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Following is a speech (English only)by the Secretary for Information Technology and Broadcasting, Mr K C Kwong,at the Luncheon Meeting of the Hong Kong Institute of Directors today (Tuesday):

"The Convergence of Telecommunications and Broadcasting"

Ladies and Gentlemen,

I am honoured to address this luncheon meeting organised by the Hong Kong Institute of Directors. Today, I would like to share with you how the Government seeks to implement a package of policy initiatives to enhance Hong Kong's position as the telecommunications and broadcasting hub in Asia.

Convergence

I have lumped telecommunications and broadcasting together because of the inexorable trend of convergence of these two formerly different industries. Digitisation, coupled with expansion in bandwidth and improved compression technologies, have made it feasible for all forms of media to be carried by formerly disparate means of transmission, such as copper wire, coaxial cable, optical fibre, and the radio spectrum. Never before have information and entertainment been brought to consumers in such variety, quality and speed. And this affects not just companies whose names start with an "i" or "e", or ends with "dot-com". Interactive services over broadband networks will bring business potential for companies through e-business.

Rapid advances in technology, coupled with changing market environment, are blurring and dissolving the traditional boundaries of telecommunications and broadcasting. Many in the broadcasting and entertainment businesses are now providing programmes on the Internet and some are applying for telecommunications facilities licences. Likewise, telecommunications companies, apart from providing local and international phone services and Internet access services, are branching out to provide content, some of which are produced by themselves, over their telecommunications networks and the Internet. Some see opportunities in reaching end customers through personal computers, given the ever increasing rate of home PC penetration, at 54% in Hong Kong for example. Others may provide end customers set-top boxes to be used with their television sets, given the even higher home TV penetration rate, at 99% in Hong Kong.

The convergence in technologies is revolutionizing the development of the telecommunications and broadcasting sectors in the Information Age. These changes are no doubt posing big challenges to those of you in the industry. I am sure you have held endless brain-storming sessions trying to grapple with the latest market situation. At the same time, these changes are opening up unprecedented opportunities for growth. It is therefore the clear objective of the Government to ensure that the policies and regulatory frameworks for the telecommunications and broadcasting sectors are responsive to such developments.

In this connection, when we completed the comprehensive review of our television policy in 1998 and our telecommunications policy in 1999, we have decided to remove all restrictions regarding the forms of service which different types of transmission networks may carry. Hence, networks will not be artificially restrained in their capability to carry broadcasting, telecommunications or multimedia services. We have decided to allow fixed telecommunications networks to carry programme services and the cable television network to carry telecommunications services. The only caveat is that they will be subject to appropriate licensing requirements under the respective regulatory regimes.

In response to such liberalisation measures, the cable TV operator in Hong Kong has applied for the provision of telecommunications services over its hybrid fibre coaxial cable (HFC) network. Having evaluated the application, the Telecommunications Authority has made an offer to the company in late December of the licence terms and conditions to which it should be subject as a telecommunications network operator. The terms and conditions include, in particular, ones designed to ensure that the HFC network of the cable TV operator will be open up for access by other telecommunications networks and service providers, subject to the payment of fair and reasonable access or interconnection charges.

In the same vein as our decision to allow the cable TV network to be used for telecommunications, we have also decided that the existing satellite broadcasters who have invested in their facilities in Hong Kong should be allowed to transmit television programmes services for other operators as well as to offer telecommunications services, using those facilities. This will encourage the optimum utilisation of existing satellite capacity and is particularly significant for international broadcasters who uplink their programmes from Hong Kong.

I shall now turn to two other issues which are key to policy-makers and regulators in a fast converging environment, namely connectivity and competition. The policy decisions made last year were intended inter alia to respond to these challenges. Let me briefly address these two key issues.

Connectivity

First, connectivity. The success of the IT and broadcasting industries is predicated on an excellent telecommunications infrastructure. Experience elsewhere suggests that we would need an exponential growth in our external telecommunications capacity if we were to cope adequately with the insatiable demand by businesses and consumers for speed and quality in communication. To enhance Hong Kong's external connectivity, we have decided on a progressive liberalisation of the external facilities market from 1st of January this year. To implement this policy, we invited applications for external facilities licences based on satellites and new submarine or overland cable last July. Response to our invitation has been overwhelming. The 34 applications for the external facilities licences that we have received cover both satellites and submarine and new overland cables. We would soon complete the evaluation of these applications and announce the outcome. We expect that the new facilities to be brought by the new licensees would increase the total capacity of our external communications links by many times in the next few years, and bring substantial private investment to improve our telecommunications infrastructure.

Our agenda to expand connectivity also includes the further development of the broadband infrastructure locally. Thus, we have also invited applications last July for the establishment and operation of new broadband networks based on wireless technology. The market response has again been very positive and we have received 14 applications. We are now at the final stage of our evaluation exercise and expect to be able to announce the results very shortly.

While we are developing the local broadband networks, we recognise the importance of ensuring that the networks can inter-operate and inter-connect with each other so that we can achieve maximum effectiveness and efficiency in their utilisation. We are now consulting the industry on these issues and our target is to complete the consultation with a view to promulgating broadband interconnection principles within the next few months.

Competition

I now turn to the second key issue, that is competition. Our telecommunications and broadcasting policies have always been pro-competition, and we are determined to open up our market progressively to increase effective competition. On the television side, we have decided to open up the TV market for competition by whatever means of transmission that is technically feasible. To this end, we have invited applications for the provision of new television services last August last year and have received 10 applications in response. We are now evaluating the applications and aim to complete the process and grant the new licences in the first half of this year. This exciting development will further our policy objective of bringing a wider choice of quality programmes to consumers.

On the telecommunications side, the last monopoly of Cable & Wireless HKT on external telecommunications facilities ended on 1 January 2000. As I said just now, we will be making announcements on the issue of new external facilities licences very soon.

While working to introduce effective competition in these two sectors, we have not lost sight of the importance of providing a fair and level-playing field to all players, incumbents and new ones. For this purpose, we are going through two major legislative exercises to update our legislation to introduce clearer and more comprehensive provisions to promote fair competition. On telecommunications, we have introduced the Telecommunication (Amendment) Bill 1999 into our legislature. The primary purpose of this Bill is to strengthen the competition safeguards, improve interconnection and access arrangements to telecommunications services and provide the Telecommunications Authority with appropriate regulatory powers. We are very concerned about any anti-competitive behavior which may appear in different ways and forms, overt or covert. They may involve collusion in price-fixing or action to exclude or delay competitors from getting access to buildings for the provision of telecommunications services to consumers. The Telecommunication (Amendment) Bill serves to strengthen the powers of the Telecommunications Authority to prevent and deter such anti-competitive conduct. It will enable the Authority, where necessary, to impose higher financial penalties on breaches of the competition provisions.

On broadcasting, we will shortly introduce a new, technology-neutral Broadcasting Bill which seeks to provide a licensing and regulatory framework flexible enough to embrace new services made possible by the convergence of technologies. The Broadcasting Bill will provide separate licensing and regulatory frameworks for "transmission" and "provision" of television programme services. Among other things, the Bill will do away with those restrictions, such as investment restrictions and the charging of royalties which are no longer relevant or necessary in a liberalized market. To strengthen the competition safeguards for the television market, we will also include in the Broadcasting Bill general provisions to prohibit anti-competitive conduct and specific provisions to prohibit the abuse of the dominant position of a player in the market. This new regulatory framework will provide a clear, yet flexible regulatory environment for the development of our broadcasting industry.

Conclusion

Our policies to encourage the telecommunications and broadcasting sectors to take full advantage of the trend of convergence will create tremendous business opportunities for them in the years to come. For those of you in these businesses, you can rest assured that the regulatory frameworks that we are putting in place will provide a pro-competition, fair and business-friendly operating environment for all. For those of you who are users of telecommunications and broadcasting services, you can expect not only an explosion of choice but also services at more affordable prices, and both consumers and businesses will benefit as a result.

Thank you.

END/Tuesday, January 11, 2000

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