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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, at the Legislative Council today (April 30):

Question:

The Office of the Telecommunications Authority requires external telecommunications services operators ("ETSOs") to pay local access charges ("LAC") to fixed telecommunications network operators ("FTNOs") as compensation for the latter's network resources being used by the former in the carriage of external telecommunications. The Telecommunications Authority issued a statement in June 2001 to announce the adjustment in the calculation of LAC and its level with effect from 1 July in the same year. In this connection, will the Government inform this Council:

(a) how the factors for determining the calculation method and level of LAC in Hong Kong compare to those in respect of similar charges in other countries and regions with open telecommunications markets (such as the United Kingdom, the United States and Australia); and of the reasons for adopting different practices in these places;

(b) whether it has assessed the impacts of the overseas practices mentioned in (a) on the local telecommunications industry (particularly external telecommunications services); if it has, of the assessment results;

(c) of the respective percentages of LAC in the cost to ETSOs for providing services in the major retail markets of external telecommunications services, in each of the past three years;

(d) whether it has assessed the impacts of the cost percentages mentioned in (c) on the promotion of fair competition in the local telecommunications industry (particularly between FTNOs and ETSOs); if it has, of the assessment results; and

(e) whether it will conduct regular reviews on the calculation method and level of LAC; if it will, when the next review will be conducted?

Reply:

Madam President:

(a) In Hong Kong, the local access charge (LAC) payable to the non-dominant local fixed telecommunications network services (FTNS) operators is commercially negotiated between the local FTNS operators and the external telecommunications services (ETS) providers. Only the LAC payable to the dominant local FTNS operator PCCW-HKT Telephone Limited is determined by the Telecommunications Authority (TA).

Countries which have introduced competition into their telecommunications markets (including UK, USA and Australia) adopt similar rules in determining LAC. They generally use the methodology of long run average incremental cost for working out the incremental cost entailed by the local FTNS operators in respect of delivering the external traffic. The consideration is to ensure that the charge is a fair and sufficient compensation to the local FTNS operators for use of their networks by the ETS providers. The TA also adopts the methodology of long run average incremental cost and the consideration of fair and sufficient compensation in determining the LAC. Details of the methodology for determining the LAC are published in a TA Statement issued in November 25, 1998 after consultation with the industry.

(b) The TA conducts regular review on LAC in accordance with the consideration mentioned in (a) above. After consulting the industry, the TA concluded in October 2000 that the methodology of long run average incremental cost remained valid. In July 2001, TA reviewed the level of LAC, resulting in a reduction as follows :-

                    Outgoing    Incoming   Outgoing/

                    Direct      Direct     Incoming

                    Traffic     Traffic    transit

                                           Traffic


Level of LAC         15.1        15.8       12.9

Prior to 

July 2001

(cents per minute)


Level of LAC         12.1        12.6       10.6

After July 2001

(cents per minute)


Percentage change    -20%        -20%       -18%

In fact, the LAC and indeed the other operating costs of the ETS providers have been decreasing in the past 3 years. The LAC was reduced by 18% - 20% as mentioned in (b). The reduction in the other operating costs can mainly be attributed to a market driven decrease in external circuit costs, which are the costs for leasing external submarine/overland cables for delivering the external traffic.

(d)&(e) We are committed to promoting fair competition in the telecommunications market. Hence, the TA regulates the LAC payable by the ETS providers to the dominant local FTNS operator. This would ensure that the charge is a fair and sufficient compensation for the use of the dominant local FTNS operator's network for delivering external traffic. On the other hand, the LAC payable to the other local FTNS operators by the ETS providers are commercially negotiated. These arrangements would ensure a level playing field for the local FTNS operators, and the ETS providers (who choose not to build their networks for the purpose but to use the networks of the competing local FTNS operators at a LAC) in providing external telecommunications services to compete on.

The TA will review the LAC payable to the dominant local FTNS operator on an on-going basis to ensure that it continues to serve its intended purpose. The next review will be carried out by third quarter this year.

End/Wednesday, April 30, 2003

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