HONG KONG 2005

The Government's telecommunications policy aims to facilitate the development of the telecommunications industry and enhance Hong Kong's position as an international telecommunications hub.

The Office of the Telecommunications Authority (OFTA) is the executive arm of the Telecommunications Authority. It oversees the regulation of the telecommunications industry in Hong Kong and administers the ordinances governing the establishment and operation of telecommunications services.

The Government opened all sectors of the telecommunications market— local and external, services-based and facilities-based — to competition in 2003. There are sector-specific competition provisions in the Telecommunications Ordinance to ensure that there is fair and effective competition in the telecommunications market.

Traditional stand-alone voice networks, data networks and broadcasting networks are progressively migrating to the Next Generation Networks (NGNs), which support all forms of communications. This converged mode of transmission enhances the efficiency of network operation, lowers costs and facilitates the quick introduction of innovative services to the market. Such a development also brings about the need for OFTA to review and update the regulatory regime. OFTA's announcement of the regulatory framework for IP telephony in June 2005 with a view to creating the service-based licence for provision of IP telephone services in January 2006 was a good illustration of the Government's efforts to facilitate the development and introduction of innovative services in the telecommunications market.

At the customer access level, there will also be convergence between fixed and mobile services. The current regulatory framework which demarcates fixed and mobile carrier services with different regulatory arrangements may need to be revamped to align it with technological and market development. A consultation paper proposing a unified licensing framework that suits carriers using different types of access technologies was issued in September. In December, a study was initiated to analyse the costs and benefits to stakeholders and the community from possible changes to other regulatory arrangements, such as fixed-mobile interconnection charging and number portability, which may need to be revised to cope with fixed-mobile convergence at customer access level.

The Government is considering allocating spectrum for the provision of broadband wireless access (BWA) services in the light of recent developments in BWA technology and standards. Apart from its ability to provide a broadband wireless connection to subscribers, thereby substituting wireline links, it is anticipated that BWA technologies will eventually embrace full mobility capabilities, enabling consumers to gain access to a wider choice of innovative services under a fixed-mobile convergence environment. Two public consultations on the licensing framework for possible deployment of BWA in the 3.5 GHz band were conducted in December 2004 and August 2005.

Rapid advances in broadband technologies and the increasing convergence between telecommunications and broadcasting have created opportunities for telecommunications operators to offer IP television (IPTV) services. A number of fixed telecommunications network operators have entered the IPTV market and are now offering triple-play products (telephony, broadband Internet access and IPTV) to their customers. With over 500 000 IPTV subscribers, Hong Kong is regarded as the most advanced IPTV market in the world.

Businesses and consumers in Hong Kong enjoy an excellent telecommunications infrastructure. In 2005, the telephone density was 92 exchange lines per 100 households, one of the highest in the world.

The local fixed-line market has been fully liberalised since January 2003. Under the full liberalisation policy, there is no pre-set limit on the number of licences issued, or the timing for submission of applications for licences. By year-end, there were 10 local wireline-based fixed-line licensees and one local wireless-based fixed-line licensee. Under the technology-neutral regime, a licensee may use any technology provided that the technology conforms to an open and non-proprietary standard and for which there is a reasonable choice of consumer equipment in the market.

After two public consultations, the Government concluded in July 2004 that mandatory Type II interconnection at telephone exchange level — which helped other fixed-line operators enter the market by allowing them access to the PCCW network — would be fully withdrawn by June 30, 2008. This revised policy aims to encourage investment in building new infrastructure and upgrading existing infrastructure. In the long run, consumers will benefit from a greater choice of telecommunications services delivered through an advanced telecommunications infrastructure capable of supporting different forms of innovative services.

Since the introduction of competition in the local fixed-line market in 1995, operators have been actively rolling out their self-built customer access networks to provide choices and services to the end customers. By September 2005, networks built by competitors to PCCW-HKT Telephone Limited covered over 71 per cent of households in Hong Kong.

At year-end, virtually all households and commercial buildings were covered by broadband networks. The number of broadband accounts increased significantly during the year to 1 648 409, or 23.6 broadband accounts per 100 inhabitants, representing an annual increase of 11 per cent. In addition, 65.6 per cent of households had broadband Internet access. Internet Service Providers (ISPs) numbered 186 at year-end. According to reports issued by the International Telecommunication Union (ITU) in 2005, Hong Kong ranks second in the world in terms of broadband penetration (21.3 per cent).

The market for mobile phone services is highly competitive in Hong Kong. At year-end, six firms were operating a total of 13 digital systems providing second generation (2G) and third generation (3G) mobile services and serving a customer base of over 8 million. This represented an annual growth rate of 4.7 per cent. The penetration rate of mobile phone services was about 122.6 per cent, the second highest in the world.

At year-end, the four 3G operators had acquired a customer base of 635 965. The number of enhanced 2G, commonly known as 2.5G, subscribers increased during the year to 1 212 289. With the introduction of 3G and 2.5G services, new services such as video calls and interactive real-time gaming are now available to mobile phone users.

Competition in the external telecommunications services market was introduced on January 1, 1999. On January 1, 2000, the external facilities market was also liberalised. An operator that brings in new submarine or overland cables, or uses non-cable-based means of transmission (primarily satellite) to provide external telecommunications facilities-based service may apply for a licence. At year-end, there were 20 licensees providing cable-based external telecommunications facilities and six providing non-cable-based external telecommunications facilities. Competition in the external telecommunications services and facilities market has led to a significant drop in International Direct Dialling (IDD) call rates.

Two Hong Kong companies, APT Satellite Company Limited and Asia Satellite Telecommunications Company Limited (AsiaSat), hold licences under the Telecommunications Ordinance and the Outer Space Ordinance to operate and provide satellite communication services. At year-end, the two satellite companies were operating eight satellites.

Hong Kong's sophisticated telecommunications facilities, enormous capacity for external communications, high penetration rates for personal computers, the Internet, and mobile services have made it vulnerable to unsolicited electronic messages (UEMs), or spam. In June 2004, OFTA issued a public consultation paper, 'Proposals to Contain the Problem of Unsolicited Electronic Messages' to assess the problems caused by UEMs to the community, gauge the effectiveness of current measures and seek views on a range of possible ways to combat the problem.

Drawing both on the views and ideas in the submissions to that consultation and the latest developments, the Government announced in February 2005 a package of measures under the 'STEPS' campaign¹ to tackle UEMs. New anti-spam legislation is one of the measures under this campaign and the Government intends to introduce a bill into the Legislative Council before the end of 2006.

Hong Kong continued to participate in the activities of international and regional telecommunications organisations. It was part of the China delegation which attended conferences and meetings convened by the International Telecommunication Union (ITU) and it participated in meetings of the Asia-Pacific Telecommunity and the Telecommunications and Information Working Group of the Asia-Pacific Economic Cooperation (APEC) forum as an independent member. Hong Kong also took part in the initiative to implement the APEC Mutual Recognition Arrangement for Conformity Assessment of Telecommunications Equipment.

In June 2004, the ITU announced that ITU Telecom World 2006 would be held in Hong Kong in December 2006. The exhibition and an international forum takes place every three to four years and it is estimated that it will attract up to 60 000 visitors from overseas and the Mainland.