CONFIDENTIAL
The remainder of this section lists the issues which cause
us concern.
Introduction of An Additional Fixed-Line Local Telephone
Network
The opinions of BAH are noted. We have attached a contrary opinion prepared by international consultants, McKinsey & Co. They consider that because Hong Kong already has one of the world's most advanced and efficient local telephone services; there is limited opportunity for a second local network to materially improve the quality or price of these services; and active competition in non-franchised local services (e.g., mobile, value-added, and data) exists today, and can be further stimulated by the Government without the creation of a second fixed-link network.
Furthermore, experiences in other countries that have introduced a second local network indicate that a second network without universal obligations would focus on serving high-volume users. In Hong Kong it is likely that a second network would be targeted towards the large business customer to the detriment of most residential and
small business customers.
Should Government, nevertheless, decide that they would intend to license a second local telephone company post July 1995, we are prepared to address and discuss in detail all the network interconnection issues which would require resolution in order to determine the economic impact upon Hong Kong Telephone and Hong Kong.
Reduction in International Tariffs by Up to 13%
International
tariffs have been agreed by Government through the established regulatory process, and are in fact low and highly competitive by international standards. The proposed one-off reduction would significantly lower the revenues available to cross-subsidise HKT's local services, and local tariffs would therefore have to be raised by more than 30% to recoup lost revenues.
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CONFIDENTIAL