*****************************************************************

Following is a speech by the Secretary for Information Technology and Broadcasting, Mrs Carrie Yau, at the Symposium on Digital Broadcasting and Convergence today (February 15):

Digital Broadcasting - the Regulatory Framework for Hong Kong

Mr Leung, distinguished guests, ladies and gentlemen,

First of all, I should like to thank the Broadcasting Authority and the Office of the Telecommunications Authority for organizing today's Symposium. It is indeed very encouraging to see so many industry representatives, professionals and academics gathering together to exchange views and experiences on this very important subject - Convergence and Digital Broadcasting.

I think all of you present today have witnessed the revolutionary changes to the broadcasting landscape brought about by rapid advances and convergence of technologies. When sound and visual images can be delivered to consumers with such variety, quality and speed, the question we need to ask ourselves is not whether, but how to embrace the new information world.

To policy-makers and regulators, the challenge is to ensure that our policies and regulations keep abreast with technological developments and changing market demands. This means we will have to rethink fundamentally our policy and regulatory approach to broadcasting. Our core objective is to ensure that consumers have access to the widest range of services at competitive prices through the creation of an environment which is conducive to continued investment and technological innovation.

Our broadcasting and telecommunications industries are in the midst of this revolution. It is indeed timely that the Symposium is held at this point in time so that we may all benefit from the views and experiences of our distinguished overseas speakers to help us shape the most suitable convergence model for Hong Kong. Let me take this opportunity to take stock of the policy initiatives that we have undertaken to embrace convergence, and to share with you my thoughts on what we need to focus on in order to harness the opportunities ahead in the digital age.

We are keenly aware that technological advance must be supported by a flexible and facilitating regulatory regine. With the full support of our legislators and the broadcasting industry, we have put in place a transparent and business-friendly regulatory regime under the technology-neutral Broadcasting Ordinance. There are two important features in this new piece of legislation. First, it provides for separate licensing frameworks for "carriers" and "service providers". This would allow broadcasters to have the flexibility to choose whatever form of transmission that is technically feasible for delivering their services to consumers. This regulatory approach should also help break up vertical integration by encouraging the emergence of separate markets for the operation of transmission networks and the provision of broadcasting services. Secondly, under the new statutory framework, broadcasting services are no longer regulated by their transmission modes, but in accordance with their pervasiveness and influence on the society. This approach makes our regulatory regime sufficiently flexible to embrace new services made possible by advances in technologies.

With the advent of digital terrestrial television, three distinct kinds of service are expected to come into play. They are "multiplex service" for the rolling out of digital transmission networks; "television programme service" for the provision of television programmes; and "additional service" for the provision of non-programme associated data services. In line with our "separate licensing" approach, we have proposed that "multiplex service" and "additional service" should be licensed under the Telecommunications Ordinance and "television programme service" under the Broadcasting Ordinance. This approach would provide maximum flexibility for commercial operators with different expertise to exploit the full benefits of digital terrestrial television. This, in turn, would help attract more players to the digital broadcasting market, thus stimulating the development of multifarious services and innovative products to the benefit of consumers.

In recognition of the trend of convergence at both the technological and service levels, we have made the policy decision to remove restrictions on the services which different types of transmission networks may carry. In other words, subject to the appropriate licensing arrangements, our transmission networks will not be artificially restrained in their capability to carry broadcasting, telecommunications or multimedia services. This policy decision encourages optimal utilisation of our telecommunications infrastructure to meet the ever increasing demand for transmission capacities.

We have proposed that this policy decision should be applicable to digital TV transmission networks, which are fully capable of delivering both broadcasting and telecommunications services. Under our policy proposal, multiplex operators would be allowed to line up different television programme services and additional services in accordance with their business plans. With this flexibility, new business opportunities such as interactive or multi-media services could be explored to increase the appeal of digital TV to consumers. The only caveat is that at most 25% of the multiplex capacity could be used exclusively for carrying additional services. This is to ensure that our scarce digital TV spectrum will be used primarily for broadcasting services and I understand that similar policy has been adopted overseas.

Having established a facilitating and business-friendly environment, the Government should stay back and let the private sector competes freely. Under the rapidly changing environment, the key to success, I believe, is to establish an open and competitive market for the communications industry to flourish. After all, consumers will decide the services to be offered in the market and customers will determine what prices they are prepared to pay.

Hong Kong has already made an early start on liberalisation of the telecommunications and broadcasting markets. Our current policy is that, subject only to physical constraints like limitation of spectrum, licences should be issued freely. Last year alone, this policy has led to new investments worth more than US$1.67 billion in the telecommunications market. Our liberalisation policy is also bearing fruit in the broadcasting market. Four new pay TV operators will be entering into the market very soon with commitments to providing a total of more than a hundred additional television channels.

With the introduction of digital broadcasting, there will be ever more capacities and opportunities for the introduction of new, innovative services. Our frequency planning study indicates that, subject to the outcome of frequency coordination with our neighbouring regions, there will be a maximum of six multiplexes available for digital television services. Each of these multiplexes is technically capable of carrying four to five standard definition TV channels or one high definition TV channel.

There are comments that further liberalisation of the broadcasting market may drive out those players who could not sustain a viable operation. It is suggested that the Government should carefully examine the number of players that the market is able to support before deciding on the number of licences to be issued. I am afraid that we do not have this "magic" figure in hand. And neither should we have under a free market economy where the market is a better judge of itself than the Government.

Digital terrestrial TV, in practice, will offer a new transmission platform in addition to the existing ones such as satellite, cable and analogue radio spectrum. In terms of bandwidth, coverage and means of access, etc., each of these transmission platforms has its own strengths and weaknesses, depending on the types of services being carried. Of our four new pay TV operators, for example, two have chosen the satellite platform and the remaining two on the optical fibre network to date. No doubt, broadcasters themselves should be in the best position to judge which platform would be the most efficient and effective means for delivering their services to consumers. The role of the Government is to encourage further investment in our telecommunications infrastructure and to expand our connectivity in order to meet the exponential growth in the demand for bandwidth in this information age.

Digital technology offers broadcasters the flexibility to provide different number of television channels from time to time. For example, a broadcaster may transmit a football match with high definition TV quality at one time, and then several studio-discussion type programmes with standard definition TV quality at another. The exact number of channels that can be carried on a multiplex will depend of the quality of programmes required. To exploit the full benefits of the digital technology, we have proposed that multiplex operators should be allowed to line up as many television operators as their multiplex could accommodate, and that there should not be an artificial ceiling on the number of television licences under the digital broadcasting environment.

I think there is a consensus that the implementation of digital broadcasting services in Hong Kong has to be market-led and commercial-driven. But that doesn't mean that we should hold back from taking action whenever we need to be more pro-active. We are keenly aware that our market liberalisation policy will only be successful if we level the playing field so that no one player, be it an incumbent or a new comer, enjoys advantage over others either by design or default. To this end, we have already enshrined competition provisions in both the Telecommunications Ordinance and the Broadcasting Ordinance to safeguard fair competition in the respective markets. We have proposed that new broadcasting services to be introduced under the digital environment such as electronic programme guide should also be subject to the regulation of the competition provisions, to ensure that consumer access to digital broadcasting services will not be unreasonably restrained.

Ladies and gentlemen, I have highlighted some of the key policy proposals which we have put forth in the Consultation Paper on Digital Terrestrial Broadcasting. There are other areas such as digital TV standard, transitional plan from analogue to digital, digital sound broadcasting etc. which I would not be able to cover today. But let me assure you that we have an open mind on all these important issues and have not come to conclusions one way or the other. The consultation period will end on 28th of February and we would very much like to hear your views about our policy proposals to help us formulate the most suitable framework for digital broadcasting services in Hong Kong.

The broadcasting industry is facing an unparalleled market revolution as well as unprecedented challenges and opportunities as we enter the new millenium. We are fortunate to have an entrepreneurial and innovative business sector and a critical mass of talents in the fields of communications, programme production and IT. They will all continue to be the driving force in our quest for a leading role in the digital age. As the Policy Secretary responsible for this challenging sector, I will make my best endeavours to provide a facilitating environment for ideas and aspirations to develop and materialize. And I firmly believe that Hong Kong is well positioned to capitalise on the opportunities ahead.

Thank you.

END/Thursday, February 15, 2001

NNNN