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January 2001, Industry Seminar – “Competition Policy andTelecommunications in Hong Kong: What is the Role ofCompetition Law?”

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I


The Evolving Competitive Market

n view of the evolving competitive environment in Hong Kong, the TA issued a

consultation paper on the review of the TA Statements No. 4, 5, 6, 7 (Revised) and

8 on interconnection and related competition issues in September 2001. Having

considered views from the industry, the TA concluded the review on 18 March 2002

and issued revised Statements. The changes to carrier-to-carrier charging principles

have been incorporated into Statement No. 7 (Second Revision). The changes to

Statements No. 4, 5, 6, and 8 were updates only.

Legislation on Mergers and Acquisitions

OFTA recognises that mergers and acquisitions can perform an important role in the

efficient performance of the telecommunications market in Hong Kong. To provide a

transparent and efficient regulatory regime concerning merger and acquisition activities,

OFTA issued a consultation paper in April 2001. After considering the submissions

received, the TA proposed a light-handed ex post approach and will only be concerned

with cases where there is potentially adverse effect on competition and the efficient

performance of markets. The proposed regulatory framework and the legislation were

introduced to the Legislative Council in May 2002.

Authorisations to Gain Access to Land for Mobile Operators

The Telecommunications (Amendment) Ordinance 2000 created a right, upon

authorisation by the Telecommunications Authority and payment of a fair and reasonable

access fee, for mobile communications service providers to enter land (such as tunnels

and large shopping arcades) to place their radiocommunications facilities for providing

services to public places that would otherwise not be provided with adequate radio

coverage because of shielding effects.

In July 2001, the TA issued a set of guidelines on the principles to be applied by arbitrators

in the determination of access fees where an authorisation has been made by the TA.

Up to 31 March 2002, the TA has granted three authorisations to mobile operators, with

interim access fees imposed.

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Mediating Interconnection Issues

Efficient interconnection among operators is essential for fair and effective competition. It

has been the declared policy of the TA that a light-handed regulatory approach on

interconnection matters is preferable. Operators are encouraged to reach interconnection

agreements through commercial negotiation. If operators encounter difficulties in reaching

an agreement, OFTA assists when the case is brought to its attention. During the year,

nine cases were referred to OFTA for mediation, of which seven were settled.

Determination on Interconnection

The TA is empowered to make a determination on the terms and conditions of

interconnection under Section 36A of the Telecommunications Ordinance. Having

consulted with the industry, the TA revised the procedure for making these determinations

in September 2001. With the TA specifying the time limit for each step of the determination

proceedings, the parties are provided with a definite timescale.

During the year, the TA made a supplementary determination in November 2001 to a

determination made in March 2001 concerning the terms and conditions for the provision

of “point of interconnection” capacity for interconnection. The supplementary

determination elaborated on the method for the calculation of the “normal” level of point

of interconnection capacity to assist the parties to implement the March 2001

determination. In March 2002, the TA made a determination on the terms and conditions

for the porting of “non-level 2” numbers. After the TA Statement on the recovery of costs

for operator number portability (“ONP”) associated with the porting of “non-level 2”

numbers was issued in March 2001, the TA made the first determination relating to the

issue in March 2002. The determination provides a benchmark charge for subsequent

cases and promotes competition among FTNS operators.

The interconnection charges to value-added services providers and mobile network operators

levied by the PCCW-HKT Telephone Limited (PCCW-HKTC) are reviewed on an annual

basis. The charges have been revised downward from October 2001. As part of this review,

a new transit charge for mobile services was introduced under the tariffs of PCCW-HKTC

for interconnection on 1 October 2001.


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Monthly reviews continued on the gateway prices and delivery fees for external routes

under the so-called Category B, which are not yet sufficiently competitive. Such regulatory

controls over the competitive routes, under the so-called Category A, were lifted in

accordance with a regulatory framework established in 1999.

Keeping a Watchful Eye on the Dominant Operator

To ensure that consumer interests are not jeopardised by the abuse of market power by

the dominant operator, additional safeguards incorporated in the FTNS licences are applied

to the dominant operator. PCCW-HKT Telephone Limited (PCCW-HKTC) and Reach

Networks Hong Kong Limited (formerly known as PCCW-HKT International Limited) were

regarded as the dominant operators in their respective markets.

Following an application from Reach Networks Hong Kong Limited (“Reach”) for

declaration of non-dominance in the market for external bandwidth services and industry

consultation, the TA declared in March 2002 that Reach was non-dominant in that market.

The TA will continue to monitor the market and review this decision after 12 months.

During the period under review, the TA also received an application from PCCW-HKTC

for declaration of non-dominance in the market for external bandwidth services. A

consultation paper was issued in October 2001. As at March 2002, a market analysis

was being conducted with consideration of submissions from the industry.

While competing FTNS operators need not file applications with the TA for approval of

tariffs, tariffs of dominant operators are subject to TA’s approval. A non-dominant FTNS

operator may freely offer discounts to its customers, whereas dominant operators may

not offer discounts without first obtaining the TA’s approval and gazetting the approved

discounts. These measures are intended to prevent dominant operators from abusing

their dominance to pressure competitors out of the market.

Between April 2001 and March 2002, OFTA processed a total of 129 new service or tariff

revision proposals submitted by the dominant operators.

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Monitoring Through Effective Accounting Practices

The Accounting Manual was issued in 1995 to set out the TA’s requirement in respect of

reporting and accounting practices for PCCW-HKTC and the other three wireline-based

FTNS licensees then licensed to provide local fixed telecommunications network services.

During the year, operators continued to report their accounts in accordance with the

Accounting Manual.

According to General Condition 17 of their licences, the local wireless and external facilities

FTNS operators are required to comply with the accounting practices specified in the

Manual. They are exempted from the reporting requirement but the TA may review the

situation and impose the requirement when necessary. Hong Kong Cable Television

Limited, in view of its network size and market share, is also required to comply with the

Manual in accounting practices as well as the reporting requirement.

The TA will issue an Accounting Manual for 3G Mobile Services Carriers. According to

Special Condition 7 of their licences, the 3G Mobile Carrier licensees are required to

prepare separate accounts for the different services or business activities or types of

services or business activities (each referred to as a “Business”). The Accounting Manual

will specify the Businesses for the purposes of this Special Condition. The licensees are

required to comply with the accounting practices specified in the Manual.

Fair Numbering Arrangement

Under the Telecommunications Ordinance, the TA is responsible for managing Hong

Kong’s telecommunications numbering plan. To enable efficient allocation and assignment

of telecommunications numbers and codes to the industry and all end-users, the TA

issued in September 2000 the revised “Code of Practice Relating to the Use of Numbers

and Codes in Hong Kong Numbering Plan (Cap. 106)”. The code laid down the guiding

principles for network operators and paging service operators in assigning

telecommunications numbers and/or codes to customers.

During the year the TA is working on the “Special Number Arrangement” (SNA) so that

the right-to-use of attractive telephone numbers may be auctioned to interested customers.

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A public consultation paper was planned to be issued by June 2002 before the TA decided

on the way forward.

Coordinating Sharing of Facilities

Sharing of facilities is essential to minimise environmental impact and to ensure that

certain bottleneck facilities do not constitute barriers in the development of competition

in the market. OFTA has coordinated the sharing of facilities by telecommunications and

broadcasting service operators. In addition, OFTA has coordinated the sharing of

radiocommunications sites on hilltops and rural areas to minimise environmental disruption

and to avoid unnecessary site proliferation.

The arrangement for access to and co-location at cable-landing stations is set out in a TA

Statement issued in September 2000. This ensures critical facilities like cable-landing

stations can be shared by external FTNS operators so that competition in the external

facilities market is not hindered.

OFTA also monitors road-opening work performed by the FTNS and broadcasting network

operators with the help of Highways Department’s Utilities Management Systems. The

objective is to ensure that these road works are conducted in a coordinated manner,

minimising inconvenience to the public.

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