3.
The amount saved by combining the second telecommunications network with a cable television network is HK$47 million (1988 NPV). This is equal to 3.7% of total costs of the second network, or less than 2% of the total costs of the cable television network.
We conclude that there is no economic case for awarding the cable television franchise to a company other than HKT in order to facilitate the construction of a competitive second telecommunications network. Such a decision with regard to cable television may be justified on its own merits (see later); however to incur a cost penalty of HK$445 million in order to save HK$47 million from the construction cost of a second telecommunications network would not be rational. This is particularly true since it is the second telecommunications network which is the more promising financial investment (subject to liberalization of existing monopoly arrangements). The viability of the second telecommunications network operation will not depend noticeably on the fact of its common ownership with a cable television network.
This perhaps surprising finding is based on very conservative assumptions; if these assumptions were changed, the extent of the cost penalty associated with separation of the second telecommunications and cable television networks would become even smaller. We have assumed that more than half of the proposed cable television fibre supertrunk (serving 15 hub centres) would be duplicated by a second telecommunications network. This implies a geographical overlap between business and residential markets greater than that envisaged by current HCV plans. More importantly, this estimate of the cost increment implies that the two operators fail to agree arrangements to share usage of such supertrunk and hub facilities, resulting in full technical duplication of the fibre links and hub centres. In fact, since there would be no competitive tension between the cable television and second telecommunications network operators, it would be reasonable to expect that the former would lease capacity on its supertrunk network to the latter. If such contractual cooperation were achieved, the extent of wasteful duplication of resources would diminish from HK$47 millions to zero (plus a trivial amount to cover the administration of the lease contract).
5.3
ESTIMATING THE BENEFITS OF TELECOMMUNICATIONS COMPETITION
Exhibits 5.5, 5.6 and 5.7 indicate the procedure used to arrive at estimates of user benefits which would follow the introduction of competition in accordance with scenarios 3, 4 and 5 respectively. methodology on which these calculations are based is described in Chapter 1 (section 1.3). The column on the left hand side of each exhibit indicates the revenues obtained by both the dominant and the second network carrier in each service category. The volume of revenue varies slightly between scenario 4 and scenario 3, and also between scenario 5 and scenario 4, due to the demand stimulation which follows the introduction of competition. The data in these columns, and throughout the three exhibits, represent the Net Present Value (in 1988) of revenue flows between the year competition in each service category is introduced
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