Emerging markets: Mobile market review – Hong kong 2008

The Asia Pacific region has become the fastest growing telecom market in the world. Not only does the region contain two of the world’s most populous and emerging countries – China and India, it is home to some of the world’s most sophisticated telecom markets such as Hong king, Japan, Singapore and Australia. While telecom liberalization and privatization are taking place in the asian markets, Hong Kong has become a power house for telecom convergence, introducing a innovative carrier licensing framework that provides rights to exploit fixed, broadband and wireless services under the same license. I wanted to post this market review as it is significantly different to what we face in Western and Eastern Europe, Africa and Middle east.

Let’s give some info about this market: 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) 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.

Hong Kong Telecom Market Oct 2008

The Information Technology and Broadcasting Bureau confirmed that a hybrid method will be used for the issue of four 3G licences involving a pre-qualification process followed by spectrum auctioning. The hybrid method will help ensure the quality of future 3G networks as well as allocate efficiently spectrum. Recognising the recent downturn of the telecommunications market, the Information Technology and Broadcasting Bureu has 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.

Nowadays, 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. 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.

A copy of the draft unified carrier licence can be downloaded from OFTA’s website at http://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.

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