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Following is the full text of a speech (English only) made by the Acting Secretary for Information Technology and Broadcasting, Mrs Rita Lau, at the Telecommunications and InfoTechnology Forum this (Tuesday) afternoon:

Good afternoon, ladies and gentlemen,

It gives me great pleasure to have the opportunity to speak and to share with you our vision on the future of broadcasting regulation in Hong Kong. It is indeed timely that this TIF meeting is devoted to the TV Policy Review. This Review is of great importance to all of us as we position Hong Kong for the challenges that lie ahead.

The policy proposals put forth in the Consultation Paper have generated a lot of public debate on the regulation of television broadcasting including a motion debate by the Legislative Council. While many views and comments have been sent directly to us, we have also been following closely the articles appearing in print media. I have held nine individual discussion sessions with licensees and other interested organisations. And the latest count of the submissions we had received is 37 with some isolated late submission still coming in.

We are committed to presenting our policy recommendations to the Chief Executive in Council before the end of the year. Time is tight but necessary given the time required for the legislative process and if we do not want to see the implementation of the proposals unduly delayed. For this Review, we have conducted altogether three rounds of consultation, two specifically with the industry. We have also given it due publicity to ensure that the issues receive public attention and generate the debate it deserves. Now is the critical and crucial part. We need to consider thoroughly and carefully the views received before making a final recommendation on the way forward.

The issue which has attracted most attention is competition in the television industry. There are comments that despite the increased choice of viewers over the number of television channels in the past years, there has been no effective competition in the market place because one local station still dominates 75-80 per cent of market share, both in terms of viewership and advertising revenue. This, in effect, it is argued, has put the station in a dominant or monopoly position. It is suggested that the Government must act to address the situation. This is certainly an important issue which deserves a closer look.

First of all, let's ask whether there is competition in the television market. The answer is without doubt yes. In the free-to-air TV market, we have two long-competing terrestrial TV stations offering four channels and in addition another four free satellite channels available to half a million households. In the pay TV market, even though Wharf Cable is the sole pay TV operator in Hong Kong at the moment, the Video-on-Demand programme service of Hong Kong Telecom VOD Limited, which launched its service in March 1998, is gradually rolling-out its service and is providing some 300 hours of programmes on average a month on subscription basis. One TV channel may well be dominating the TV ratings in Hong Kong, but it is not a matter of choice of viewers rather than a lack of competition.

One core objective of the Government is to ensure that Hong Kong people have access to a wide variety of broadcasting services through the creation of an environment in which diversity and freedom of expression can thrive. We seek to achieve this goal by expanding choice and diversity while ensuring that broadcasting materials do not offend public standards of taste and decency. Practically speaking, we cannot mandate that choice and diversity will expand. We can only create favourable conditions for the market to meet the demand for services. That means continuing to remove artificial restrictions on the number and type of services.

To promote vigorous competition, it is important to level the playing field so that no one player enjoys an advantage over others either by design or by default. In the consultation paper, we have proposed a technology and transmission neutral regulatory regime for all television programme services. We have proposed four categories of TV programme services, namely, domestic free, domestic pay, non-domestic and other licensable services which should be subject to a four-tier regulatory system reflecting the nature and the pervasiveness of the services. Except where it is necessary to impose specific safeguards for a particular category of licence, for example, parental locking systems for domestic pay and other licensable services and residency restrictions for domestic free services, our aim is to create a conducive environment for the broadcasting industry to flourish and freely compete under a fair, transparent predictable and proportionate framework of law and regulation for all players as far as practicable.

To address possible conflict of interest and to help prevent the build-up of monopoly and concentration of the media, the Television Ordinance already has provisions restricting cross-media ownership. Certain categories of persons and companies, including those who exercise control on, or are associates of, these persons/companies are identified as "disqualified persons" (DP) and they may not hold office or be a beneficial owner of more than 15 per cent of voting control in a DP without the prior approval of the Chief Executive in Council. We have proposed that these cross-media ownership restrictions, subject to a couple of amendments, should continue to apply to domestic free and domestic pay television programme service licensees. On top of the statutory provisions, further safeguards are built into the terms and conditions of each broadcasting licences. For example, the licence of Galaxy Satellite Broadcasting Limited include conditions requiring it to operate at arm's length with its indirect parent company TVB. There are also provisions prohibiting cross-subsidy of the two companies and requiring that all transactions between the two companies should be of full commercial value and that all services and products should be offered on a non-discriminatory basis to all parties alike.

Competition is not an end in itself. There is no assumption that a particular type or a particular situation which reduces competition is wrong in itself. And I do not believe that we should penalise success. What makes it unacceptable is when a company tries to maintain or attempt to create a monopoly through practices that either unreasonably exclude others from entering the market or significantly impair their ability to compete. This can be done through unilateral action or through a group of companies working together to monopolise a market. To promote free competition, we have included in all broadcasting licences a free competition clause which, subject to a few provisos, prohibits a licensee from entering into any agreement or arrangement which will, or is calculated to, restrict, impede or restrain competition in relation to the establishment, provision or operation of any telecommunications or broadcasting service. We have proposed to enshrine this clause in the "Broadcasting Bill" to give it statutory status and to expand the scope of the provision. We will expect more feedback from the industry and the public during the passage of the Bill.

When we first introduced the free competition clause to the licences, we listened to the views of the licensees and added in provisos to the clause which the industry considered to be industry practices, for example, the broadcasting of any programme material acquired or produced by or for the licensee and broadcast by it and using or exploiting the artistic talent or ability of a person are excluded from the ambit of the clause. The Government negotiated hard to include them but in the event we accepted the industry's appeal against their inclusion in good faith. In the current consultation, we have received submissions from licensees alleging that the dominant television broadcaster has engaged in unethical practices aimed at restricting competition. Unfortunately, these allegations have not been tested against the licence condition as no complaint has been lodged with the Broadcasting Authority for a ruling. The existing provision, like other pro-competition legislation in advanced countries, are worded in general terms and it is for the regulatory authority to determine its application in specific cases. The Broadcasting Authority (BA), being the regulator of the broadcasting licensees, is already empowered to investigate into complaint and make a judgement on any allegations of anti-competitive practice. But the BA has not received a single complaint, I can only quote a few allegations which, I must stress, have not been substantiated thorough investigations and consideration by the relevant authority. The allegations we have received include the following, that the dominant television licensee :

(a) has used contractual and/or other forms of coercion to monopolise talent;

(b) has denied major advertisers to competitors.;

(c) has resorted to predatory pricing of advertising;

(d) has refused to sell air time to competitors;

(e) has controlled bottleneck facilities such as the frequencies used for electronic news-gathering;

(f) has acquired programmes or programme packages in excess of transmission needs and denying them to the audience.

As you can see, some of the above allegations call into question the application of exclusive contracts. This looks like an industry norm but it has also been suggested to us that in other countries, exclusive contracts apply only to news anchor and other artistes or presenters whose exposure on a specific channel is on a frequent and regular basis. Singers who appear in the programmes of a licensee say, only once in three months, should not, therefore, be subject to exclusive contracts.

One of the licensees has suggested that a maximum number, say 30 per cent of the singers in the Hong Kong market, should be set aside for exclusive engagement. The suggestion that only runs against the principles of our free society and rights of an individual, I dare say that it will be impracticable.

Another issue closely related to competition in the television market which received significant attention of the public is whether the free TV market should be opened up for competition. In the consultation paper we did not specifically address this issue but our overall position is quite clear, i.e. our policy objective is to create an environment conducive to the development of the broadcasting industry; therefore, in so far as market demands exist and the advance of technologies allows, no artificial limits should be set for the number of players in the field. Government's role should be to ensure that there is free and fair competition and that all players will have the freedom to make business decisions and respond to market forces.

We have proposed a regulatory and licensing framework for television programme services which is technology and transmission neutral. We did not set a quota of licences for each category of licence except that in the case of other licensable services we have proposed that the aggregate target audience for any company should not exceed 15 per cent of the total number of households in Hong Kong without the approval of the Chief Executive in Council. It really will be up to an applicant to propose a feasible transmission method to deliver the proposed programme service. Free-to-air TV is not limited to terrestrial broadcasting and, as I mentioned earlier, satellite broadcasting, particularly Direct-to-Home service, is perfectly capable of providing a free TV service.

A technology and transmission neutral television service licensing regime should open up new opportunities for prospective investors. An incumbent licensee has in fact suggested that free television can be transmitted over the hybrid cable/MMDS network it uses to provide subscription TV and it has offered to open up two of its pay TV channels for free viewing. Others have suggested that the existing frequencies for English channels should be up for sharing to achieve maximum use and to release spare capacity for a new channel. Once television programme service is divorced from its transmission mode, there seems to be multifarious business opportunities. It will be up to an investor to justify that its proposed service will bring benefits to viewers and the community as a whole and the Government would be happy to consider the merits of any such application.

On this issue I would like to add that the cross-media ownership rules require a domestic free licensee to apply to the Chief Executive in Council for approval if it is to acquire or hold more than 15% of voting control in a domestic pay licensee, and vice versa. The main purposes of this restriction are to help promoting plurality and preventing monopoly. In a convergent environment, there may be grounds for relaxing this restriction and the Government would consider the arguments carefully.

Another much talked-about issue during the consultation which is also related to competition in the overall television industry, is whether the domestic free TV licensees should be required to reserve a portion of their air time for local independent productions which are not associated with the licensees. This suggestion, in fact, has more to do with breaking up vertical integration and promotion of an independent TV production industry. It is argued that even though this may compromise the editorial freedom of a licensee but it will well serve the overall interest of the industry and help promoting Hong Kong as a multi-media centre.

I have highlighted some of the mainstream opinions we have received during the consultation. Let me assure you, we have an open mind and have not come to conclusions one way or the other. These are indeed important issues which we need to consider carefully and we would very much like to hear your views about them.

END/Tuesday, October 13, 1998

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