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Following is a question by the Hon Sin Chung-kai and a written reply by the Secretary for Commerce, Industry and Technology, Mr Henry Tang, in the Legislative Council today (May 14):

Question:

Since the upward adjustment of the termination rate of Hong Kong - Philippines long distance calls on February 1, 2003, some external telecommunications services ("ETS") operators have complained against an ETS operator for dumping its pre-paid stored value phonecard service for Hong Kong - Philippines long distance calls to customers at a price below the normal service costs which include termination rate, local access fees and universal service contribution fees. This practice has seriously affected competition in the Hong Kong - Philippines ETS market. Moreover, the affiliates of some ETS operators are fixed telecommunications network services ("FTNS") operators which can lower their operating costs by off-setting the termination rate with telecommunications services operators in other territories. These ETS operators can thus enjoy a lower cost because they do not have to pay the termination rate, and the competition in the ETS market as a whole is affected. In this connection, will the Government inform this Council:

(a) whether it has assessed if the dumping practice of providing customers with telecommunications services at a price lower than the normal service costs is an "anti-competitive practice" under section 7K of the Telecommunications Ordinance (Cap. 106); if it has, of the assessment results;

(b) whether it plans to review and revise the existing policies on pro-competitive practices, such as adding provisions on "anti-dumping practices" in the legislation concerned; and

(c) of the policies or measures currently in place to regulate FTNS operators' disposal of the savings on operating costs generated from the off-setting of the termination rate with telecommunications services operators in other territories?

Reply:

Madam President:

(a) Section 7K of the Telecommunications Ordinance prohibits licensees from engaging in conduct which, in the opinion of the Telecommunications Authority, has the purpose or effect of preventing or substantially restricting competition in a telecommunications market. Offering telecommunications services to customers at prices which are below cost can constitute anti-competitive behaviour, particularly when the operator concerned holds a dominant position in the relevant market. However, in a competitive market, it is not uncommon for market players to price below cost for a short period of time. Such a marketing strategy can be used to acquire market share, establish a brand or increase customer awareness of new products etc, and is not necessarily anti-competitive. It is necessary to analyse the circumstances of each individual case before deciding whether pricing below cost in the particular case is anti-competitive.

As regards the case mentioned in the question, the Office of the Telecommunications Authority is conducting investigation. It will publish the result of investigation in its web site.

(b) The existing section 7K of the Telecommunications Ordinance provides sufficient safeguards against anti-competitive practices. As mentioned in (a), offering telecommunication services at below cost prices may constitute an anti-competitive practice covered under this section. There is therefore no need to add a specific reference to "anti-dumping practices" in the Ordinance.

(c) Fixed telecommunications network services (FTNS) operators are subject to regulation under the competition safeguards in the Telecommunications Ordinance. For example, section 7K of the Telecommunications Ordinance prohibits a licensee from giving undue preference to an associated person which would prevent or substantially restrict competition. Hence, if an FTNS operator offers more favourable prices and terms to its associated company because of the savings on operating costs generated from the off-setting of the termination rate with telecommunications operators in other territories, it must also offer them to non-associated external telecommunications services providers on a non-discriminatory basis to ensure fair competition in the market.

End/Wednesday, May 14, 2003

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