HONG KONG: TELECOMMUNICATIONS

Hong Kong is a leader in telecommunications with a strong market infrastructure. With 56 lines per 100 people, Hong Kong has the highest teledensity in Asia, except for Japan. All exchanges are digital. More than 3.5m people have mobile phones, one of the highest densities in the world.

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.

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: '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, 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.

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 the Office of the Telecommunications Authority (Ofta) and the Broadcasting Authority respectively. However, as the industries have begun increasingly to encroach on each other's territories, the Hong Kong authorities have announced plans to consult the public by the end of this 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 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".

In September, 2005, OFTA proposed to create a unified carrier licence in order to pave the way for fixed-mobile convergence.

Currently, fixed and mobile services are 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, fixed and mobile services will converge. In the new environment, says OFTA, it may 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 existing separate licensing frameworks for fixed and mobile services may not be sustainable in the FMC environment.

"A public consultation on the introduction of Broadband Wireless Access (BWA) services is in progress. These services will serve both fixed and mobile customers.It is therefore necessary to review the need for a unified licence that would suit all forms of networks and services," the spokesperson from OFTA said.

Under the proposed 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.

It is proposed that once 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 would however be permitted to continue to operate under their existing licences until the licences expire."No fixed or mobile carriers would be required to surrender their existing licences while the licences remain valid.Instead, they may 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," the spokesperson explained.

"The proposed unified licensing and regulatory framework will pave the way for converged services and should be conducive to technological advancement and market development of innovative services," the spokesperson added.

A copy of the draft unified carrier licence can be downloaded from OFTA's website at www.ofta.gov.hk.

With the emergence of FMC, other relevant regulatory arrangements (e.g. interconnection charging arrangement between fixed and mobile networks and fixed/mobile number portability) will need to be reviewed. Before changing the existing regulatory regimes, it is important to assess the costs and benefits of any possible change. OFTA will conduct economic studies and initiate separate public consultations on these regulatory arrangements.

Under the Telecommunications Ordinance, network operators that install and operate telecommunications facilities for carrying communications across public streets or unleased land may obtain "carrier licences" from the Telecommunications Authority. At present, there are two major types of carrier licences, namely, fixed carrier licence and mobile carrier licence. Typically, fixed carrier licences are issued to fixed network operators operating copper wires and optical fibres and mobile carrier licences are issued to mobile network operators operating 2G or 3G wireless networks.

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.

In May 2007, Indian telecom company Globe7 (HK) Ltd opened new regional offices in Hong Kong’s Cyberport to bring cutting edge global communications technologies and consumer products to Hong Kong, Mainland China and the wider region.

To coincide with the opening of the offices, Globe7, a subsidiary of the Indian-based Northgate Technologies, has launched two new innovative services. The ‘Wireless Internet Phone’ (WIP) and the ‘Internet Storage Phone’ (ISP), these seek to facilitate competitive global communications by offering unlimited international dialling to any telephone number in twenty-five listed countries.

Effectively converting every laptop into a mobile phone and every desktop into a second telephone line, Globe7’s coverage of the major international markets includes Australia, Canada, China, France, Hong Kong, Japan, Malaysia, the UK and the US.

Managing Director and CEO of Northgate, Venkat S. Meenavalli, stated: “We plan to use Hong Kong as a hub for future product and service expansion related to the internet and online gaming sectors. We consider the Asia Pacific region a major growth market for our company.”

Acting Director-General of Investment Promotion at Invest Hong Kong, Simon Galpin, welcomed the company’s decision, saying: “The demands of a service-based economy combined with a competitive telecommunications environment in Hong Kong have created a sizeable market. Consumers here encourage product innovation and the market is often used as a test-bed for new products in the region. I am confident that Globe7 will find attractive business opportunities in the city.”

Northgate Technologies is a technology company with extensive R&D facilities located in Hyderabad, India. A key player in the global telecom and Voice-over Internet Protocol (VoIP) market, it has an established presence in the areas of wholesale, prepaid, postpaid, refilling and hubbing of large volumes. The company made its foray into the VoIP sector by launching Globe7 in 2005, the first ever globally patented SIP VoIP Phone.