LEGISLATIVE COUNCIL BRIEF
1998 REVIEW OF FIXED TELECOMMUNICATIONS -
LICENSING OF EXTERNAL
TELECOMMUNICATIONS SERVICES OPERATORS
At the meeting of the Executive Council on 20 October 1998, the Council ADVISED and the Acting Chief Executive ORDERED that external telecommunications services licences should be issued on demand, effective from 1 January 1999.
BACKGROUND AND ARGUMENT
2.Paragraph 3.8 of the "1998 Review of Fixed Telecommunications - A Considered View" (the Consultation Paper) , issued on 3 September 1998, stated that -
- "The Government would welcome views on its proposal of not setting a limit on the number of external services licences effective from 1 January 1999 and on whether fair competition safeguards incorporated in the PNETS [Public Non-exclusive Telecommunication Service] licences provide adequate control."
This issue is time-critical. Starting from 1 January 1999, the existing new Fixed Telecommunication Network Services (FTNS) operators will be able to provide International Simple Resale (ISR) of voice telephony service (1). If the 32 existing call-back operators are to continue to provide effective competition in the external telecommunications services market, they will need to be allowed time to secure a licence for ISR voice service and to make necessary preparation for the introduction of such service as soon as possible from 1 January 1999. Their survival is at issue because ISR has a cheaper cost structure and is able to provide better quality services than call-back services.
Response to the Consultation Paper
3.We have received 37 submissions in response to the Consultation Paper, of which 23 addressed the issue of external telecommunications services in particular. Of these, the majority (including Hong Kong Telecommunications Limited) supported the proposal of not setting a limit on the number of external services licences to be issued effective from 1 January 1999. The only exceptions were the three new FTNS operators who opposed giving other telecommunications companies the right to provide external telecommunications services which they themselves have been authorised to operate from 1 January 1999. SmarTone Mobile Communications, which opposed the issue of an unlimited number of external services licences in the previous consultation exercise held from April to June 1998, now supports the proposal.
4.Having considered the submissions from the industry, our conclusion is that the Government's proposal in the Consultation Paper that a limit should not be set on the number of external services licences effective from 1 January 1999 should be implemented. The reasons are as follows :
||As stated in paragraph 2 above, if the licences to operate ISR voice services were restricted to only the four FTNS operators, the existing call-back operators would not be able to survive in the new environment as ISR operators would be able to provide services of better quality at lower costs.
||The operation of external telecommunications services over the circuits provided by facilities operators would not consume limited community resources such as land or radio spectrum. Nor would it cause any environmental disruptions in terms of road openings. There is, thus, no reason to limit the number of service-based operators.
||The market for external telecommunications services, other than those within the confines of the exclusivities of the licence previously held by Hong Kong Telecom International (HKTI), has always been completely open. Now that we have agreed a phased termination of the exclusivities with HKTI with a substantial financial compensation, the logical approach would be to introduce the same degree of competition in these previously confined market segments. Failure to do so would impact adversely on consumers' interests and invite strong criticism from the community.
||To restrict the number of external telecommunications services in Hong Kong would affect the prospect of Hong Kong-based operators obtaining corresponding operating rights or licences at the distant ends as many overseas countries have reciprocity requirements.
5.We intend, as an interim measure, that the PNETS licence under which we propose such external telecommunications services would operate would incorporate fair competition safeguards. We propose that such competition safeguards should be incorporated in the Telecommunication Ordinance at the earliest opportunity. Some respondents have indeed noted our proposal to this effect. The majority of respondents considered the substance of the proposed fair competition safeguards adequate. There was general support for the principle behind the proposed local access fee which external services operators will be required to pay to the local FTNS operators for the carriage of external telecommunications services over the local network - that the fee should be based on cost calculated on a forward-looking basis and accrue to the network to which the customer is connected(2).
FINANCIAL AND STAFFING IMPLICATIONS
6.The Office of the Telecommunications Authority Trading Fund will recover the cost of processing and monitoring the additional PNETS licences issued to external telecommunications services operators from such licence fees.
7.The proposal will benefit telecommunications users as well as commercial and business activities which are underpinned by telecommunications. The proposal will preserve the attractiveness of Hong Kong as a place for investment in telecommunications. The free market approach of encouraging investment will be welcomed in the international community, help maintain our good status in various international economic fora, and assist our telecommunications companies in developing markets in Hong Kong and overseas. Safeguards will be incorporated to ensure fair competition and a level-playing field.
8.The proposal in this paper has no environmental implications. The external telecommunication services operators licensed following the acceptance of this proposal will not have rights to lay cable facilities in Hong Kong. The proposal will not, therefore, result in an increase in road openings.
9.The proposal has been the subject of two rounds of public consultations. As described in paragraph 3 above, the proposal is widely welcomed, except among the new FTNS licensees.
10.A press release will be issued on 22 October 1998. A spokesman will be available for answering media enquiries.
Queries on this brief may be addressed to -
Mr G F Woodhead
Principal Assistant Secretary
for Information Technology and Broadcasting
Tel : 2189 2210
Fax : 2511 1458
Information Technology and Broadcasting Bureau
22 October 1998
This is an external telephony service operated on international private leased circuits or other external switched telecommunications services lawfully operated in Hong Kong.
Details of the TA's proposal on the local access fees were set out in a consultation document on the Review of Delivery Fees issued by the Office of the Telecommunications Authority on 30 September 1998.