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Speech by Mrs Carrie Yau, Secretary for Information Technology and Broadcasting moving the Second Reading of the Telecommunications (Amendment) Bill 2002 in the Legislative Council on 15 May 2002

May 15, 2002

Madam President,

I move that the Telecommunications (Amendment) Bill 2002 be read the second time.

Objectives of the Bill

2. The Telecommunications (Amendment) Bill seeks to provide a clear and comprehensive framework for the regulation of mergers and acquisitions in the telecommunications market. Mergers and acquisitions are part of normal activities and are economically beneficial to the society. Many of them do not raise regulatory concern. The Telecommunications Authority is concerned, and will step in, only if there is potential adverse effect on competition in the market. Our aim is to ensure that he has an effective regulatory tool to intervene only if necessary.

3. In introducing this Bill, we have two major policy objectives : -

       - First, we aim to protect consumers' interests through fair and effective competition. Consumers and businesses at large will benefit from a wider choice of services at more competitive prices. It is therefore vital for us to safeguard the level of competition in the market.

- Second, we aim to assist the industry in making informed decisions concerning those transactions that cause regulatory concern, as well as to speed up the processes for regulatory approval, without compromising our policy objectives. A clear framework will remove unnecessary uncertainties the industry now face when going about merger and acquisition activities, as there are no statutory provisions that govern such activities at present.

4. By putting in place a comprehensive framework, we will ensure that our regulatory framework for the telecommunications sector is up to date. At present, overseas jurisdictions whose telecommunications markets are liberalized have legislation governing mergers and acquisitions for the purposes of enhancing competition. Australia and UK adopt an ex post regulatory regime where regulatory review is done after a merger and acquisition is completed. On the other hand, USA, EU, Singapore and Canada adopt an ex ante regime where prior approval must be sought from the regulatory authority.

5. Having studied the overseas experience, we consider it appropriate to empower the Telecommunications Authority to direct a carrier licensee to take appropriate remedial action, if the Authority considers that a merger and acquisition has, or is likely to have, the effect of substantially lessening competition in a telecommunications market. Alternatively, a carrier licensee may also seek the prior consent of the Authority on a voluntary basis to the proposed change in ownership or control. This is a light-handed, sector-specific proposal because : -

  • First, it is an ex post regulatory regime which will ensure minimal compliance burden on the industry.

  • Second, the Telecommunications Authority will only step in if the merger and acquisition has potential adverse effect on competition.

  • Third, it only applies to carrier licensees who operate facilities of substantial investment and provide services to a wide sector of the public. It does not affect other telecommunications licensees like Internet Service Providers the markets of which do not impose high entry barriers or other hurdles for competition.

Consultation

6. Before drawing up the Bill, we conducted a public consultation in April to June last year. In general, the telecommunications user groups such as the Consumer Council and HK Information Technology Federation support our proposal. They submit that the proposal would strengthen the regulatory procedures currently available so as to enable the Telecommunications Authority to assess mergers and acquisitions which may affect competition in a telecommunications market. For the telecommunications industry, some have voiced concerns that, if there is to be a merger and acquisition regulation, it should be universal and not industry-specific, or that the power should be exercised by a competition authority. Moreover, there are views that any merger and acquisition regulation should be ex post in nature rather than ex ante to avoid placing any undue burden on the industry.

7. We have carefully considered these views. Our conclusion is that it is government's policy not to have an over-arching competition law or competition authority in Hong Kong. Because of the structural features of the telecommunications market including the scarcity of radio spectrum, a sector-specific merger and acquisition regulatory regime is necessary to prevent over-concentration of market power in a few operators and undesirable cross-ownership. As to the suggestion of adopting an ex post regulatory regime, we have already revised our proposal from an ex ante regime to ex post. We have tried our best to incorporate the industry's views in devising our proposal.

Main Provisions of the Bill

8. Now let me go on to explain the major provisions of the Bill.

9. Clause 3 seeks to add a new section 7P to set out the gist of our proposal. Under the new section 7P, the Telecommunications Authority may direct a carrier licensee to take such actions as the Authority considers necessary to eliminate any anti-competitive effect if the Authority considers that a change in the ownership or control over a carrier licensee has, or is likely to have, the effect of substantially lessening competition in a telecommunications market. Alternatively, a carrier licensee may also seek the prior consent of the Authority on a voluntary basis to the proposed change in ownership or control. This will give a choice to the carrier licensee whether to seek prior consent having regard to their own circumstances. Any cost or expenses incurred by the Authority in processing and reaching a decision on such an application for consent is recoverable as a debt due to the Authority.

10. To provide practical guidance to the licensees and parties concerned, Clause 2 requires the Authority to issue guidelines on factors that the Authority would take into account before deciding whether or not a merger and acquisition activity is anti-competitive. Before issuing the guidelines, the Authority is obliged to consult the industry and interested parties.

11. Lastly, Clauses 5, 6 and 7 aim to amend sections 32L, 32N and 32O of the Telecommunications Ordinance to provide for an appeal channel against the Authority's decisions under Clause 3 of the Bill. Any aggrieved carrier licensee may lodge the appeal to the Telecommunications (Competition Provisions) Appeal Board, which is already handling appeals on competition matters under the Telecommunications Ordinance.

Conclusion

12. Madam President, the Bill is an important instrument to facilitate the development of the telecommunications industry in Hong Kong. It would help promote fair and effective competition in the market to protect consumers' interest, as well as to facilitate businesses to make informed decisions on mergers and acquisitions. It is a significant step forward in enhancing competition in the telecommunications market that would be necessary to strengthen Hong Kong's position as an information technology and telecommunications hub in the region.

13. I commend the Bill to members.