heavily on others. Since at present the major element of cross-subsidy in the Hong Kong telecommunications environment is that of local service tariffs at the expense of international tariffs, we must consider in particular the impact of international service competition on local charges.
32.
Local telephone tariffs are currently 27% lower than the levels which would obtain if the contribution, or effective cross-subsidy, from international services were removed immediately and in full (i.e. HK$519 million divided by HK$1,891 million). In the long run, if international competition were introduced in such a way as to eliminate this cross subsidy entirely, local network charges would rise correspondingly. International experience suggests that telecommunications industry costs fall over the long run by approximately 3% per year (this was the figure set by the UK government when establishing the RPI-X formula for British Telecom price control, and was based partly on a review of such international evidence). This corresponds to a cost reduction of approximately 26% per decade. We conclude that normal technological progress, if it has similar effects on Hong Kong Telephone's local network costs as are being experienced in the world's telecommunications industry generally, would allow local telephone tariffs to be maintained at a constant level provided the elimination of cross subsidy from international services was phased in no more quickly than during the course of the next decade. local service provision, due already been made, it may in this cost reduction.)
33.
(Given that costs are falling most slowly in to the large capital investment which have fact take longer than 10 years to achieve
The study concluded that introduction of local telecommunications competition only (scenario 4) would not result in increases in local service tariffs, provided the existing arrangements for sharing international call revenues between HKT and CWHK remained in place.
34.
The finding that the greatest benefits are achieved under scenario 5 (full competition including international services) raises the question as to whether it would be possible to have international telecommunications service competition without constructing a second internal network.
35.
Such a solution is indeed both technically and administratively feasible, and would result in substantial downward pressure on international service tariffs. Care would have to be taken in establishing the appropriate allocation of international call revenues between the domestic and international carriers. However this does not distinguish this solution from any of the others, including that in force today.
36.
However for the following reasons we recommend that the full competition scenario (involving both domestic and international second networks) be pursued in preference to this solution:
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