5.7.3 Other tariff impacts of competitive scenarios
HKT has put forward the argument, related to the issue of the subsidy, that if it were to construct a cable television network and lease it to a service provider such as CTHK, the resulting flows of revenue would help to maintain low local telephone charges. Essentially, the local telephone user would benefit from the economies of duct sharing arising from HKT construction of the cable network.
This argument is predicated on the assumption that provision of cable network service to the television service provider would be an activity subject to Scheme of Control formula regulation. Thereby any profits or losses made in this activity, in excess of the 16% allowed return on shareholders funds, would accrue to the body of telephone users rather than the HKT shareholders. It is true that under these circumstances, and if the cable television service provider proved able to pay the agreed rental charges, the telephone subscribers of Hong Kong would benefit.
However we have serious reservations about the wisdom of allowing of HKT to construct the cable network as an activity falling within the Scheme of Control, due to the risk of unprofitability of cable television service. Under such arrangements, which are attractive to HKT shareholders since the size of the capital base on which the allowed 16% return is earned would grow, the telephone subscribers would bear the full risk of financial failure of the cable television network provision business. If CTHK or other service providers failed to make profits and withdrew from the business, the cable network investment would be stranded and telephone subscribers would bear a substantial burden. view of our analysis of the financial prospects of cable television in Hong Kong, we cannot advise in favour of allowing HKT to count the network investment as part of the capital base on which a 16% return can be earned.
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HKT also proposed that it could help to recover capital and operating costs of the cable network by charging a rental for the use of the new cable network to other users of the wideband network in the longer term.
Although HKT has not included the revenue flows from other wideband services in their forecasts, it is confident that its provision will create and stimulate new market opportunities. In 1986 HKT began cabling the top 14 hotels and Exchange Square with optical fibre. Phase II in 1987 has extended the building programme to 22 commercial buildings. believes that the business sector will be the first to demand and utilize the wideband service for high speed data communications, video telephony and video conferencing.
The time scale for the introduction of wideband services as anticipated by HKT from the development in the United States and Europe is seen as follows:
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