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Following is a question by Dr Hon Fernando Cheung and a reply by the Secretary for Commerce, Industry and Technology, Mr Joseph WP Wong, in the Legislative Council today (November 29):
Question:
In July this year, the Office of the Telecommunications Authority (OFTA) released a consultation paper which, among other things, recommended the removal of the existing requirement for mobile network operators to pay interconnection charges to fixed network operators for incoming and outgoing calls. There have been comments that the implementation of this proposal will reduce the revenue of the fixed network operators, and they may replace the existing flat-rate charging mode for fixed telephone services by one based on usage. On the other hand, when OFTA consulted the public on the charging mode of fixed telephone services in May 1996, the public generally considered that the status quo should be maintained at that time. In this connection, will the Government inform this Council:
(a) of the arguments put forth in 1996 in support of maintaining the flat-rate charging mode and against the usage-based charging mode, and whether such arguments still stand; whether it will consider consulting the public again on the charging mode concerned;
(b) as OFTA had, following the public consultation exercise in 1996, decided not to change the flat-rate charging mode for fixed telephone services, why OFTA stated in the consultation paper released in July this year that it "is not in a position to influence" the charging mode; and
(c) whether, in deciding on the charging mode for fixed telephone services, it will take into account the special needs of the elderly people and other socially disadvantaged groups to use the telephone for social contacts and seeking help, and the affordability of non-profit-making organisations which operate telephone hotlines?
Reply:
Madam President,
First of all, I would like to clarify that the Office of the Telecommunications Authority (OFTA), in its Consultation Paper on "Deregulation for Fixed-Mobile Convergence" released in July this year, did not propose to abolish the interconnection charges between fixed and mobile networks, but propose to abolish the existing practice of setting the mode and level of fixed-mobile interconnection charges by the regulator. Instead, the mode and level of interconnection charges should be subject to free negotiation among network operators in the market. OFTA will only take regulatory action, by virtue of section 36A of the Telecommunications Ordinance (TO), when the operators fail to reach any commercial agreement. As a matter of fact, OFTA has never regulated interconnection charges between mobile networks, and the operators manage to enter into agreements on a commercial basis. Furthermore, since 2003, OFTA has not received any request for regulating interconnection charges between fixed networks. Against this background, the question OFTA raised in the Consultation Paper is whether the current regulatory arrangement, i.e. mobile network operators to pay all fixed-mobile interconnection charges to fixed network operators unilaterally, which was formulated by the regulator over 20 years ago when mobile service was then regarded as a value-added service, should continue under the prevailing market condition; or should market forces be allowed to function as in the cases for fixed-to-fixed and mobile-to-mobile interconnection charges and to prepare the environment for the future development of fixed-mobile convergence.
Regarding Dr Hon Fernando Cheung's question, my reply is as follows:
(a) In May 1996, OFTA released a consultation document to seek public views on the charging models for fixed telecommunications network services (including usage-based charging mode). Arrangement for interconnection charges did not fall within the scope of that consultation. In that consultation exercise, there were views supporting usage-based charging mode because it was considered fair while some opined that usage-based charging mode would lead to an increase in their expenses for fixed network services. Since OFTA was unable to ascertain whether the public views expressed had carefully taken into account the pros and cons of various charging models or whether there was any misunderstanding about the issues, it did not propose any change to the original flat-rate pricing structure.
In order to enhance the overall competitiveness of Hong Kong and maximise the benefits for consumers, the Government entered into an agreement with Hong Kong Telecom (HKT) on the early termination of the latter's exclusive rights to provide external telecommunications with full effect from January 2000. The agreement allowed HKT to raise residential fixed network tariffs progressively up to the prescribed price caps to recover the full costs of providing the services. All price caps were removed after the end of 2001. Since then, fixed network operators could set the level of tariffs and charging mode on their own in a competitive market.
(b) As mentioned in part (a) above, all regulation on the tariffs of telecommunications services provided to consumers has been withdrawn since 2001. Fixed network operators can set the level of tariffs and charging mode on their own in a competitive market, unless such tariffs are considered anti-competitive practices in contravention of sections 7K to 7N of the TO. As such, OFTA is not in a position to influence the charging mode adopted by fixed network operators. With the growth of effective competition in the fixed telecommunications market, the tariffs charged by the fixed network operators will be constrained by market competition similar to the situation in the mobile telecommunications market. The research conducted by OFTA found that after withdrawal of price caps on fixed network tariffs in January 2002, the average tariffs of local fixed network services has dropped from $92.9 in January 2002 to $65.9 in June 2006.
(c) As mentioned in part (b) above, the fixed network tariffs have dropped after deregulation. The charging modes of the fixed network operators are not determined by the Government. We should not assume that the switch to usage-based charging mode would add burden to consumers (including the elderly and disadvantaged groups). Under the current environment with effective competition, consumers are provided with sufficient choices, including choosing the services provided by other operators, or switching to mobile services the tariffs of which are highly competitive.
At present, the Comprehensive Social Security Assistance Scheme provides allowances for the actual expenses for renting a residential telephone line and a standard telephone set to those applicants who have justifiable reasons for independent telephone lines, such as the elderly living alone or disabled people who need to make external calls in case of emergency. As to the non-profit making organisations which are subsidised under lump sum grant arrangement, if the fixed network operators change the level of tariffs and charging mode, the Government will allow them to make use of their overall allocation flexibly and more effectively to provide appropriate and necessary services to their clients, provided that it would not contravene the rules of lump sum grant arrangement.
Ends/Wednesday, November 29, 2006
Issued at HKT 12:55
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