CHAPTER 5 ECONOMIC EVALUATION AND CONCLUSIONS
It
This chapter reviews the data and analyses of Chapters 2, 3 and 4, and adopts the methodology set out in Chapter 1 to arrive at assessments of the overall balance between benefits and costs of the different options under study. also describes the implications of change in the competitive structure for tariffs and the regulatory process.
5.1
REVIEW OF OVERALL GROWTH TRENDS
The construction of additional networks, whether for telecommunications or cable telecommunications services, can only be justified by underlying strength in user demand. Before assessing the relative costs and benefits associated with different technical solutions for adding telecommunications network capacity in Hong Kong, we review our findings regarding forecast growth of revenues in :
business telecommunications services residential cable television services residential telecommunications services,
and compare these with the expenditure required to provide additional network capacity.
5.1.1 Demand for business telecommunications services
1.
Forecast growth in business telecommunications demand greatly exceeds the amount required to finance the construction and operation of a second telecommunications network of the dimensions proposed by HCV. Excluding international services, business telecommunications revenues will grow by a factor of 1.6 between now and 1997, and 2.2 between now and 2007. Taking account of international revenues as well, the growth factors will be 1.7 and 2.8 respectively. [1]
Expressed as absolute increments rather than multiples, the growth in local business telecommunications revenue amount to HK$1,054 million per year by 1997 and HK$2,056 million per year by 2007. This compares with revenue requirements of HK$203 million per year in 1997 and HK$629 million per year in 2007 required by the proposed HCV second telecommunications network to provide an attractive rate of return on its investment. The second network would only need to take up approximately 20% (by 1997) and 30% (by 2007) of the growth in demand foreseen during that period in order to sustain profitable operation.
We can conclude with considerable confidence that the financial position of HKT 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 additionally following the price cuts induced by competition, rather than traffic diverted away from HKT.
All the quantitative statements in section 5.1 can be checked by reference to the supporting data in Appendix A, Exhibits A.8 to A.13.
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