TNAG-1779-FCO40-2539-Hong-Kong-international-telecommunications-1988 — Page 257

5.9.3 Cross ownership restrictions

It is normal in many countries to impose restrictions on cross ownership of communications media. The matter of cross ownership has not been considered in detail during the course of this study. However we suggest the following guidelines would be a reasonable starting point for negotiation with potential franchisees on the permitted ownership of their businesses:

i. Cross ownership between cable television service provider and

network operator in scenario 2: no restrictions

ii. Cross ownership between cable television service provider and

network operator (HKT) in scenario 1: less than 50%

iii. Cross ownership between second telecommunications network operator

and main telecommunications network operator (HKT): 0%

It must be stressed that these guidelines are somewhat arbitrary, and reflect general attitudes towards control of media. The suggestion that no restrictions be imposed on cross ownership between the cable television service provider and network operator in scenario 2 arises from the importance of allowing operators to exploit the benefits of vertical integration in the cable television business. This is the principal advantage of that scenario, and is thought to outweigh the benefits of possible competition of cable service programmers over a single network; if the latter were a dominant consideration, scenario 1 would be preferable to scenario 2.

The limitation of cross ownership between the cable television service provider and network operator in scenario 1 is designed to ensure that the telephone company does not have a controlling stake in cable television services provided over the network. If it did have such a controlling stake, the principal long run advantage (in terms of media policy) of that scenario over scenario 2, which is the ability to develop a competitive market for cable services over a monopolized network, would disappear. However if a restriction very much more severe than 50% were imposed on the extent of cross ownership (say, 20%), then the telephone company would have much less incentive to cooperate fully with the cable television service provider during the early critical years of service build up.

We have noted in the discussion of benefits of vertical integration of the cable television business (see section 5.4) that close cooperation between network operator and service provider is essential to effective build up of the operation in the early years.

The restriction to zero percent of cross ownership between the main and second telecommunications network operators arises from simple considerations of competition policy. As noted above, the figure of zero 8 may be taken as the starting point for negotiation. A very small level of cross ownership, reflecting an equity holder's position as purely a financial investor and not a significant influence on management, could in fact be tolerated. Any equity holding which affected management's strategic or tactical behaviour vis-a-vis its only competitor must, however, be considered unacceptable.

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