Concerning the second point, that these older ducts are nearing the end of their economic life, BAH found that there is no direct correlation between the economic life of a duct and the useful life of the duct. In the United States and Europe, there are ducts which are over 50 years old and still serving the telecommunications network. However, BAH has collected data on the planned replacement and upgrading of the duct network and has found that the planned replacement is relatively small, slightly more than 3% of the total network within the next 7 years. Since the cost of duct upgrading is primarily in the related civil works, the cost of putting in extra ducts for cable television is a relatively small cost compared with the total (less than 7%). Therefore, it is expected that during the process of duct upgrading and relocating duct (due to highway construction), HKT will be able to add extra capacity for cable television at a low marginal cost.
Overall, we concur with HKT's estimate that 95% of the duct network has sufficient capacity for cable television use. However, several other points should be asked.
i.
ii.
Although HKT has spare capacity available to it today, it is not clear how much they are "borrowing" from the capacity needed for future telecommunications services. In order to take this into account in our analysis, we assume in determining cost allocations that all of the duct used is needed in the future.
As discussed earlier, BAH agrees that HKT can use the existing duct infrastructure for up to 95% of the requirements for the horizontal network of a cable television network. The cost of installing the cable is therefore a combination of the cost to pull cable through the duct and a nominal rent charged to HKT for the use of an existing asset. The value for this nominal rent is determined by first evaluating the duct replacement value for the existing duct network on a per kilometre basis. This value was calculated in July 1987 by HKT as $153,127 per kilometre of new duct network installed. It should be noted that new duct routes have a minimum of two ducts installed, and in some cases as many as 16, 32 or 48 ducts per route; the average replacement value is therefore significantly lower than the cost to lay one new duct ($331,672 per kilometre).
The nominal rent, or in other terms, the cost apportionment to the cable operation for the use of the ducts, is calculated by determining what percentage of the duct is taken up by the cable. For coaxial cable, the diameter of the cable is approximately 21mm. This cable would take up approximately 16% of the duct at an apportioned cost of HK$25,058 per kilometre of cable route. 24 fibre cable, the apportioned cost is HK$26,497 per kilometre.
For a
There are two important points about this cost apportionment worth noting. The first is that for the purposes of cable television transmission, at most 6 of the 24 fibre strands in the cable would be needed. The other 18 could be used for the telecommunications services between exchanges. Therefore, the cost apportioned to the cable operation for the fibre cable is overstated if the cost of the other fibres in the cable can be apportioned to other operations. By implication this also infers that scenario 1 is superior to scenario 2 which is dedicated to cable television transmission only.
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