TNAG-1779-FCO40-2539-Hong-Kong-international-telecommunications-1988 — Page 282

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G.F. 326

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concern to HK Telecom as its net foreign exchange exposure would be increased.

However, there are a range of financial instruments available which the company could use in order to protect its position.

In addition, HK Telecom's claims are based on the

assumption that there can be no change to current accounting arrangements. Of Hong Kong's three most important international telecommunications correspondents, two already have competition in international

telecommunications, the UK and US, and the third, Japan, is in the process of introducing such competition. Where there are competing international carriers there will be competitive pressure to renegotiate accounting arrangement, in particular to reduce accounting rates. Indeed, the UK already has provision for this in cases where its competing carriers are dealing with equally competitive correspondents and the US is actively considering adopting the same approach. Hence, there are already clear signs that current accounting arrangement can and will be renegotiated in the increasingly competitive international telecommunications environment. We therefore reject HK

Telecom's assumption that only minimal change is possible in this regard.

D. Tariff Rebalancing

HK Telecom : The phasing out of the cross-subsidy between

international and local services over ten years as suggested by BAH is unrealistic and unprecedented.

Administration's Response : The phasing out of cross subsidies between various types of telecommunications traffic (local, long distance and international) over a

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