TNAG-2247-FCO40-3230-Business-interests-in-Hong-Kong-Cable-&-Wireless-1991 — Page 102

Exhibit 7: Growth of International Traffic and Connections in Hong Kong

1200-

CAGR

1986-1990 =34%

1000

GROWTH IN INTERNATIONAL TRAFFIC

(million minutes)

Incoming

800

Outgoing

600

1200

1,120

CAGR

1986-1990 = 44%

1000

869

29%

48%

800

632

38% 49%

600

GROWTH IN IDD CONNECTIONS (thousands)

622

(41%

875

32%

1,151

464

36% 50%

400

400

407

53%

342

52%

36%

52%

269

53%

:51%

51%

200

200-

50%

48%

47%

0

1986

1987

1988

1989

1990

1966

1987

1988

1989

1990

Source: HKT

4.5 HKTI's charges for switched voice traffic are currently comparable with other nations in the region. However, most of the corresponding administrations within the region, with the exception of Japan, are also monopolies which are not providing cost-based rates. Even in the most liberalised countries tariffs remain substantially higher than costs. During the last three years, before international rate capping was introduced, BT's profits for switched international services had increased by approximately 70% and the rate of return on capital employed was over four times that of the controlled services (2). Furthermore, BT's net profits on routes that were competitive with Mercury for many years, such as those to the US and Hong Kong still remained at extremely high levels, at 63% and 62% respectively (3). This has prompted the DTI and OFTEL to include BT's international services under the price cap umbrella of RPI -6.25%, coupled with an overall price reduction of 10% across all IDD destinations as

soon as possible.

4.6 HKTI tariffs have, in fact, been decreasing in real terms at 5-7% per annum (see Exhibit 8), but large users know that the costs have fallen even faster and are therefore seeking out lower cost centres elsewhere. Australia is now making a bid to attract these large companies and currently has lower tariffs for switched voice traffic and for leased lines up to 64 Kbps (Kilobits per second). As it is expected that their rates will fall even further with the introduction of competition Australia is likely to attract hubbing activities away from less competitive markets.