forming a view as to what is fair and reasonable.  This consultation paper explores amongst other things, each of those three factors.

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Costs

The TA considers that an important principle should be the full recovery by landowners of relevant costs incurred in providing the access including directly attributable costs, and indirect or intangible costs. The TA expressed the view that the arbitrator should take the following costs into account:

  • staff costs in vetting plans submitted by operators, liaison with operators and  supervision on-site, and subsequent operation of the radiocommunications etc.;

  • cost of any additional facilities provided by the landowners for the installation or operation of the radiocommunications installations etc, such as electricity consumed etc;

  • any increase in operating expenses of landowner as a result of allowing installation and operation of radiocommunications installations etc;

  • cost of capital of any capital expenditure or assets invested to allow establishment and operation of the radiocommunications installations etc;

  • opportunity cost of the space or facilities being occupied by the radiocommunications installations, such as the retail value of the relevant space, lease revenue for the spare space as used or other proposes such as the installation and cables for electricity transmission or public media broadcasting, etc;

  • any intangible costs e.g. compensation for any inconvenience caused; and

  • restoration of any damage to existing facilities as a result of installation.

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Cost of Capital  

The TA has proposed that the cost of capital which the arbitrator should consider should reflect the risk of the capital investment.  In respect of properties such as railways or tunnels, where the construction of the properties have been completed, the additional capital expenditure will be marginal when compared with the original capital expenditure of the property. It will be for the arbitrator to consider whether the cost of capital element to be included in the access fee, should reflect the risk associated with the new expenditure or assets to allow access by mobile operators, or whether it should be more appropriate to consider the investment risk of the development as a whole.

The TA has pointed to the guaranteed rate of return of certain franchises e.g. Build-Operate-Transfer Tunnels, and the internal rate of return of the relevant project as possible benchmarks.  The profit margin of specific projects could also be possible benchmarks for the cost of capital. He has invited views on these issues.

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Property Value

As to property values, the TA proposed that the arbitrator consider market rates of property equivalent to the space occupied  by the radiocommunications installation, as benchmarks. In doing so, the TA proposed that the arbitrator may consider one of two approaches:

(a)     for certain confined areas such as shopping malls, the access fees could be based on the market rates for the property rights involved e.g. retail sales or lease value of spaces in the premises or similar premises in the locality, which are operating relatively free of competitive market environments; and

(b)     for projects that are constructed for specific functions such as tunnels and railways and for which no direct substitutes can be identified, the premium market rate (i.e. the high-end of market access in the relevant sample) for access to similar establishments in the neighbourhood but under a relatively free and competitive market environment.

The TA has proposed that the arbitrator should  consider the   balance of  the benefits derived from the authorisation by one party, against those derived from the authorisation by the other, and consider incorporating a mechanism into the access fee  by which these benefits can be shared equitably.

Among the benefits that the TA could foresee would be enjoyed by mobile network operators, would be  the incremental profit from the additional revenue generated from, made or continued in the areas concerned, any incremental profit from the increase in market share as a result of being out to provide better service, and any benefit derived from or penalty avoided in fulfilling obligations.  The party with rights in the land on the other hand would benefit  by increased customer satisfaction and patronage in the areas concerned as a result of better quality mobile service, and any benefit derived from or penalty avoided in fulfilling obligations concerning provisions of mobile radio coverage under contractual agreements.  The TA also invited views as to any other economic considerations that  the arbitrator should take in account including the annual adjustment mechanism for the access fee (based on inflation, annual growth number of subscribers or increase in number of members of the public accessing the premises), and whether current access agreements between mobile operators land include other benefits such as space for advertisements within or around the confined area. 

The consultation period ended on 21 September 2000.

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August

Summary of the Statement by the Telecommunications Authority "Acquisition of Cable & Wireless HKT by Pacific Century CyberWorks" dated 17 August 2000

On 17 August 2000, the TA issued a Statement setting out his position in relation to the acquisition of the shares in CWHKT by Pacific Century CyberWorks ("PCCW").  The TA indicated that he had a duty to be satisfied that the acquisition would not adversely affect competition in the telecommunications market.

The TA considered the position of CWHKT as a dominant player in certain telecommunications markets and formed the view that the acquisition would not strengthen the position of CWHKT in any market in which it is already dominant.

The TA also considered PCCW's interests in the telecommunications industry in Hong Kong and formed the view that the merging of CWHKT and PCCW would not have any significant effect on competition in the telecommunications market.

The Statement went on to say that any concerns of the TA which he may have in relation to CWHKT as an infrastructure provider showing preferential treatment to PCCW or its affiliated companies could be dealt with adequately through the existing legal framework.

The TAs remaining concern was whether the relationship between Richard Li and the Hutchison Whampoa Group ("HWG") might have an adverse effect on competition in the market.  Richard Li offered to resign from the positions he held as a deputy Chairman and director in Hutchison Whampoa Limited ("HWL") (which he duly did).  Richard Li also confirmed that after the resignation, he would have no further capacity or connection with HWG and offered to take steps to ensure that any beneficial interest which he may have in HWG is held in a trust over which he will have no control nor influence. 

The taking of these steps addressed the TA's concerns about the acquisition.

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September

Summary of the Consultation Paper on the Implementation of Carrier Licence under the Telecommunications Ordinance as Amended by the Telecommunication (Amendment) Ordinance 2000 dated 8 September 2000

Pursuant to Section 7(3) of the Telecommunications Ordinance, the Secretary of the ITBB is obliged to carry out a consultation process prior to finalising the carrier licensing regime.  This is a summary of the public consultation prior to finalising the carrier licensing regime.  This is a summary of the consultation paper issued on that subject. 

The Secretary of the ITBB has proposed that the "carrier licence" will cover all the services currently licensed under each of the Fixed Telecommunication Network Services licences ("FTNS"), Public Radiocommunication Services for Personal Communications Services ("PRL") licences, Public Mobile Radiotelephone Services licences ("PMRS"), and licences covering services other than land mobile services (such as maritime or aeronautical ),  licences issued for the operation of satellite space stations and television broadcasting licences deemed to be telecommunications licences.

The Secretary proposes to divide the carrier licence system into: 

  • carrier (fixed) licence;

  • carrier (mobile) licence; and

  • carrier (space stations) licence.

The three types of carrier licence will have the same form and general conditions but the validity periods and fees payable will be different. 

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The scope of the various carrier licences and its corresponding existing licence:

In order to ensure that licensees' rights are not derogated from, existing operators of certain kinds of networks and new operators of the same kind of networks, each to be licensed under the carrier licence, will be subject to similar licence conditions, and in particular the various types of carrier licence should all contain the same set of general conditions.  To the extent that there are licence conditions in an existing licence which in the future will be covered by the carrier licence, which are now redundant  (such as those provisions dealing with anti-competitive behaviour, facilities sharing, or the provision of documents and information to the TA), these will be removed from the licences.  The fee structure likewise should not change.

The scope of  the various types of carrier licence to be issued can be summarised best by reference to the existing equivalent licences:

  • wireline-based FTNS - no change;

  • local wireless-based FTNS - no change;

  • satellite-based external FTNS - no change;

  • submarine cable-based external FTNS - no change;

  • renewed subscription television broadcasting licence - no change;

  • satellite television uplink and downlink licence - no change;

  • FTNS over the hybrid fibre coaxial cable network of Hong Kong Cable Television Limited - in addition to that scope it currently has, the licensee is allowed to transmit subscription television signals upon the enactment of the Broadcasting Ordinance (enacted on 7 July 2000);

  • commercial Television Broadcasting Licence - in addition, the licensee may also be allowed to transmit or receive television and associated sound and data signals for others;

  • PRSL - no change; and

  • licence issued for the operation of satellite space stations - in addition, the licensee is allowed to sell or lease the transmission capacities associated with the space stations on board the satellite for radiocommunications.

The Secretary has sought the industry's views on the proposed categorisation of carrier licences, the general conditions applicable to all types of carrier licences, the period of validity of each type of carrier licence and the proposal on the implementation of the new carrier licensing regime.  The consultation period ended on 8 October 2000.

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Summary of the Consultation Paper on the Issue of a Code of Practice for the Service Contracts for Public Mobile Radiotelephone Service dated 15 September 2000

In early January 2000, several Public Mobile Radiotelephone Service ("PMRS") operators announced a simultaneous price change.  In response, the Telecommunications Authority ("TA") launched an investigation and on 20 January 2000, the TA published a report entitled Report on the Investigation by the TA into the Simultaneous Prices Changes of Mobile Telephone Operators.

During and since January 2000, the Consumer Council ("CC") and the TA have received a number of complaints from consumers, and one of the main concerns expressed was that most of the PMRS operators included a provision in their standard customer contracts entitling them to vary the charges or the terms and conditions of those service contracts without the consent of the customers.

In March 2000, the Office of the Telecommunications Authority ("OFTA") issued a discussion paper to the six public mobile network operators.  The TA has now considered the industry's response and has  formed the following views:

1.      Absolute Unilateral Power of Variation

That there is no need for operators to have an absolute power of unilateral alteration and that the scope of unilateral amendments to contract terms should be limited.  So, for example, while it would not be appropriate for an operator to unilaterally alter  contractual terms so as to include a service to be supplied to a customer (unless that new service is offered free without attaching any condition to it), the TA accepted that there may be situations which warrant unilateral amendments, such as an amendment to the change in the billing cycle, or to reflect a change in the relevant framework.  In the latter case, an example would be amendments necessary to implement mobile number portability.

Given the above, the TA asked for comments as to the sort of unilateral amendments to customer contracts that operators should have the power to make.                  

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2.      Unilateral variation of charges

It appeared to the TA that for a fixed term contract, where the payments are fixed during the entire term of contract (offer in return for a free of subsidised handset), unilateral variation of charges by the operator should not be allowed.

For general service contracts that are not tied to package deals, the TA felt that it may be reasonable for the operator to be able to revise the price, but subject to giving sufficient advanced notice to the customer that they were able to switch to another service provider.  

In responses to the discussion paper, various service providers had identified a third type contract, that is, a contract where a pre-payment is made by a customer subject to some form of rebate which is spread over a period time (the consumer having been sold the handset on a stimulated discount, subject to a condition that the consumer must remain with the service provider for certain period i.e. the period during which rebates will be paid). The TA felt there was no need to complicate matters by classifying this as a third type of contract for these purposes.  In view of the fact the discount received for buying the handset from the operator would be diminished by the increasing cost to the consumer through the tariff increase, the consumer would have been mislead, and therefore prepayment contracts also should not be subject to unilateral increase of service charges.  The TA sought comments on whether or not there should only be recognised two types of contracts, being general service contracts which are not tied package deals and fixed term contracts for which unilateral variation should not be allowed.

The TA also noted that consumer protection laws in Hong Kong were inadequate to deal with such situations, and that the Telecommunications Ordinance did not confer appropriate powers on him.  Accordingly, the TA proposed a Code of Practice for service contracts for the provision of PMRS sought comments on the Code of Practice and encouraged operators to deposit with him new service contracts that would comply with the Code of Practice.  In respect of prepayment contracts with rebates, the TA was of the view that there should be a transitional arrangement, such that they would continue until expiry of  the term of the contract and encourage operators not to vary those contractual rights during the term. The TA indicated that he would prefer for parties initially to engage in self regulation.

If the issue of the Code of Practice is not effective in dealing with his concerns, then the TA may consider introducing legislation to give him the necessary powers to deal with these issues.

The consultation period ended on 16 October 2000.

Summary of Statement no.2 on issues connected with the implementation of competition in external facilities market - access to and co-location at cable landing stations dated 19 September 2000 

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October

Summary of the Consultation Paper entitled Licensing Framework for Third Generation Mobile Services: Analysis of Comments Received, Preliminary Conclusions and Further Industry Consultation dated 3 October 2000

Summary of the Statement of the Telecommunications Authority of Hong Kong regarding "Review of Methodologies for Calculation of Interconnection Charges for Value-Added Services and Public Mobile Radiotelephone Services and Local Access Charges" dated 25 October 2000

On 25 October 2000, the TA has issued this statement giving his final view on the subject matter.

1.         Calculation Methodology

The TA observes that the present regulatory regime in HK still draws a distinction between fixed and mobile operators.  Although the TA expects that there would be convergence in the future, the distinction cannot be removed at this stage because of substantial differences in operating rights and obligations between the fixed and mobile operators.

Therefore, the TA considers that the existing cost model will continue to be used for the setting of the interconnection charges for interconnection between CWHKT and VAS or mobile operators.

2.         Fully Distributed Cost vs. Long Run Average Incremental Cost

The TA considers that since (a) the interconnection traffic for mobile services and VAS constitutes a significant percentage of the total traffic handled by the PSTN of CWHKT; (b) the proportion of the interconnection traffic associated with the mobile services and VAS is expected to increase further; (c) the pricing of interconnection services based on an incremental cost approach for mature services will not be able to fully compensate for all costs incurred in the delivery of the services through the incumbent FTNS operator's network as indirect fixed costs are omitted in the calculation of incremental costs; and (d) it would only be fair to require the mobile operators and VAS providers to take on the responsibility for bearing a reasonable proportion of the interconnection network operators indirect fixed costs and thus a FDC approach would seem to be justified; the TA has decided to continue to adopt the FDC approach in setting the interconnection charges for VAS and mobile.

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3.         Transit Charges

The TA recognises the existence of market forces in negotiating the price for transit services between CWHKTC and some mobile operators, and that the present commercially negotiated arrangements are not transparent.  The TA also considers that the terms and conditions for interconnection to a dominant operator should in principle be publicly available.  Taking into account the benefits of economic efficiency which would result from the full reflection of costs of network resources and elements in a separate transit charge and the desirability of having transparent terms for interconnection with the dominant operator, the TA considers that it is desirable to set a separate transit charge as part of the published tariff of CWHKTC for interconnection service for the mobile operators.

4.         Charging Structure

The TA notes that it has been the practice of most ISP to pass on the PNETS charge to customers and unless the TA determines a single-tiered charge for the purpose of charging consumers, the operator might be tempted to pass on the two-tiered charge to the customers.  In addition, a two-tiered interconnection charge would probably be too complicated and confusing to the average customer.  The TA therefore considers that at this stage a single-tiered charging structure should continue to be adopted for the interconnection charge paid by the mobile operators and VAS providers to CWHKTC.

5.         Local Access Charge

(a)        Appropriateness of Retaining the LAC

The TA states that the policy objective to encourage roll-out of the local fixed networks remained valid.  The TA also opines that it is logical to consider the external service operators as customers of the FTNS operators and a pure carrier status for them would not be appropriate, taking account of the commercial reality and the policy object of promoting infrastructure investment.  The TA therefore considers that it is premature to replace the LAC with the interconnection charges but will review regularly the level of the LAC.

(b)        Inclusion of Local Loop Costs in the LAC

The TA considers that it is arbitrary that the costs of the local loops should be attributed to the local telephone service and not the external services when the local loop is used by the customer to gain access to both types of services.  Accordingly, it is unfair to allow the external service operators a "free ride" over the local loops and is inconsistent with the accomplishment of the TA's policy objective.  The FTNS operator operating the local loops would not recover the costs of the local loop twice as under a fully rebalanced tariff, the rental of the DEL would be adjusted to the level which would be capable of covering all the relevant costs including the relevant cost of capital.  It is therefore reasonable that the local telephone service and the external services should bear fair shares of the costs of the local loop.

(c)        Other Cost Components

The TA also confirms that it will consider the views received and update the relevant costs in calculating the new LAC levels so as to ensure that they could reflect the latest industrial, technological and market development.  In particular, the TA will engage financial consultants to update the cost of capital of the incumbent operator and new entrants in the review of the level of LAC.

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Summary of the Statement of the Telecommunications Authority of Hong Kong regarding "Charges for Interconnection between Public Mobile Radiotelephone Services (PMRS), Personal Communications Services (PCS) and Value Added Services (VAS) and the Public Switched Telephone Network (PSTN) operated by Pacific Century CyberWorks HKT (PCCW)" dated 25 October 2000

The findings of the TA's review on this subject indicate that due to the increases in PCCW's productivity, the rapid growth of PMRS/PCS and VAS traffic and the continued increase of the average duration per call of VAS and PMRS/PCS traffic, the traffic dependent costs ("TDC") of PCCW to provide the interconnect services have reduced.  The TA has therefore requested PCCW to revise its TDC and  PCCW agrees as follows whereas the other 3 FTNS operators are free to offer their own arrangements and charges in this respect: 

With effect from 1 October 2000:

(a)  Interconnect line between PMRS/PCS and PSTN

$79 per line per month + usage charge of 5.1 cents per minute of line occupancy

(b)  Interconnect line between VAS and PSTN

$79 per line per month + usage charge of 2.3 cents per minute of line occupancy

Since the traffic of PMRS consists mainly of voice calls of short duration whereas the traffic of VAS consists mainly of relatively lengthy data transmission, the TA has concluded that it is reasonable to continue with the difference levels of charges to PMRS/PCS and VAS interconnection.

The following is the comparison of the traffic volume between 1998/1999 and 1999/2000:

1999/2000

(compared with 1998/1999)  

PMRS/PCS  (in terms of occupancy minutes) + 49%
(in terms of call attempts) + 39%
VAS (in terms of occupancy minutes) + 174%
(in terms of call attempts)  - 6%

As the overall PMRS/PCS and VAS traffic in 1999/2000 constituted about 43% of the total network traffic, the increases of PMRS/PCS and VAS traffic have more than offset the decrease in other network traffic resulting in the total network traffic increased by 16% in terms of occupancy minutes and 13% in the total number of call attempts.  The number of call minutes per call attempt for VAS has increased to 19 from 9 in the last review.

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Whilst every effort has been made to ensure the accuracy of this publication, it is intended to provide general guidance and not definitive legal advice.