TNAG-1779-FCO40-2539-Hong-Kong-international-telecommunications-1988 — Page 231

business traffic in the Territory. With the opening up of international competition (scenario 5) the benefits exceed costs by a very large amount

HK$3,000 million (10% benefits) or HK$5,300 million (15% benefits).

CWHK's monopoly franchise of international services has until the 2006 to run. For analytic purposes it has been necessary to carry out our assessment of the impact of international competition using an earlier starting date of 1995; otherwise international competition would only obtain in the final year of the study coverage, and its impact would be negligible. In order to clarify further the effect on the benefit cost balance of alternative dates of competitive service introduction, we have been instructed to consider the following timing options:

for local voice services, competition starting in 1990 and 1995

for international services, competition starting in 1995, 2000 and 2006.

The magnitude of benefits and costs for each of the six combinations of these starting dates are shown in Exhibit 5.9. The margin of benefits over costs increases as the starting dates are brought forward. This is a consequence of the fact the communications market, both local and international, is already sufficiently large to justify the introduction of a second network from the standpoint of economic welfare; therefore the sooner this comes about, the greater the benefits. It is however acknowledged that, of the six combinations indicated in Exhibit 5.9, only the one representing starting dates of 1995 (local) and 2006 (international) is consistent with the monopoly franchises held by HKT and CWHK respectively.

We conclude that the optimal timetable for introduction of competition, (were there no contractual or legal constraints on the introduction of full competition) would allow the competitor to begin service at some date in the period 1990 to 1995. The competitor would, preferably, provide both local and international service.

The experience of the United Kingdom suggests that there is no advantage to the gradual phasing in of competitive service, as would be implied by a delay of some years between scenario 3 and scenario 4, and a further delay to scenario 5. A competitor's market share builds up gradually in any event, it takes several years to establish a firm position in the industry, and to win over the confidence of the general business user community. The incumbent service provider (HKT) would have time to adjust to the competitive environment without massive disruption to its organization or practices, as AT&T had time to adjust to the presence of MCI (and other newcomers) and BT to adjust to the presence of Mercury. An artificial constraint on the range of services which the newcomer in Hong Kong can offer - such as a limitation to non franchised services initially would slow down further the pace of development of an activity which is of its nature gradual in its growth.

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