5.2
construction of second network facilities. Unlike in the case of the business market discussed in 5.1.1 above, demand for all currently foreseeable use by a typical residence can be met by a single narrowband connection, particularly when this is upgraded to ISDN standards (allowing it to carry at least a second telephone conversation and limited data services). The extent of wasteful duplication of facilities implied by wiring homes with a second telecommunications connection would greatly exceed that experienced in business markets (see discussion of cost duplication in 5.2 below).
The poor potential of the residential market for supporting a second telecommunications network is artificially biassed downward by the current tariff structure, which subsidises the monthly cost of providing such lines and additionally allows the free use of telephones for local calls. However even with such a tariff structure in place it would be possible to obtain a commercial return from provision of service to residences if the underlying network economics justified this, because of the availability to the local carrier of the 40% share of international call revenues. We discuss the implications of this tariff structure in more detail in section 5.5.
THE COST ECONOMICS OF ALTERNATIVE NETWORKS
The analysis in Chapter 3 shows that there is sufficient revenue potential to finance the provision of a second telecommunications network serving the business community, and to a lesser extent the provision of a cable television network serving the residential community. findings do not yet demonstrate, however, that meeting this additional demand by means other than the expansion of the monopoly network would be in the public interest. For this it is necessary, following the methodology indicated in Chapter 1, to consider both the cost economics of alternative network options and the extent of benefits generated by competitive network operation. We cover these matters in sections 5.2 and 5.3 respectively.
The results of the analysis of network cost economics are given in Exhibits 5.1, 5.2 and 5.3. These summarize respectively:
the economies of scale associated with combining all business telecommunications demand on a single network (rather than building a competing second network)
the economies of integration arising from construction by HKT of a cable television network integrated with its main telecommunications network (rather than the construction by HCV of a separately ducted network)
the economies of integration available from joint construction of a cable television network serving the residential community and a second telecommunications network serving business markets (rather than the construction of these two networks separately)
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