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Annex IV
HK Telecom's Comments on the
BAH Telecommunications Consultancy Report
A. Methodology
HK Telecom : The use of "uninflated" net present value could be confusing to the layman.
Administration's Response : Net Present Value (NPV) is a common tool of economic analysis for comparing costs and benefits that are spread out over a period of time in the future. The costs and benefits in each year are discounted back to their equivalent value at the present year using a forecast interest rate. This allows a meaningful comparison to be made between costs (a significant proportion of which will be up-front) and benefits (which
occur mainly in future years). As both costs and benefits are expressed in NPV, there should be little confusion in understanding the findings of the report.
HK Telecom : The assumptions made by BAH for the inflationary trends affecting different elements of costs and revenue are not accepted. Errors in this regard could significantly distort the calculations of net benefit.
Administration's Response : It is a matter of judgement whether or not BAH's inflationary assumptions are reasonable. However, HK Telecom's own forecast figures are more optimistic than BAH's and when substituted into the economic analysis yield 30% higher net benefit under scenario 5 than is forecast by BAH.
G.F. 326
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