5.5
The data on Exhibits 5.4 and 5.10 imply that the Hong Kong Government would do better to choose the cable service franchisee on the basis of the quality of its overall service package than on the basis of network choice. The very small overlap between cable television and the second telecommunications networks, shown on Exhibit 5.4, indicates that the second telecommunications issue should not influence significantly the choice of cable television network. The fact that the cost penalty associated with the second network construction is within the range which a prudent business organization might reasonably pay as the price for vertically integrated control of its business, shows that this also should not be regarded as a decisive factor. The success of cable television development in Hong Kong is almost certain to depend instead on non-technical factors.
INDIRECT COSTS AND BENEFITS
Sections 5.2 and 5.3 provide estimates of what may be termed direct costs and benefits arising from the construction of a second network: the direct costs are the incremental costs expended by the franchisee in construction and operation of a separate network, and direct benefits are the price reductions felt by users. Both are direct in the sense they affect financial interactions between the second network operator and parties with which it transacts directly either as a buyer or as a seller.
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There may additionally be costs and benefits which we term indirect: technically, they are referred to as externality costs and benefits, because they affect parties external to the transaction between the network operator and those with which it transacts directly. Indirect impacts may take various forms:
in the case of costs, they may be incurred through disruption of the environment due to laying of ducts
in the case of benefits, they may arise through an improvement in the efficiency and export competitiveness of Hong Kong industry as a result of more abundant and cheaper telecommunications facilities.
We discuss the nature of indirect cost and benefits below.
5.5.1 Indirect costs
The externality costs on which most attention has been focused in the debate on the Hong Kong second network are those consequent on the laying of new ducts. The construction of networks separate from the HKT system for either cable television or a second telecommunication carrier would involve not only additional engineering and operating costs but also the need to lay extra ducts. The amount of new duct construction required is given on the following table:
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