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Infrastructure development in a competitive business environment - the Hong Kong experience
3rd APEC Ministerial Meeting on the Telecommunications and Information Industry
Speech by Mr KWONG Ki-chi
Secretary for Information Technology and Broadcasting
4 June 1998

Minister Mah, fellow Ministers , ladies and gentlemen,

I am glad to have the opportunity to share our experience in the development of the telecommunications infrastructure in Hong Kong, China.

Telecommunications is an extremely fast growing field, and the only certainty is change. We are constantly having to update ourselves in a world where the most outdated thing is yesterday's vision of tomorrow. So, to avoid being outdated as I speak, I thought I should look back at the development of the telecommunications infrastructure in Hong Kong, and especially how this development has been enhanced in a competitive environment.

Hong Kong has always been in the vanguard of the application of new developments in telecommunications. But we have been relatively unusual in that such developments have always been private-sector led. In 1872, the first telegraph cable was landed on Hong Kong island - and this brought with it a revolution in the way commerce was carried on with the speedy dissemination of information and the making and matching of orders - much as electronic commerce today is expected to spearhead another revolution. 1878 - just two years after the invention of the first telephone - saw the first telephones in Hong Kong and 1888 saw the first telephone exchange.

But in those days, telecommunications was generally viewed as a natural monopoly - a paradigm that had continued for a century. In Hong Kong, we had that monopoly for local fixed telecommunications services until 1995 and a monopoly for certain external telephonic services and circuits which was due to continue until 2006. The licence for the latter monopoly has now been surrendered - the markets for external services will be open to competition from 1 January 1999 and for external facilities from 1 January 2000.

But why the concern about monopolies when the companies involved have delivered to Hong Kong a world-class telecommunications infrastructure - one of the first to be fully digitised with a telephone penetration rate of around 108 per 100 households? As I said earlier, nothing is more out of date than yesterday's vision of the future and it is to the future and our competitors that we have to look. We have also learned lessons from liberalisation in various telecommunications market sectors in Hong Kong. Those lessons are that competition will further stimulate the market, increase efficiencies, widen choice and result in price reductions.

The benefits of competition are amply demonstrated in our mobile telecommunications sector. This sector has always lain outside the telecommunications monopoly in Hong Kong. The competition is such that the mobile telecommunication operators have had to source the best technology and deliver the best prices. The competition has also spurred innovation among the manufacturing companies around the world which supply Hong Kong. A case in point is access to mobile telecommunication on our underground railway (our MTR, your MRT). We have newly installed systems which make it possible for customers to make and receive mobile calls in the underground railway tunnels on all five cellular systems across GSM/CDMA/TDMA, and eventually on all eleven cellular/PCS networks. These innovative applications are of course equally applicable in other places. Thus, the benefits of competition extend well beyond our own territory.

With a mobile penetration rate in excess of 33% of the entire population (babies included) Hong Kong is one of the world's most connected cities. New products are coming onto the market all the time offering an impressive array of new features: data and internet access, financial news and horse-racing tips. With no dominant operator and an efficient market, any intervention required by the regulator is minimal.

As I indicated earlier, the fixed network had been run by a monopoly in the past. Over the years we have liberalised within the constraints of the licence for that monopoly operator. The results have always been positive for consumers. A first step was the release from the monopoly of the supply of customer premise telecommunications equipment which led to reduced prices and more choice. Then, the expiry of the local fixed telecommunications monopoly on 30 June 1995 gave us an opportunity to liberalise that sector.

We opened the local market to competition without any preconceived ideas of the number of licences to be awarded but with a determination that it would be for the market to decide. One policy decision we did make was not to auction off the licences - we wanted consumers to benefit from liberalisation rather than to have to pay off the up-front costs of a licence through higher than necessary charges. To ensure that successful bidders would be serious about the business, we invited them to put forward performance bonds against roll-out milestones which they themselves suggested. We were, and still are, indifferent as to how new operators access customers - whether through their own-built network or through leasing lines from the former monopoly operator or, in due course, any other operators. But to ensure that costs to consumers for changing telephone lines were minimal we mandated number portability and this, I am pleased to note, has been fully implemented on an intelligent network base. A first for Hong Kong.

The result of the liberalisation in 1995 was the award of three new licences for local fixed telecommunications networks. The new operators have all met their roll-out commitments and have completed their trunk network. Increasingly buildings are being wired up to the new networks and customers offered choices in the supply of telecommunications services. The task for the new companies now is to win those customers and provide profitable and efficient new services.

In addition to liberalising the domestic telecommunication market, we are also liberalising external telecommunications: our plan is that from 1 January 1999, we will allow service-based competition and from 1 January 2000 we will allow facilities-based competition.

Of particular importance in providing and maintaining a competitive environment is the operation of an independent regulator, in an open, transparent and even-handled manner. In our Telecommunications Authority, we have such a regulator who adopts best practice in regulatory matters. Mechanisms to safeguard fair and effective competition have been incorporated into the licences, in addition to other safeguards in the regulations themselves.

And, of course, the telecommunications industry operates within the much wider business environment in Hong Kong. Here, we have the rule of law, a low and predictable tax regime, an efficient and honest civil service, free flow of information and an efficient and sound financial system. All these help to ensure that the market can function in an efficient and orderly manner, thus resulting in maximum benefits to the community as a whole.

Thank you.