4.
Indeed their forecasts for the future [4] show that they face a real problem in remaining within the 16% return with international revenues rising at rates of 30-40% p.a. To avoid rising too far above the 16% return and to offset the increasing cross subsidy from international to local service HKT will be forced to halve their tariffs over the next decade. The consultants question whether this is realistic within the world telecommunications market place, when Hong Kong already has some of the lowest installation and rental rates in the world and a zero call rated charge. The consultants also question whether the 40:60 ratio is relevant in an urban and business environment combined with high growth rates in international revenues. Other effects of the Scheme of Control on HKT observed by the consultants is a tendency to overspend on capital investment and in certain cases in advance of the market demand, as appears to be the case with optical fibres.
To maintain the satisfactory operation of the Scheme of Control the Government requires, for monitoring purposes, 3 year financial budgets together with relevant notes and assumptions, copies of accounts and other financial information on the Company and its wholly-owned subsidiaries or associated companies; these are required to ensure that the services and equipment bear their appropriate share of the company's costs and overheads. [5] In practice HKT is criticized as being slow or diffident in providing the detailed breakdown of information required by the Authority to judge its costs, profits and performance. For example, profitability forecasts broken down by product and service have yet to be furnished to the Government. Secondly there are no clear figures on the costs of using the local PSTN for IDD calls and therefore no way of knowing whether the 40% transfer arising from the sharing formula is appropriate.
The Telecommunication Authority has not been provided with the information necessary to isolate the individual flow of revenues and costs for the multitude of different residential and business products and services. Moreover, the proliferation of new technologies, products and services is making the monitoring process particularly difficult. Owing to insufficient information being readily available, the Telecommunications Authority has resisted increases in individual tariffs pending further investigation. This in turn has inhibited HKT from reacting to market conditions and in certain cases it may have even inhibited technological change and the introduction of new services. circularity of operation of the Scheme of Control and tariff adjustments has created price distortions which have become embedded and are passed on from year to year. This will become of even greater concern in the future to the Telecommunications Authority and to HKT itself.
Financial studies on the future telecommunications development in Hong Kong 1987/88-2006/07, October 1987, HKT.
The
5.
Extract from the Scheme of Control Agreement, 1986.
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