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SCED's speech at 7th APEC Ministerial Meeting on Telecommunications and Information Industry (English only)

    Following is a speech by the Secretary for Commerce and Economic Development, Mr Frederick Ma, at the 7th APEC Ministerial Meeting on Telecommunications and Information Industry (APEC TELMIN 7)・s Plenary Session 3: Changing Market Profiles and Flexible Regulatory Frameworks today (April 24):

Good morning, Excellencies, Distinguished Delegates, ladies and gentlemen,

    It gives me great pleasure to attend the APEC TELMIN 7, which provides a forum for APEC Ministers to gather together to share views and experience, and work towards promoting telecommunications market liberalisation in the Asia-Pacific Region.

    Hong Kong, China is one of the most open, externally-orientated economies globally.  We are consistently ranked by the Heritage Foundation and the Cato Institute as the freest economy in the world.  We firmly believe in free market, and practise it vigorously.  The telecommunications policy and regulatory regime of Hong Kong testifies to this long-held philosophy.  I am pleased to share with fellow Ministers and regulators Hong Kong・s vision and our experience in market liberalisation and deregulation.

The Path to Market Liberalisation

    Telecommunications historically was not a market that was open to competition.  Hong Kong was no exception.  Before 1995, our local fixed telephony and external services were provided on a monopoly basis.  But in the early 1990s, the Hong Kong Government had already recognised the economic and social importance of telecommunications, which underpinned the entire services sector in Hong Kong.  The competitiveness of Hong Kong・s telecommunications would reinforce the overall competitiveness of Hong Kong・s economy.

    Hence, in 1995, we embarked on the challenging journey of market liberalisation, and from that point, there has been no turning back.  The local fixed telephony franchise of the Hong Kong Telephone Company ended in 1995 and we seized the opportunity to introduce competition to the local fixed telecommunications network services (FTNS) market.  The full liberalisation of the local FTNS market has resulted in a substantial increase in the choice of services for consumers as well as the emergence of a wide variety of innovative telecommunications and multimedia services supported by high-speed and high capacity telecommunications networks.

    The exclusive right previously granted to the then incumbent operator, Hong Kong Telecom International, to operate external telecommunications services was originally not to expire until 2006.  However, we considered that allowing the exclusivity to run until 2006 was not in Hong Kong・s best interests.  In 1998, we successfully negotiated a deal whereby the Hong Kong Telecom International agreed to surrender its exclusive licence, thus enabling us to liberalise the external telecommunications market as from 1999.

    During the first year of liberalisation, the weighted average of IDD prices over all routes decreased by 30%.  In the following year, the weighted average prices further dropped by 44%.  With the continuous massive price cuts after the liberalisation, we estimate that consumer saving was already more than US$3 billion in the first few years of liberalisation, with further savings made in the subsequent years due to the intense competition.

    Today, virtually all aspects of the telecommunications market in Hong Kong are fully liberalised.  There is no pre-determined quota of licences for any kind of telecommunications service operators.  There has also been no foreign investment restriction imposed on foreign entities owning telecommunications facilities or operating telecommunications services in Hong Kong.

From Regulation to Deregulation

    Going hand in hand with the market liberalisation policy was the development of regulatory policy to oversee the transition from monopoly to competition.  The Office of the Telecommunications Authority, OFTA, the telecommunications regulator established by law in 1993, was tasked with overseeing this transition.

    In the early days of our liberalisation, more comprehensive regulation was developed to ensure that new entrants were able to compete with the incumbent on a level playing field.  Examples of regulation include mandating the incumbent to lease the last mile of its network to the new entrants at a regulated price, so that the new entrants could directly and quickly provide services to the end customers in competition with the incumbent.  The incumbent・s tariffs also had to be subject to prior approval, to ensure that they were priced at a level that would not have the effect of substantially restricting competition in the market. 

    Regulatory policy, however, is not static.  As a market develops, regulatory policy has to respond to market changes.  In the case of Hong Kong, China, as competition flourished, especially after the full liberalisation of the market in January 2003, regulation, which was an intervention in the market in the first place, had to be scaled back to ensure that it did not become an obstacle to the continual and healthy growth of competition in the market.  :Market driven; means letting the market look after itself. Deregulation has thus been the focus of our attention for the past few years. For example, the mandatory requirement imposed on the incumbent to lease the last mile of its network will be fully withdrawn, and the tariff approval requirement imposed on the incumbent has also been withdrawn.  The move to deregulation was complemented by pro-competition provisions in the telecommunications law to safeguard fair and effective competition and level playing field in the market.

Where we are today

    Today, Hong Kong・s telecommunications market is one of the most competitive in the world.  There is roll-out of a multiple of end-to-end telecommunications networks to offer truly facilities-based competition in the market.  As of November 2007, out of the total 2.5 million households in Hong Kong, 79% were connected by at least two end-to-end networks self-built by the operators, thus allowing choice for the customers. Indeed, 55% were connected to at least three networks.  This is truly unique in the world.

    We have also witnessed leaps and bounds advancement of telecommunications technology, with, for example, broadband networks developing into high-speed multi-media platforms that deliver not only voice and data transmission services, but also content services in the form of pay TV services.  The transmission speeds offered by broadband services operators in the market can now be as high as more than 1,000Mbps.  All residential and commercial buildings in Hong Kong are now covered with broadband network.  Broadband Internet access services have become very popular in Hong Kong. We have a household penetration reaching nearly 80%. For the basic broadband Internet access service, the monthly cost can be as low as US$14 (HK$110).

    In fact, broadband services are not just limited to those provided to the homes and offices.  There are more than 6,700 Wi-Fi hotspots installed by 30 operators at their own cost at more than 4,200 locations in Hong Kong, in places like the airport, shopping malls, cafes, restaurants, convenience stores, telephone booths and public housing estates.  Some operators have even found the business case to provide Wi-Fi services free of charge to the users as value-added services. 

    Convergence has already taken place in the market. A wide range of communications products and packages is available in the market, bundling plain old telephone services, broadband, pay TV and mobile services in different sort of combinations.

    Hong Kong consumers are enjoying the fruits of a liberalised telecommunications market which is light-handedly regulated.  Five fixed network operators are competing with each other at the retail level, providing voice, broadband and pay TV services on a standalone or bundled basis to end customers.  There are also five mobile networks, which all offer multi-media services on top of the basic voice and data services.  With the competitive mobile service market, we have recorded a very high mobile phone penetration rate of 152% as at end of January 2008, i.e. about 11 million subscribers, that is well above the population in Hong Kong of about 6.8 million, which means that many of the subscribers are actually using more than one mobile phone.  The monthly price for mobile services can be as low as US$5 for 1,000 minutes.  Our consumers as well as the business sector are indeed spoilt with choices of new and advanced services and products offered at competitive prices.

Looking Ahead

    More than a decade since we first started, the main elements of the liberalisation and deregulation process have largely been completed.  But new issues will surface when market and technology develop.  For example, fixed-mobile convergence at the network level is fast becoming a reality, with spectrum deployed for broadband wireless access which could be a fixed or mobile service.  We are already getting the regulatory framework ready for fixed-mobile convergence by proposing a licensing framework which enhances operators・ flexibility in the provision of their services.  To facilitate the introduction of advanced technology and more efficient services, we will keep monitoring the market trend and reviewing our licensing regime to ensure that we do not inadvertently become an obstacle to market development.

    The Next Generation Network (NGN) is another case in point. NGN will integrate conventional fixed, mobile and data networks into an intelligent and unified IP-based backbone network infrastructure to deliver universal access and act as host to a wide variety of new technologies, applications and service opportunities. Telecommunications operations in the NGN world are conceptually and technologically different from the old world of Public Switched Telephone Network (PSTN).  The technical and economic regulation designed for the PSTN may no longer be relevant in the coming future.

    In Hong Kong, China, the pace of NGN is driven by the market. The responsibility of the SAR Government is to create an enabling environment to facilitate the operators to make transition to NGN as and when they see fit.  We are closely monitoring the development of the NGN and its impact on the future regulatory framework.  Given our effort in pursuing deregulation, we should always caution ourselves against stepping in too hastily to impose new regulation, as this will dampen the incentives of the operators to find out commercially viable solutions amongst themselves, without Government intervention.

    At a broader level, we are planning to introduce a cross-sector general competition law in Hong Kong.  At present, competition law is only enforced in the telecommunications and broadcasting sectors. We will shortly consult the public on the Government・s proposals for the new general competition law provisions and regime. I anticipate some very interesting views and debates over the new competition law regime in the coming months in Hong Kong.

    Ladies and Gentlemen, Hong Kong has reached where we are today because, as early as in the 1990s, we saw the benefits that market liberalisation and competition would bring to Hong Kong and our consumers.  And true to our market-driven approach, we have stuck to a light-handed regulatory policy throughout these years in order to allow industry players the freedom to test their own case in the market. 

    Our market-driven approach has fostered a progressive, innovative and competitive telecommunications industry, comprising local, Mainland China and overseas operators all willing to invest in facilities and developing new services and products to satisfy a community that is ever receptive to the rollout of new and advanced technology.

    And we look forward to exchanging views and cross-fertilising with other economies on the experience in market liberalisation and deregulation in this APEC forum.

    Thank you very much.

Ends/Thursday, April 24, 2008
Issued at HKT 18:25


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