Liberalisation and Growth in Liberalisation and Growth in Telecommunications Telecommunications -- Hong Hong Kong, China's ExperienceKong, China's Experience

T F So, Assistant DirectorT F So, Assistant DirectorOffice of the Telecommunications Office of the Telecommunications

AuthorityAuthorityHong Kong, ChinaHong Kong, China

AgendaAgenda

Key Milestones in LiberalisationKey Milestones in LiberalisationIndependent RegulatorIndependent RegulatorLocal Fixed NetworkLocal Fixed NetworkExternal Fixed NetworkExternal Fixed NetworkMobile NetworkMobile NetworkInternet Access ServiceInternet Access Service

Liberalisation Benefited HKCLiberalisation Benefited HKC’’s s economyeconomy

Background Information about Background Information about Hong Kong, ChinaHong Kong, China

Special Administrative Region of the Special Administrative Region of the PeoplePeople’’s Republic of Chinas Republic of ChinaArea 1,100 sq kmArea 1,100 sq kmPopulation 6.909 millionPopulation 6.909 millionNumber of Households 2.237millionNumber of Households 2.237millionGross Domestic Product per capita in Gross Domestic Product per capita in 2006 2006 –– US$ 27,000US$ 27,000Services constitute about 91% of Services constitute about 91% of economyeconomy

Key Telecom StatisticsKey Telecom Statistics

52885288Public WiPublic Wi--Fi access pointsFi access points

US$ 0.8 billion (2007)US$ 0.8 billion (2007)Annual capital expenditureAnnual capital expenditure

US$ 6.6 billion (2007)US$ 6.6 billion (2007)Annual revenueAnnual revenue

26262.5G/3G customers as a percentage 2.5G/3G customers as a percentage of mobile customersof mobile customers

5 (four 3G operators)5 (four 3G operators)Number of mobile operatorsNumber of mobile operators

143.4%143.4%Mobile penetrationMobile penetration

75% by households75% by householdsBroadband penetrationBroadband penetration

1010Number of local fixed operatorsNumber of local fixed operators

56% by population56% by populationTelephone line densityTelephone line density

Independent RegulatorIndependent RegulatorLegal basis Legal basis –– Telecommunications Telecommunications OrdinanceOrdinanceTelecommunications Authority (TA) Telecommunications Authority (TA) ––Independent regulator empowered by the Independent regulator empowered by the Ordinance to regulate the Ordinance to regulate the telecommunications industrytelecommunications industry19931993•• Office of the Telecommunications Authority Office of the Telecommunications Authority

(OFTA) established as the executive arm of the (OFTA) established as the executive arm of the TATA

•• paved the way for liberalisationpaved the way for liberalisation

Liberalisation in Local Fixed Liberalisation in Local Fixed Network and ServiceNetwork and Service

19951995End of domestic telecommunications End of domestic telecommunications franchisefranchiseThree new companies licensedThree new companies licensed•• New World Telephone LimitedNew World Telephone Limited•• New T&T Hong Kong LimitedNew T&T Hong Kong Limited•• Hutchison Communications LimitedHutchison Communications Limited

to compete with the incumbent operator, Hong to compete with the incumbent operator, Hong Kong Telephone CompanyKong Telephone Company

Interconnection rules establishedInterconnection rules established

Liberalisation in Local Fixed Liberalisation in Local Fixed Network and ServiceNetwork and Service

19971997Fixed number portability introducedFixed number portability introduced

2000 2000 –– further liberalisationfurther liberalisation5 wireless local fixed networks licensed5 wireless local fixed networks licensedCable TV operator allowed to provide Cable TV operator allowed to provide telephone servicestelephone services

Liberalisation in Local Fixed Liberalisation in Local Fixed Network and ServiceNetwork and Service

2003 2003 –– fully liberalisedfully liberalisedNo limit on number of licencesNo limit on number of licencesTechnology neutralTechnology neutralNo restriction on foreign ownershipNo restriction on foreign ownershipServices fully privatised, no government Services fully privatised, no government subsidysubsidyNo control on tariffs No control on tariffs Competition provisions introducedCompetition provisions introducedMarket driven, proMarket driven, pro--competition, procompetition, pro--consumer policyconsumer policy

Telephone LinesTelephone Lines

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

BusinessResidentialTotal

No

of L

ines

True Competition Developed True Competition Developed in Marketin Market

Incumbentnew entrants

Incumbentnew entrants

Market Share of incumbent in 2006 -2007

Business lines 69.4% Residential lines 65.9%

Liberalisation of External Liberalisation of External Network and ServiceNetwork and Service

Hong Kong Telecommunication Hong Kong Telecommunication International (HKTI) held an International (HKTI) held an exclusive licence for external exclusive licence for external services in 1990services in 1990’’ssIn 1998, HKTI received HK$6.7 In 1998, HKTI received HK$6.7 billion cash compensation from the billion cash compensation from the government to surrender its government to surrender its exclusive licence, eight years earlier exclusive licence, eight years earlier than the scheduled expiry in 2006than the scheduled expiry in 2006

Liberalisation of External Network Liberalisation of External Network and Service and Service

19991999External serviceExternal service--based competition introduced based competition introduced

20002000External facilitiesExternal facilities--basedbased competition introducedcompetition introduced

New Technologies lowered operating costNew Technologies lowered operating costSubstantial reduction in IDD tariffsSubstantial reduction in IDD tariffsNo limit on number of operatorsNo limit on number of operatorsMandatory interconnection between external and Mandatory interconnection between external and local fixed networkslocal fixed networks

IDD TrafficIDD Traffic

-

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

8,000,000,000

9,000,000,000

10,000,000,000

96 97 98 99 00 01 02 03 04 05 06 07

Outgoing IDD

Incoming IDD

Total

No.

of M

inut

es

IDD TariffsIDD TariffsLiberalisation of external fixed Liberalisation of external fixed networks/services brought about networks/services brought about substantial reduction in IDD tariffssubstantial reduction in IDD tariffsIn 1999 In 1999 –– 2002 (4 years) alone, estimated 2002 (4 years) alone, estimated consumer saving reached HK$ 25.5 billion consumer saving reached HK$ 25.5 billion (much higher than the compensation (much higher than the compensation granted to the incumbent operator)granted to the incumbent operator)International private leased circuits price International private leased circuits price also dropped substantially (eg. in 2001, also dropped substantially (eg. in 2001, price of IPLC for US/HK dropped by 50%) price of IPLC for US/HK dropped by 50%)

Liberalisation in Mobile Network Liberalisation in Mobile Network and Servicesand Services

19841984First mobile network introducedFirst mobile network introduced

1985 1985 –– 19891989Four analogue licences issued, later switched to GSM Four analogue licences issued, later switched to GSM 900 and CDMA900 and CDMA

19961996Additional 6 licences issued to provide GSMAdditional 6 licences issued to provide GSM--18001800

19991999Mobile number portability implemented, triggered Mobile number portability implemented, triggered acute market competitionacute market competition

Liberalisation in Mobile Network and Liberalisation in Mobile Network and ServicesServices

20012001Four 3G licensed issued through spectrum auctioning; Four 3G licensed issued through spectrum auctioning; First MVNO licence issuedFirst MVNO licence issued

20072007One additional licence for CDMA 2000 issuedOne additional licence for CDMA 2000 issued

NowNow152% subscriber penetration rate152% subscriber penetration rate

Near futureNear futureSeveral licences for broadband wireless access to be Several licences for broadband wireless access to be issued through spectrum auctioningissued through spectrum auctioning

Liberalisation in Mobile Network Liberalisation in Mobile Network and Servicesand Services

All liberalisation policies for fixed All liberalisation policies for fixed network applynetwork applyNatural limitation on number of Natural limitation on number of licensees due to limited availability of licensees due to limited availability of spectrumspectrumSpectrum auction Spectrum auction -- to ensure open, to ensure open, fair and efficient use of spectrumfair and efficient use of spectrumSpectrum trading to be consideredSpectrum trading to be considered

Cellular TelephonesCellular Telephones

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

CellularTelephones

Num

ber o

f Sub

scrib

ers

Internet Access ServiceInternet Access Service

Open to full competition since Open to full competition since launched in 1990launched in 1990’’ssNo/Low market entry barrier No/Low market entry barrier Low licence fee (HK $750 per year)Low licence fee (HK $750 per year)LightLight--handed regulationshanded regulations

Number of Licensed Internet Number of Licensed Internet Service ProvidersService Providers

0

50

100

150

200

250

300

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Licensees

Internet Traffic VolumeInternet Traffic Volume(Customer Access via Broadband Networks)(Customer Access via Broadband Networks)

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

97 98 99 00 01 02 03 04 05 06 07

viaBroadband

Tera

bits

All Sectors Now Open to All Sectors Now Open to CompetitionCompetition

Paging services Paging services –– since 1970since 1970’’ssValueValue--added services added services –– 19851985Mobile phone networks and Mobile phone networks and services services –– 19851985Local fixed networks and services Local fixed networks and services ––19951995External services External services –– 19991999External facilities External facilities –– 20002000

252252248248226226230230217217213213External telecom External telecom services operatorsservices operators

242421212020191918181818CableCable--based external based external fixed carriersfixed carriers

666666554455SatelliteSatellite--based external based external fixed carriersfixed carriers

111111112222WirelessWireless--based fixed based fixed carrierscarriers

101010101010999977WirelineWireline--based fixed based fixed carrierscarriers

200720072006200620052005200420042003200320022002

Liberalisation Benefited HKCLiberalisation Benefited HKC’’s s EconomyEconomy

Consolidated Hong KongConsolidated Hong Kong’’s position as a s position as a telecommunications hub in the Asiatelecommunications hub in the Asia--Pacific Pacific RegionRegionHigh quality, low price services enhanced High quality, low price services enhanced competitive advantages of other sectorscompetitive advantages of other sectorsReduced cost of telecommunications to Reduced cost of telecommunications to business and residential consumersbusiness and residential consumersCompetition drove service innovation, Competition drove service innovation, which in turn enhanced productivity which in turn enhanced productivity (increase in capacity, decrease in unit cost) (increase in capacity, decrease in unit cost) Facilitated the rollout of information Facilitated the rollout of information infrastructure in Hong Konginfrastructure in Hong Kong

Fixed Line TariffsFixed Line TariffsMonthly subscriptionMonthly subscription

0

20

40

60

80

100

120

140

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Residential

Business

3

Hon

g Ko

ng D

olla

r

Mobile Services Tariffs (PreMobile Services Tariffs (Pre--paid)paid)Local call (peak vs offLocal call (peak vs off--peak rate)peak rate)

0

2

4

6

8

10

12

14

16

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

3-min.localcall (peakrate)3-min.localcall (off peakrate)

Hon

g Ko

ng D

olla

r

Total Telecom Services RevenueTotal Telecom Services Revenue

0

10,000

20,000

30,000

40,000

50,000

60,000

93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07

Mill

ion

in H

K $

FullFull--time telecommunication stafftime telecommunication staff

05000

10000150002000025000300003500040000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

staf f

GDP and Services contributionGDP and Services contribution

0

5,000

10,000

15,000

20,000

25,000

30,000

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

GDP

US

$

91.391.391.391.390.690.689.989.989.289.288.388.387.387.386.586.586.186.185.785.785.985.985.285.284.784.784.284.282.382.3%%

070706060505040403030202010100009999989897979696959594949393YearYear

Service contribution :

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