"
G.F. 325
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HCV Without vertically integrated management, the cable
television project is much more likely to fail presenting a major threat to local telephone rates if the HKT network is provided under HKT's Scheme of Control.
Administration's Response : It is for this reason that BAH recommends that if HKT is selected to provide the cable television network, it should be obliged to do so outside the scope of its Scheme of Conrol. Even if the network
were provided under the Scheme of Control, the Governor in
Council has the power to rule that no account be taken of
HKT's investment in the cable television network for the
purpose of any tariff review. Either way, it would be necessary to identify the costs that should be attributed
to the investment in the cable television network so as to
exclude them from the calculation of the permitted return. It is likely that there would be difficulties in agreeing such a cost allocation. Moreover, while it is possible that tariffs could be protected from the failure of the cable television venture, it is probable that there would, nevertheless, be at least a short term adverse effect on the quality of customer service during a period of company
recovery.
B. Incremental Cost of an HCV Cable Television Network
HCV : BAH overestimates the extra cost of an HCV cable
television network compared with an HKT network. HCV calculates that with proper recognition of its cost saving design innovations, the incremental cost would be below 2%
of total project costs rather than 5% as calculated by BAH.
Administration's Response : BAH has confirmed that in its
analysis of cable television costs it took account of many of the special features of the HCV design. It is of course
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