The technical requirements of service introduction digging ducts, laying cables, constructing an exchange, constructing an earth station, obtaining access to submarine cables are not likely to delay the start of competitive service for more than two years from the date on which a licence or franchise is granted. A longer time will pass before a substantial market share is built up (see Appendix A).
5.4
BENEFITS AND COSTS OF A SEPARATE NETWORK FOR CABLE TELEVISION
It was shown in Exhibit 5.4 that construction of a cable television network separately from the main telecommunications network would impose a cost penalty of some 18% on the network operator. The major countervailing benefit (setting aside any implications for telecommunications competition) is that of vertical integration of the cable television business. By combining management of the physical development of the network with management of the required investment in programming and marketing, the risk of failure of the enterprise is minimized.
It is true that the development of cable television in Hong Kong requires an exceptionally large investment to be made in the development of programming. In most areas where cable television networks have been installed around the world, and particularly in North America, the principal investment at risk is the construction of the network itself; programming can be obtained readily by arrangement with providers of satellite-distributed channels. In the case of Hong Kong material in the Cantonese language is not widely available. Therefore investment in both networks and programming development are essential. Analysis of financial data for scenarios 1 and 2 shows that the amounts at risk in the two components of the business are comparable. The following table shows the net amount invested in (1) network construction and, (2) programming and operations at the points of maximum cash outlay: [2]
2.
Programming and Operations
Network Construction
Scenario 1 Scenario 2
HK$716 million HK$716 million
HK$507 million HK$814 million
The net amounts invested have been calculated by subtracting from the gross cash outlays 25% of revenues in the case of network construction and 75% in the case of programming and operations. These are the approximate percentages of the total project costs (NPV to the year 2007) accounted for by the respective activities see Exhibit 5.10.
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