XN000022-1978-06-21 — Page 4

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WEDNESDAY, JUNE 21, 1978

HE SAID THE GOVERNMENT HAVING REGARD TO THE GROWTH IN THE NUMBER OF LINES, CONCLUDED THAT TO ACHIEVE A RETURN APPROACHING THE ONE ALLOWED UNDER THE PROFIT CONTROL SCHEME. AN OVERALL INCREASE OF ABOUT SEVEN PER CENT IN JULY THIS YEAR WOULD BE ADEQUATE.

THE SENIOR UNOFFICIAL MEMBER, THE HON. SIR SZE-YUEN CHUNG, WHILE SUPPORTING THE MOTION, THOUGHT THE PRESENT SCHEME OF PROFIT CONTROL WAS INADEQUATE IN TWO ASPECTS.

ONE DEFICIENCY IN THE PRESENT SCHEME, WHICH USES SHAREHOLDERS FUNDS AS THE BASIS FOR THE PERMITTED RETURN, WAS THE LACK OF INCENTIVE FOR THE COMPANY TO MAKE USE OF LOANS FOR FINANCING EXPANSION.

+FOR EVERY DOLLAR INVESTED BY THE SHAREHOLDERS, TELEPHONE SUBSCRIBERS HAVE TO PAY THEM 16 CENTS OR 16 PER CENT EVERY YEAR WHEREAS, IN RESPECT OF LOAN FINANCING, TELEPHONE SUBSCRIBERS ONLY HAVE TO PAY ABOUT 6 PER CENT AT PRESENT, OR NORMALLY A RANGE OF 5 TO 9 PER CENT, OR AT WORST, AS IN THE YEAR 1974, 12 PER CENT.

+IT IS THEREFORE DESIRABLE IN THE INTERESTS OF CONSUMERS TO MAINTAIN A PROPER BALANCE BETWEEN FINANCING FROM SHAREHOLDERS FUNDS AND LOAN FINANCING, HE SAID.

WITHOUT A FULL KNOWLEDGE OF THE FINANCIAL PLANS OF THE COMPANY, HE COULD ONLY SAY THAT BY MAKING GREATER USE OF LOAN FINANCING, THE PRESENT INCREASE IN TARIFFS COULD LIKELY HAVE BEEN DEFERRED SOME- WHAT AND THE NEXT ANTICIPATED INCREASE POSTPONED BEYOND 1981.

ANOTHER INADEQUACY SIR SZE-YUEN OBSERVED WAS THAT THE PRESENT SCHEME MERELY CONTROLLED THE MAXIMUM AND GUARANTEED PROFIT. +THE GOVERNMENT SHOULD ALSO BE ABLE TO CONTROL THE LEVEL OF SALARIES, WAGES AND FRINGE BENEFITS OF EMPLOYEES OF THE COMPANY, HE SAID.

HE EXPLAINED THAT THERE WERE TWO WAYS TO INCREASE PROFIT MARGINS, BY RAISING CHARGES AND BY REDUCING COSTS, AND IN A MONOPOLY ENTERPRISE SUCH AS THE TELEPHONE COMPANY, THE EASIER WAY WAS NATURALLY BY RAISING CHARGES.

+ IT IS THEREFORE IMPERATIVE THAT THE COMPANY IS MANAGED EFFICIENTLY AND ECONOMICALLY AND THAT SALARIES, WAGES AND FRINGE BENEFITS OF ITS EMPLOYEES ARE COMPARABLE WITH AND NOT BETTER THAN OTHER NON-MONOPOLY INDUSTRIES,+ HE SAID.

IN NON-MONOPOLY INDUSTRIES SUCH AS EXPORT-ORIENTED MANUFACTURING INDUSTRIES, THE LEVELS OF REMUNERATION WERE GOVERNED BY WORLD-WIDE COMPETITION AND THEREFORE REFLECTED THE EFFECTIVENESS, EFFICIENCY AND PRODUCTIVITY OF HONG KONG'S INDUSTRIES.

+THIS WAS NOT SO IN A MONOPOLY PUBLIC UTILITY WHOSE INEFFECTIVENESS, INEFFICIENCY AND EVEN MISTAKES WOULD EVENTUALLY BE PAID NOT NECESSARILY BY ITS SHAREHOLDERS, NOR BY ITS MANAGEMENT BUT BY ITS CONSUMERS.

SIR SZE-YUEN RECOGNISED THAT DUPING THE PAST FEW YEARS THE TELEPHONE COMPANY HAD MUCH IMPROVED THE QUALITY OF ITS SERVICES AND THAT SINCE ITS LAST INCREASE I TARIFFS IN JANUARY 1975, THE VARIOUS CONSUMER PRICE INDEXES HAD RISE PY ABOUT 14 PER CENT.

/THE COMPANY'S