CO129-587-7 Telephone Amendment Ordinance 1940 9-4-1940 - 16-4-1940 — Page 9

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most of its own telephone requirements free, with the remainder at reduced rates; and, in addition, received a fixed annual royalty for each line in use, plus half the net profits above 12.... The system of a flat rate of royalty independent of profits and a variable royalty depending on profits, ensures to the

public revenues a stable minimum return and a share

in any high profits made. This seems to be

preferable to reliance solely (a) on a flat rate of royalty (which, if heavy, might prove a serious handicap to the Company in a period of financial difficulty) or (b) on a share of profits (which, on

the one hand, might result in long periods of no return to government, and at the other extreme, night lead to undue reliance on a precarious source of

revenue).

8.

Conclusions. There appear to be no reasons of

general principle why the British Quiana telephone system should not be successfully operated by a commercial company on an agency basis as in Hong Kong.

If, as a result of the expert report, such a course seemed desirable and practicable the following propositions might be considered:

(1) The term of the agreement should, if

possible, be less than 35 years.

(2) There should be a minimum return on capital, if possible less than 8% per annum, but no maximum limit should be imposed.

(3) The position of subscribers should be

safeguarded against heavy charges at a time when high

net profits are being made and distributed.

(4)

Government should exercise a measure of

direct control over policy through e.g. appointment of

a government director.

/(5).