Hong Kong: Telecommunications

Hong Kong is a leader in telecommunications with a strong market infrastructure. As at July 2011, the household fixed line penetration rate was 102.3%, which was among the highest in the world. All exchanges are digital.

Hong Kong has over 14m mobile phone subscribers out of a population of 7m, with about half of these subscribers signed up to 2.5G and 3G services. Just over 2.2m broadband accounts were registered in July 2011, representing a household broadband penetration rate of 85%.

In Hong Kong, there were five mobile network operators, 17 local fixed line operators, 307 external fixed line telecomminiations services providers, and 187 internet service providers in September 2011.

In 2009, the gross output of the telecommunications sector amounted to HKD53.4 billion and employed around 17,000 persons.

Hong Kong's telecommunications market has been fully liberalised and there are no foreign ownership restrictions. According to a study released by the telecoms regulator in May 2011, this pro-competition policy has been very beneficial to consumers; residential and business users pay as little as one-tenth of the telecommunications charges as their counterparts in six other cities under comparison. Similar studies undertaken in 2003, 2005, 2008 and 2010 also concluded that Hong Kong continues to be in the forefront amongst telecommunications markets worldwide.

Regulation

The Office of the Telecommunications Authority (OFTA), established in 1993, is responsible for regulating the rapidly developing and increasingly competitive telecommunications industry in Hong Kong. In 2010, the government proposed an overhaul of the regulatory structure in this area (see below).

With the support of the Legislative Council, the Telecommunications (Amendment) Bill 2001 was passed and enacted in May 2001. This legislation took effect in July 2001 to provide the legal basis for a 3G licensing exercise. Then in July the government issued an Information Memorandum, inviting applications for Hong Kong's third generation mobile services (3G) licences and setting out the reserve prices for the 3G auction, the auction rules and various other elements of the licensing framework.

A spokesman from the Information Technology and Broadcasting Bureau confirmed at the time that: "As announced in February this year, our hybrid method for the issue of four 3G licences involves a pre-qualification process followed by spectrum auctioning. The hybrid method will help ensure the quality of future 3G networks as well as allocate spectrum in a fair and efficient manner."

He added: "Recognising the recent downturn of the telecommunications market, we have introduced a royalty-based payment scheme that is intended to minimize the financial burden on operators. The royalty scheme is underpinned by a schedule of minimum payments, which minimise government's credit risk but allow it to share the upside of the 3G business."

In October that year, Carrie Yau, the Hong Kong Secretary for Information Technology and Broadcasting, revealed the identity of the four bidders who had been successful in their applications for provisional 3G licences after the completion of the pre-qualification process of the 3G services auction.

The four successful bidders were: Hong Kong CSL Ltd., co-owned by Telstra and Pacific Century Cyberworks; Hutchison 3G HK Ltd., co-owned by Hutchison Whampoa and NTT DoCoMo Inc.; SmarTone 3G Ltd., wholly owned by SmarTone Telecoms Holdings; and Sunday 3G, wholly owned by Sunday Communications.

Communications Authority

In June, 2004, the Hong Kong government said it was considering the creation of a 'super regulator' for the territory's telecommunications and broadcasting industries.

Currently, the two sectors are regulated by OFTA and the Broadcasting Authority respectively. However, as the industries have begun increasingly to encroach on each other's territories, the Hong Kong authorities announced plans to consult the public by the end of that year on the proposed creation of a super-regulator.

Secretary for Commerce, Industry and Technology, John Tsang Chun-wah explained that: "The existing legislation was drafted a long time ago. Our current regulatory regime cannot keep up with technology development. Some kind of revamp is necessary." However he added that: "This is not an easy task. We have two bodies of legislation and two regulators. We need to draft a whole new set of legislation. This is going to take a very long time."

In June 2010, the Communications Authority Bill which seeks to establish a unified regulatory body, the Communications Authority (CA), to cover both telecommunications and broadcasting sectors. The Bill was introduced into the Legislative Council on June 30.

"Rapid advancement in technology has led to the increasing convergence of the two sectors. Hong Kong needs to review its overall regulatory regimes to meet the challenges arising from such changes effectively. As the first step of this review, we propose to restructure the regulatory institutional arrangements by merging the two existing regulators, the Broadcasting Authority (BA) and the Telecommunications Authority (TA)," a spokesman for the Commerce and Economic Development Bureau said.

Under the Bill, the CA will administer and enforce the existing Broadcasting Ordinance (BO), the Broadcasting Authority Ordinance which is to be renamed, the Telecommunications Ordinance (TO) and the Unsolicited Electronic Messages Ordinance. The existing statutory powers and functions of the BA and the TA will be transferred to the CA.

The CA will be a governing board and comprise no fewer than five and no more than ten non-official Members (including a non-official Chairperson), a public officer and the Director-General of Communications (DG Com) as an ex-officio Member. Except the DG Com, all other Members of the CA will be appointed by the Chief Executive.

"We originally proposed to appoint only five non-official Members to the CA. In response to the views received in rounds of public consultation, we propose to allow flexibility to increase the number of non-official Members," said the spokesman.

The Administration proposes to form the executive arm of the CA by merging the Broadcasting Division of the Television and Entertainment Licensing Authority (TELA) and the Office of the Telecommunications Authority. The executive arm will be a government department named the Office of the Communications Authority (OFCA) which will operate as a trading fund. The department will be headed by DG Com. Upon review, the Administration also proposes to disband the TELA and transfer its functions in respect of the control of indecent and obscene articles, film censorship and newspaper registration to the OFCA. These activities will be funded by the Government under a new General Revenue Head. The TELA's functions relating to issuing entertainment licences will be taken up by the Home Affairs Department.

"We will conduct a comprehensive review of the existing regulatory regimes after the establishment of the CA to update and rationalise the existing TO and BO," the spokesman added.

The Communications Authority Bill was approved by the Legislative Council on June 30, 2011 and gazetted on July 7, 2011. However, the government has said that the preparatory work needed to establish the new regulator would take at least a further nine months.

Unified Carrier Licences

In September, 2005, OFTA proposed to create a unified carrier licence (UCL) in order to pave the way for fixed-mobile convergence. The UCL regime was implemented in August 2008.

Prior to the issuing of UCLs, fixed and mobile services were licensed under fixed carrier licences and mobile carrier licences respectively, with different rights and obligations imposed on the network operators.With the advent of new technologies however, fixed and mobile services have converged and in this the new environment, says OFTA, it has become difficult to classify a service as a fixed or mobile service as the service may be used by customers at fixed locations on some occasions and in motion on other occasions. Accordingly, the separate licensing frameworks for fixed and mobile services were considered unsustainable.

Under the unified carrier licensing framework, a licensee may be allowed to provide (i) fixed services; (ii) mobile services; or (iii) both fixed and mobile services, depending on the scope of services proposed by the licensees in their licence applications.

Now that the unified licensing framework is in place, the existing fixed carrier licence and mobile carrier licence would no longer be issued to new entrants or to existing licensees whose licences are due for renewal. Existing fixed or mobile carriers are however be permitted to continue to operate under their existing licences until the licences expire. Licencees may, however, have the discretion to convert their current licences to a unified carrier licence which covers their existing scope of service, or covers a wider scope of services.

An OFTA spokesman said of the new licensing regime that UCL's would be "conducive" to the development of telecommunications technology in Hong Kong. However, one salient feature of the UCL is that a new annual number fee component will be applied. "This measure is necessary as it should provide the necessary economic incentive to encourage operators to better utilise the numbering resource," a spokesperson of OFTA said.

VoIP

In September, 2004, the director general of OFTA announced that the regulatory body would not be seeking to interfere overmuch in the development of the burgeoning Voice over Internet Protocol (VoIP) industry. Au Man-ho was responding to a drive by incumbent telecommunications provider, PCCW to thwart the growth of the industry.

Following the launch of a VoIP service by City Telecom, PCCW lodged a complaint with OFTA, and then wrote to its 750,000 broadband subscribers, warning them that the installation of VoIP software could reduce the quality of their broadband service.

But the OFTA director general said that the Authority was not interested in imposing arbitrary regulations, and suggested that: "The pace of transition to IP-based services should be decided by the market." However, he went on to observe that "if the IP telephony service is to be marketed as a substitute for public telephone service, there may be some minimum conditions that need to be satisfied to prevent consumer confusion and safeguard public interest".

Resellers

The Hong Kong Office of the Telecommunications Authority announced in September 2006, that telecommunications resellers in the SAR will be put under the regulation of a class licensing regime, in order to ensure a level playing field and enhance consumer protection.

Resellers offer a wide range of telecommunications services. In view of the rapid telecommunications market development and the thriving of various means of resale activities, the Authority has decided to regulate the sector.

According to OFTA, when the new regime came into force in February 2007, resellers automatically became class licensees without any requirements to obtain individual licence applications or registrations. Class licensees will be required to provide specified information, including their names and services provided, to help consumers make informed choices.

They will also be bound to follow statutory provisions under the Telecommunications Ordinance. For example, they will be prohibited from engaging in misleading or deceptive activities.

However, licensed operators' agents or contractors who sell or promote telecommunications services for or on behalf of the operators will not fall under the remit of the regulation.

Fixed Market Competition

In July 2008, the Office of the Telecommunications Authority concluded that the objectives of introducing the mandatory Type II interconnection policy in 1995 when the local fixed market was first liberalized, and its subsequent phased withdrawal beginning in July 2004, have been fully achieved. The latest figure indicates that over 81% of the Hong Kong households enjoy a genuine choice of at least two fixed network operators, demonstrating that facility-based competition has developed in the fixed market successfully.

Hong Kong continues to be in the forefront amongst telecommunications markets worldwide, according to the performance report published by the Office of the Telecommunications Authority (OFTA) on October 12, 2008.

The report compares Hong Kong's performance in four telecommunications sectors (local fixed voice services, mobile services, broadband services and data services) with that of the Organisation for Economic Co-operation and Development (OECD) economies and Singapore. Studies with similar objective were undertaken in 2003 and 2005.

The study reveals that, compared with the OECD economies and Singapore, the take up of fixed voice services, mobile services, broadband services and data services in Hong Kong is in the top tier. At the same time, telecommunications services in Hong Kong are amongst the least expensive. Prices for telecommunications services in Hong Kong are across the board significantly lower than those in most advanced economies.

"We are pleased to see that the telecommunications market of Hong Kong continues to have such a good performance. The result of the study clearly shows that quality telecommunications services are extensively available to the public at affordable prices", a spokesperson of OFTA said.

"With the rapid roll-out of fibre networks, the penetration rate of the fibre network of Hong Kong ranks only second to South Korea . The continued development in telecommunications infrastructure would equip Hong Kong with the capability to meet the demand for high quality telecommunications services in the future," the spokesperson continued.