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Following is a question by the Hon Sin Chung-kai and a written reply by the Secretary for Commerce and Economic Development, Mr Frederick Ma, in the Legislative Council today (July 2):
Question:
On April 17, 2008, PCCW-HKT Telephone Limited (PCCW) submitted an application to the Telecommunications Authority (TA) to increase the Fixed-Mobile Interconnection Charge (FMIC), which is the interconnection charge payable by a mobile network operator (MNO) to a fixed network operator (FNO), by 25%, i.e. from 4.36 cents per minute to 5.45 cents per minute. The application was deemed, according to the provisions of the fixed carrier licence of PCCW, to be approved as TA did not arrive, within 30 days from receipt of the application, at a definitive view that the tariff increase would, or would not, contravene the competitive provisions in the Telecommunications Ordinance (Cap. 106). The new FMIC was effective from June 1, 2008. In this connection, will the Government inform this Council:
(a) of PCCW's justifications for its application to increase the FMIC, and the reasons why TA did not follow its past practice of consulting the affected parties before the new tariff was adopted;
(b) whether it has assessed if the FMIC increase had contravened the spirit of section 7(L) of Telecommunications Ordinance regarding predatory pricing, given that PCCW's market share in fixed-network services is reportedly 70%; if it is assessed so, whether it is contemplating any measure to overturn the decision of TA; if it is assessed otherwise, the reasons for that;
(c) given TA's policy of removing regulatory barriers to fixed-mobile convergence in Hong Kong, whether it has assessed the impact which the increased FMIC will have on the competitive position of MNOs vis-a-vis FNOs;
(d) whether TA had considered and reached a view on the potential impact of the increased FMIC on the charges payable by customers of MNOs; and
(e) whether TA had considered and reached a view on whether the other FNOs would follow PCCW's lead and increase their FMIC?
Reply:
Madam President,
The fixed-mobile interconnection charges (FMIC) arrangement is a regulatory matter which falls within the ambit of the Telecommunications Authority (TA) and is currently governed by a regulatory guidance issued by the TA in 1995.
After the full liberalisation of the local fixed market, the TA removed in January 2005 the ex ante control on tariff which had hitherto only applied to PCCW-HKT Telephone Limited (PCCW), the incumbent fixed network operator, except for interconnection tariffs which were in force at December 1, 2004. Under PCCW's licence, amendments to these interconnection charges are still subject to TA's prior approval. The TA shall approve every such amendment where, in the TA's opinion, the amended tariff would not be in contravention of the competition provisions under the Telecommunications Ordinance (TO). If the TA does not approve or disapprove the application, it will be deemed to be approved after a period of 30 days from the date of receipt of the application. When considering the approval or disapproval of the application for an increase in the tariff, the TA exercises his power under the relevant licence condition impartially and independently.
According to the Office of the Telecommunications Authority (OFTA), PCCW submitted on April 17, 2008 its application to seek TA's approval of the increase of its FMIC Tariff. As the TA could not arrive at a definitive view that the proposed tariff increase would, or would not, contravene the competition provisions of the TO (in particular Section 7L), PCCW's application for tariff amendment was therefore deemed to be approved after a period of 30 days. The revised FMIC Tariff, an increase from 4.36 cents per minute to 5.45 cents per minute, was published by PCCW in the gazette on May 23, 2008. The TA published a statement on the same date to explain his position regarding PCCW's application.
Since the TA has not given positive clearance to the FMIC Tariff increase and pursuant to consideration of Section 7L of the TO in respect of abuse of dominant position in the market, the question of whether the tariff increase, once implemented, contravenes Section 7L of the TO is an open one which can be considered under the ex post regime, i.e. after the increase has come into effect. Any party who considers that the tariff increase has an anti-competitive effect in any telecommunications services market in contravention of Section 7L may state its case to the TA. On June 18, 2008, a mobile network operator (MNO) submitted to the TA and requested for an investigation on the tariff increase conduct of PCCW under Section 7L or other competition provisions in the TO. Separately, two MNOs filed appeals in respect of the case with the Telecommunications (Competition Provisions) Appeal Board on June 6, 2008.
Against the above background, my reply is as follows:
(a) As pointed out in the TA statement published on May 23, 2008, PCCW has claimed that the tariff increase is a strategic move to stimulate the MNOs to commence negotiation with PCCW over the transitional FMIC arrangement. However, the TA has elaborated that PCCW's declared motive for the increase is not a relevant consideration as he will only consider the impact of the tariff amendment in the context of the competition provisions of the TO. In addition, since the liberalisation of the local fixed market in July 1995, it has not been an established practice for OFTA to undertake any industry consultation in relation to changes in the level of PCCW's FMIC Tariff. There is also no such consultation requirement in PCCW's licence.
(b) to (e) The Government has received legal advice that the specific issues set out in parts (b) to (e) are matters that fall within the scope of the two separate appeals filed with the Telecommunications (Competition Provisions) Appeal Board as set out in the above reply. Since these matters are now sub judice, the Government is not in a position to comment at this juncture.
Ends/Wednesday, July 2, 2008
Issued at HKT 15:01
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