TNAG-1695-FCO40-2351-Future-of-Hong-Kong-nationality-1987 — Page 7

Implications for Telco's franchise and telephone tariffs

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The Telco franchise applies only to the provision of public voice telephonic communication within Hong Kong and on trunk line cables to destinations

to destinations outside Hong Kong, i.e. to China. Telco claims that its exclusive voice telephone franchise would be infringed by an alternative network because there would be difficulties in enforcing a distinction between voice and data communication. However, the network proposed by HCV does not contain switching facilities which would permit the operation of a public

public switched voice telephone network although it would provide facilities for the company to offer leased circuits to business

HCV is aware of Telco's franchise and does not propose that it should provide the basic voice telephone service at present, though it would hope to do so in the longer run. In any event, appropriate regulatory provisions could preclude the provision of voice facilities on second network. As an additional safeguard, it would be possible to impose conditions to prevent a switched network facility being provided.

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customers.

PMG has advised that Telco's franchise could be protected and adequately policed. This advice is supported by the UK Office of Telecommunications (Oftel)*. The salient points of PMG's advice are as follows

(a) the UK experience has shown that with sufficient powers the regulatory authority can adequately police licensing conditions that restrict the type of services an operator may provide;

(b) the lack of a measured rate, i.e. a time charge, in Hong Kong would make the policing of a public voice telephone monopoly even easier than in the UK because there would be little incentive to bypass the Telco telephone network;

(c)

there is no equipment currently available that allows cheap and easy connection of а voice telephone to broadband network. Switching of voice is presently also not possible on broadband network, and these limitations are likely to remain until at least 1995; and

Note*

Oftel is the UK telecommunications regulatory body set up under

an independent Director General by the 1984 Telecommunications Act. Oftel's main function is to

between

ensure

fair

•

competition

licensed telecommunications operators. The Director General has powers to enforce and alter licence conditions.

CONFIDENTIAL