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Speech by John C Tsang, JP Secretary for Commerce, Industry and Technology at the CASBAA Convention 2004 "Tune in to Tomorrow" at the Hong Kong Academy for Performing Arts on Wednesday, 27 October 2004

Ladies and Gentlemen,

Good morning.

2. It gives me great pleasure to join you today at the CASBAA Convention 2004. Before I tune in to tomorrow, I would like to take a step back in time, tuning in to yesteryears and looking at a couple of interesting episodes of history of how governments on the other side of the world have coped with disruptive technologies. Hopefully, in so doing, when we do tune in to tomorrow, we would have the benefit of reaping the fruits of their experience and learning from the successes and mistakes of their past actions.

Disruptive technologies

3. My two examples took place in the early part of the last century in the United States where innovation, and in particular, disruptive technologies in particular, had brought about quantum leaps in their economic development.

4. My first story has to do with flying. At the time when the Wright brothers invented the airplane in 1903, American law held that owner of a property owned not just the surface of his land, but everything below, and all the space above, to "an indefinite extent, upwards." That certainly underlines the primacy that Americans hold towards the concept of private ownership, but it is also a concept that was waiting to be challenged.

5. Some forty years later, two farmers, relying on this doctrine of land ownership, sued the US Government in 1945 for trespassing their farmland on the grounds that they were losing chickens due to interference made by low-flying military aircraft. This case was brought to the Supreme Court which ultimately declared in the case of the United States v. Causby (US.328(1946):256,261), that this old doctrine has no place in this modern world.

6. My second story has to do with communications. On 5 November 1935, Edwin Howard Armstrong demonstrated FM broadcasting publicly for the first time at the Empire State Building in New York City. He was working at the time for the dominant player in the then AM radio market. Recognizing that the superior new radio technology invented by Armstrong would threaten its AM empire, the dominant player tried everything possible to obstruct the development of FM broadcasting. It even went so far as to hire the former head of the FCC and ask him to provide assurance that the FCC would only assign spectrum in such a way that would stifle FM growth. History tells us that the dominant player did not succeed. The power of this new technology eventually prevailed, but it was not until 1961 that the FCC finally authorized FM broadcasting in the US.

The impact of convergence on the regulatory framework

7. These two anecdotes that I have just mentioned illustrate that the advent of a new technology often makes old rules obsolete, rattling incumbents in the industry, and forcing governments to change existing rules and adopt new ones. As far as today's communications sector is concerned, there have, indeed, been fundamental regulatory reforms in many jurisdictions in response to the new order or, more precisely, the new disorder in the converging environment.

8. While convergence is becoming, as we speak, a clichm in 2004, it was a visionary concept a quarter of a century earlier. It was Nicholas Negroponte, a very special teacher of mine back in my college days decades ago, who started using that term in 1979 when he was raising money to build the now legendary Media Lab at MIT. He used a chart on which there were three overlapping circles symbolizing respectively "broadcast and motion picture industry", "print and publishing industry", and "computer industry" to illustrate his prediction that digitisation and developments in the computer industry could cause the communications industries to come together, and that they should be studied and developed as a single craft.

9. To academics working in institutes of higher learning, the key word is obviously "study". To government officials, like myself, working in the competitive environs of Hong Kong, the key word is the latter, and that is, "develop". My responsibility is to ensure that the institutional framework in Hong Kong will continue to be capable of facilitating the development of the communications industry as a single craft.

10. I mentioned from this podium last year that we were examining the duties of the Broadcasting Authority and the Telecommunications Authority to determine whether they should be rationalized or not. We have taken that pledge seriously, and we have now developed a more concrete idea. Our intended way forward, in a nutshell, is to set up a single, lean and skilled, and responsive regulator overseeing the entire electronic communications sector.

The new institutional framework

11. I would now like to describe further these three principal characteristics of our proposed regulatory regime that is now emerging from our drawing board.

12. First of all, we want a single regulatory body that responds to converging technologies and services. We are now actually witnessing, rather than merely predicting, how convergence operates, and how the blurring of boundaries between the Internet, broadcasting and telecommunications has become a foregone conclusion.

13. I shall give you a few examples.

  • Third-generation mobile technologies, sometimes referred to as mobile Internet, are enabling telcos to distribute multimedia contents to mobile phones.
  • Wi-max and other emerging wireless technologies will make mobile internet access even easier and cheaper, meaning that internet radio could be as ubiquitous as the existing FM broadcasting very soon.
  • VoIP has been creating of late interesting challenges to both incumbent fixed line telcos and regulators alike.
  • The deployment of digital terrestrial broadcasting technology will make reception of free-to-air television broadcasts via hand-held devices readily available.
  • Media companies are already launching drama series of one-minute episodes specially designed for a new mobile multimedia market. And there are more.

14. In these circumstances, it is simply not effective for two separate regulators trying to figure out issues like whether 3G multimedia service falls under the broadcasting or the telecommunications regulatory regime. We need a regulator with a broad vision to formulate quick and well coordinated responses to facilitate and to enable the provision of even more new services, using state of the art technologies, and at the same time, put in place, where necessary, appropriate measures to safeguard public interests, such as the protection of children and young people from certain contents distributed via emerging media.

Regulatory philosophy

15. Secondly, we want a regulator that is lean and skilled. By that, I am not just confining these characteristics to the physical size and the expertise of the regulator. I am referring more to a new regulatory philosophy, one that has been manifested in an international paradigm shift from detailed rule-making to competition-based regulation of the communications sector.

16. The EU has recently adopted a new competition-based regulatory framework for the electronic communications services and networks which separates the regulation of transmission and the regulation of contents, and is aimed at deregulation and the promotion of competition. According to the EU Framework Directive (2002/21/EC) of 7 March 2003, the goals of the new framework serve to encourage competition in the electronic communications markets, to improve the functioning of the internal market and to guarantee basic user interests that would not be guaranteed by market forces. The framework provides a set of rules that are simple, aimed at deregulation, technology neutral and sufficiently flexible to deal with fast changing markets in the electronic communications sector.

17. I think such a development in regulatory approach is inevitable. Before the liberalization of the telecommunications and the broadcasting markets, and even during their subsequent gradual convergence, a regulator deals with only one or just a handful of operators whose services are sector-specific and relatively static. In these cases, rule-based regulation is still possible.

18. Following market liberalisation, coupled with rapid technological and market convergence, regulators now are dealing with far more communications operators of different sizes who offer on multiple platforms, the now popular triple play package of integrated TV, Internet access and telephony services. As the service offerings become more innovative and platform-neutral, and the market structure more complex, it begs the question of whether it is still sensible for the regulator to draw up detailed rules and guidelines that could quickly become obsolete, inoperable and, worse still, hurdles to innovation and investment. Would it not be more appropriate for us to adopt a new regulatory philosophy that the regulator will intervene only when it is necessary and beneficial to address market failures?

19. We have in Hong Kong liberalized our telecommunications and television markets. We have also enacted in 2000 a technology-neutral Broadcasting Ordinance to separate the regulation of transmission and the regulation of contents. Continuing along the path of deregulation, it seems natural that our next step should be to examine whether the regulator should reduce further our monitoring and rule-making role, keeping regulation to a minimum while enhancing our research capability to support an evidence-based regulatory strategy with greater focus on ensuring fair competition in the converging communications market.

Partnership with the public and the industry

20. Thirdly, we want a regulator that is responsive to competing demands from different sectors. Communication between the regulator and the public as well as the industry is of paramount importance in shaping the regulatory framework in the converging environment. The industry would, no doubt, welcome less regulation so that broadcasters can explore new advertising formats and telcos can offer new services to expand their revenue sources. Innovative services would also bring benefits of enhanced diversity and choice to consumers.

21. On the other hand, the public may be hesitant about a reduction of regulation over contents, surreptitious advertising and cross-media ownership, subjects that are beyond the arena of competition analysis. At the same time, there could be concerns about regulatory creep if the application of existing regulatory rules is extended to new media. In striking the right balance, the regulator has to be sensitive to the aspiration of the public as well as the needs of the industry. To make this possible, I envisage an active tripartite arrangement where the regulator works as a partner with the stakeholders from the industry and the public.

Conclusion

22. In 1998, the Hong Kong Government brought information technology, telecommunications and broadcasting together for the first time under one bureau to steer co-ordinated policies for these fast developing industries. It is now time to deepen the alignment from the policy level to the regulatory level. I have just given you a thumbnail sketch on the way forward for the development of the future regulatory institution for the communications sector in Hong Kong. We intend to expand our thinking further and consult the public in Hong Kong on the details of this proposed institution in the coming months.

23. Ladies and Gentlemen, we are integrating the different experiences from various jurisdictions, and we are working out a model that best suits Hong Kong. It is a big step forward that we are taking, but a step that will allow us to exploit fully the use of the multitude of emerging technologies. As we venture into these uncharted waters, we welcome expert contributions from CASBAA and others to enrich and refine our thinking. Together, we will tune in to tomorrow.

24. Thank you and have a good day.