growth in demand foreseen during that period in order to sustain profitable operation.
21.
We can conclude with considerable confidence that the financial positions of HKT and CWHK would not be jeopardized by such competition. It should also be noted that part of the demand met by the proposed second network would be traffic generated by the price cuts induced by competition, rather than traffic diverted away from HKT and CWHK.
22.
Such
However the residential market in Hong Kong does not appear, for the foreseeable future, to have the potential to justify investment in a new telecommunications network, or in providing full two-way telecommunications facilities on a cable television network. additional facilities would only be justified either by significant demand in homes for broadband two-way communication services, or by sufficient growth in demand for conventional narrowband telecommunications to sustain two network operators in this market; neither of these conditions is likely to be satisfied.
23.
The study examined the benefits which are likely to flow from the introduction of competition in business telecommunications services. The experience of countries which have already introduced competitive networks - notably the USA, the UK and Japan indicates that substantial benefits flow to the business user community, in the form of lower prices, more innovative approaches to service development, and more responsive customer service. Tariff reductions of the order of 15% are typical.
-
24.
If similar reductions followed the introduction of competition in Hong Kong, it is estimated that benefits valued at some HK$130 million would follow from competition in non-franchised services, HK$2,600 million from competition in all local services beginning in 1995, and HK$6,900 million from competition in all local and international services beginning in that year.
(These figures represent the Net Present Value today of user benefits experienced during the course of the next 20 years, and assume a pace of network development consistent with the above cost projections.)
25.
Exhibit 2 summarizes the benefits arising from the introduction of competition in business telecommunications services, and contrasts them with the associated costs. For the purpose of these calculations we have assumed the following dates of service introduction: non franchised services, 1990; franchised local services, 1995; international services, 1995.
26.
We conclude the following from the results presented in Exhibit 2. With the progression from scenario 3 to 4 and then 5, the benefits grow very markedly, as does the margin of benefits over costs. Scenario 3 does generate a quite small net benefit (benefit minus cost) of about HK$60 million. This is a consequence of a second network operator's very limited ability to derive revenues from telecommunications services while both the local voice and international monopolies are in force. With scenario 4 the situation improves sharply. The benefits here exceed the costs by some HK$1,350 million, implying a clear justification for introducing a second network carrier for local business traffic in the Territory. With the opening up of international competition (scenario 5)
vii