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Following is a question by the Hon Howard Young, and a written reply by the Secretary for Information Technology and Broadcasting, Mrs Carrie Yau, in the Legislative Council today (January 16):

Question :

Regarding the full liberalisation of the local fixed telecommunications network services (FTNS) market, will the Government inform this Council:

(a) of the movement in the percentage of the telecommunications sector in the Gross Domestic Product over the past four years, and whether it has assessed and reviewed how such movement relates to the measures taken for liberalising the FTNS market;

(b) of the respective market shares of the four existing wireline-based FTNS operators, and whether it has analysed the reasons for the significant differences in those shares and taken follow-up actions;

(c) whether it has analysed the benefits of the liberalisation of the FTNS market to the overall economy; if it has, of the details; and

(d) given that a research report on the telecommunications industry in the Asia-Pacific Region, published by Standard & Poor's in October last year, has pointed out that factors such as the persistent pressure from competition and the uncertainty in the scale of regulation would bring about severe strains on the telecommunications sector in the Asia-Pacific Region in the coming years, and that the terrorists attack on September 11 last year has aggravated the market's worries about the economic outlook, thereby causing financing problems to the telecommunications corporations in the region, whether it has assessed if January 1, 2003 is still the right time for the full liberalisation of the FTNS market?

Reply :

(a) The statistics on percentage of telecommunications sector in GDP for 2000 and 2001 are not yet available. The percentage figures of telecommunications sector in GDP, namely the ratio of the telecommunications industry's value-added amount to the GDP, for 1998 and 1999 are 1.8 per cent and 1.4 per cent respectively. The percentages have slightly decreased.

However, the revenues for the telecommunications sector have grown from HK$50.7 billion in 1996 to HK$55.4 billion in 1999. Under our progressive liberalisation policy, various sectors of the telecommunications market have been liberalised with more new entrants. This has led to intensive competition, which in turn has benefited consumers and businesses at large with increased provision of innovative, quality services at lower price, particularly in the mobile and IDD services. We therefore have observed in this growing sector increase in revenues and utilisation, coupled with price reduction and lower profit margin by more competing operators.

Liberalisation of the telecommunications market is the international trend. We believe that our policy is in the right direction. It brings about benefits to consumers in terms of lower prices and better quality services. There are also other benefits brought by the liberalisation policy as outlined in part (c) of my reply.

(b) PCCW-HKT Telephone Limited, or the then Cable & Wireless HKT Telephone Limited, was the monopoly in the local telecommunications market before competition was introduced in 1995. It has a long history in rolling out its network. Moreover, PCCW-HKT Telephone Limited is required to provide a universal service of ordinary telephone. Therefore its telephone network covers everywhere in the territory of Hong Kong.

In 1995, three new operators were licensed to provide fixed telephone services. To enhance coverage of the new operators, the Government secured commitments from three new operators in 1998 to roll out their networks. Since then, the Government has been actively monitoring the progress of roll out and facilitating the related work. As at September 2001, the three new operators already achieved a coverage whereby over 35 per cent of the residential customers had an alternative choice. Our target is to enable 50 per cent of the consumers to have an alternative choice by end 2002 and we are fairly confident that the target can be achieved.

In terms of market share, we estimate that the three new operators currently have a market share of about 10 per cent. We would however like to highlight that market share of the three new operators is a matter for the market which depends on, inter alia, customer preferences. Our aim is to provide alternative choices to consumers through competition in a liberalising market.

(c) & (d) Economies around the world have been going through the peaks and the troughs as they always do. The telecommunications industry, like other industries, also has its ups and downs. Under our well established market-driven principle, the decision whether to enter and exit a market is best left to the operators taking into account their own business plans. The role of the Government is to reduce barriers to entry into the market and provide a favourable and level-playing field for the industry.

As announced in 1999, we are firmly committed to our established policy to fully liberalise our telecommunications market in 2003. It is of utmost importance that we uphold our announced policy. Indeed, we have benefited substantially from our liberalisation policy - competition has led to quality and innovative services at competitive prices, bringing benefits to the consumers and the business community. A few notable examples are:

* IDD customers have benefited from a tremendous saving of HK$9.4 billion in 1999 and 2000 since the introduction of competition in January 1999.

* The prices of international private leased circuits (IPLC) have dropped significantly since the external facilities market was open in January 2000. For instance, the monthly rental of an IPLC with a capacity of 2 Mbps between Hong Kong and Mainland China has plummeted from HK$140,000 to HK$20,000 since 2000, a reduction of 86 per cent.

* With ten fixed telecommunications network operators, broadband service has improved and the number of customers has increased from 51 494 in February 2000 to 543 433 in October 2001, more than 10-fold in less than two years. The average monthly rental is in the region of HK$200, one of the cheapest in the world.

* In the local telephone market, more customers have alternative suppliers who offer monthly rentals ranging from HK$48 to HK$88.

END/Wednesday, January 16, 2002

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