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HONG KONG LEGISLATIVE COUNCIL.
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telephone subscription rate compares favourably with the lowest to be found elsewhere and that the modern service provided is of a high standard notwithstanding the exacting climatic conditions. The interests of the subscriber have, therefore, been well served. I would remark in passing that the Telephone Committee, 1922, appointed to report on the telephone service in Hong Kong recommended an annual rate of $120 for the year 1926 under the old manual system and expected that the cost of a modernised system would necessitate a further substantial increase in that figure. That the charges had been kept down to the present rate has been due to a combination of two factors: the good fortune and the good guidance of the Hong Kong Telephone Company. The Company was fortunate in that its equipment was purchased during a period of keen competition among manufacturers at about one-third of what it would cost to-day, and it has shown its foresight in providing a large margin of plant for future growth at the favourable prices which then prevailed. The Company has been run economically and the premium at which its shares were issued was utilised to write off old plant, while no bonus shares have been issued at any time.
As the Taxation Committee remarked, however, there are certain features in the Ordinance under which the Company functions which are not satisfactory to the Company; for instance, it is argued that the absolute limit of 15 per cent. dividend is inequitable because the high rate of profits is due largely to the efficiency of the Company and to the Canton line which was not in existence when the original arrangement was made. An absolute maximum gives the Company no incentive to earn further profits by greater efficiency and economy after that point has been reached.
B
Moreover, the present system of contributing to a reserve fund for the redemption of the Company's capital is not entirely satisfactory. A fixed sum of $170,482 is put aside yearly, which is sufficient to amortise the whole capital by 1975, but interest on investments of с that fund goes into general profit and loss account, while there is no provision for dealing with depreciation of these investments.
The present Bill gives effect to negotiations with the Company which were initiated and practically brought to conclusion by Mr. Caine, with a view to removing those objectionable features in the Ordinance and at the same time securing higher royalties and other advantages to Government. The arrangement incorporated in the present Bill is as follows:-
The Company provides Government free of charge with a telephone service for Government purposes up to 500 lines and arranges for the necessary branch exchange in a place sufficiently protected from possible air raid damage. This exchange has been constructed in the basement of the Hong Kong and Shanghai Bank Building.
The modernisation of the Government system, which is obsolescent, would involve considerable expenditure and on technical grounds it is desirable to amalgamate the Government with the Company's system.
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