Competing networks impact and implications
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7.5
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Competing telecommunication networks exist only in a few locations (USA, UK and to a lesser extent, Japan) and notably only in locations where there are substantial populations to support them. In the United Kingdom for example where British Telecom compete with Mercury, competition takes place within a population of over 55 million people, whilst in the United States each of the separate Bell Operating Companies operates a monopoly in population of around 40 million or more. In the UK Mercury has nationwide obligations. It cannot simply "cream skim" from the most profitable areas.
In all cases competition has arisen only after long and detailed study of the consequences and in response to an overriding political initiative. In Hong Kong there has been no overriding political initiative brought about by deficiencies in the current arrangements. A competing network is only being considered because someone asked to lay it.
It would be a practical impossibility to police the use of a competing network such as to restrict its activities to any particular service. Thus the concept of an alternative network carries with it the implication of breaching Hong Kong Telephone's franchise in advance of its expiry date of 1995. The franchise is simply not sustainable in these circumstances.
Any competing network in Hong Kong would expose Hong Kong Telephone to the loss of its major business customers. Although there are
over 1.8 million subscribers to the telephone network, a very small proportion of them contribute a large percentage of Telco's revenue. For example, we estimate the loss of the top 0.005% of subscribers would be equivalent to an annual revenue loss of around $100m. There would be no compensating reduction in costs and tariff increases of 5% compound per annum thereafter would be required to recover this order of loss.
Postmaster
Hong Kong Telephone's network is regulated by the General both in terms of quality and tariffs charged. A Scheme of Control, administered by Economic Services Branch, governs the financial returns of the company in respect of all basic services. A primary objective of this regulatory framework has
always been to ensure that basic telephone services are made available to everyone in Hong Kong on demand and at a price that the average person can easily afford. If Hong Kong Telephone were threatened by the significant loss of a number of major customers as indicated above, and had to rebalance its tarrifs in response to competitive pressures then it is "the average person" who has for years been protected by the current regulatory framework who would suffer. Any competing network would cut completely across the social objectives of current regulation and one has only to follow the example of increasing domestic tariffs in both the UK (which now has some of the highest local charges in the developed world) and the USA to appreciate what would inevitably follow in Hong Kong in similar circumstances.