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The Telecommunication Ordinance enacted in 1962 prohibits the establishment and maintenance of any means of telecommunication without a licence. The means of telecommunication provided for the telephonic service under the Telephone Ordinance are exempted from licencing under Section 8.(3). [2]
Tariff regulation is covered in Section 26(1) of the Telephone Ordinance. It prohibits HKT from charging telephone subscribers more than a prescribed maximum for the telephonic service as set out in the Schedule. The Schedule can only be amended (or added to) by resolution of the Legislative Council. The Ordinance states that the approval of tariffs should only take 3 months. To avoid delays HKT applies for across the board tariff increases every 2 to 3 years, though the regulations in force do not prevent it from seeking a review of relative tariff levels. HKT believes that "the Legislative Council should not continue to be involved in the process of approving tariffs. The existing mechanism for approving rate revisions and tariffing new services is unnecessarily complex and time consuming."[3]
The Telecommunication Exemption from Licensing (fees) Order authorizes HKT to make charges to the public for non-telephonic telecommunications services. Charges for services provided under the main Exemption Order, such as new data services, can be tariffed in accordance with a scale agreed with the Authority (the PMG). All new charges are gazetted and added to the list.
As a result of the Commission of Inquiry of 1974, the Government concluded a Scheme of Control Agreement by which HKT is permitted to make a maximum return in respect of the basic telephone service and certain other telecommunication services and apparatus supply to a maximum of 16% of its Shareholders Funds. The Scheme of Control mechanism inherited any price distortions, which may have existed within telecommunications at its inception and may have been exaggerated over time. Eighty per cent of any profit in excess of the 16% is retained in a Development Fund and the rest goes to Shareholders Equity issued as bonus shares. The Development Fund is not part of Shareholders Funds and in theory it is to be used for developing the telephone network or reducing charges. According to HKT, "in practice it is no more than a tariff equalization account."[3] The Scheme of Control was intended as a means of regulating the Company's return and profitability. However the way that it is interpreted by HKT is in effect as a "guaranteed return" with tariffs being adjusted to ensure that the Development Fund does not fall into deficit. The current Agreement came into effect in January 1983 and expires in 1988.
HKT believe that they have developed a "Scheme of Control" mentality towards the organization and planning of the Company that affords little scope for motivation and incentive as the 16% is achieved regardless of how well or how poorly the company performs.
Broadcast sound and television receiving apparatus are also exempted under Section 8(4).
Extract from a document submitted to the consultants from HKT.
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