In the longer
we understand that HK Telecom intend to undertake a more radical integration of the operational structure of Telco and HKTI, by combining the entire management and staff of both companies into a single operating division to be located within Hong Kong Telecom. HK Telecom recognizes that there could be potential legal and regulatory problems under the Telephone Ordinance and the HKTI licence relating to such a complete overhaul of the organisation of the two companies. They understand that they have to discuss details of such a proposal with Government, and have indicated that they would not proceed without our consent as they do not wish to jeopardise the Telephone Company's franchise and HKTI's exclusive licence.
Requlatory Implications
6
One of the main aims of our telecommunications policy is to ensure efficient and cost-effective provision of public telecommunications services. Given that HK Telecom's merger proposals will result in improvements in the efficiency and cost-effectiveness of Telco and HKTI in providing public telecommunications services, we consider it should be supported
in principle.
7
Nevertheless, the proposed merger of staff raises certain regulatory concerns: unless there is a clear and agreed apportionment of the costs of the combined functions between Telco and HKTI, there could be scope for unfair competition by the HK Telecom group through subsidisation of competitive services by the profits of services protected by exclusive rights.
8
We
are still discussing with HK Telecom their proposal on cost apportionment.
While the proposed arrangements with respect to personnel and marketing appear acceptable in principle, we are still considering alternative proposals in respect of the finance function. We expect this outstanding matter to be resolved shortly. The Company has agreed that Government has the right to review the basis for cost apportionment at any time. In the meantime, we shall monitor closely the service standards of Telco and HKTI closely to ensure that service to the public will not be adversely affected by the reorganisation.
LEGAL IMPLICATIONS
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After studying the Telephone Ordinance and HKTI'S licence, the Attorney General's Chamber have advised that HK Telecom's plan to centralise certain support functions of Telco