7) Summary
7.1
There is an extremely strong case for market liberalisation in Hong Kong. Here, even more than in other markets, the volume of international calls has been growing strongly, and the effect of this is exaggerated by the fact that this is, in effect, a city- sate uniquely dependent on international commerce, trade and finance. Unlike other major economies, however, Hong Kong has not moved towards liberalising its fixed link telecommunications markets, and it is locked into an environment which is isolated from global trends. It is already out of step with the clear trend established by countries such as the US, and UK and Japan. Deregulatory moves in other Asia-Pacific countries like Australia, moreover, increase the threat of multinational companies moving their hubbing locations in the region to cities where they can enjoy greater choice, flexibility and lower prices.
7.2 If the full liberalisation option is implemented it has clear benefits for all sections of the community, including the incumbent operators. The HK$17bn consumer benefit package that would emerge from our optimal liberalisation policy of Option 2 would be evenly spread across the community. A majority of residential users would see net decreases in their bills after the line rental/IDD trade-off, and businesses would see
significant reductions in their communications costs and be provided with a signifi- cantly higher degree of choice. Even HKT and HKTI could benefit if they react as positively to competition as AT&T, BT and KDD did in their respective countries.
7.3 The obvious block to bringing these benefits to Hong Kong is the HKTI franchise agreement. However, a decision not to terminate it can only result in a serious economic loss to the people and businesses of Hong Kong. The alternative policy options are significantly less beneficial. The incremental liberalisation alternative (Option 3) only generates an end-user benefit of HK$0.8bn, over HK$16bn less than Option 2. If full liberalisation of international services is not implemented, Government should at the minimum mandate a 13% reduction in HKTI tariffs for international
services, followed by the full inclusion of all international services under a price cap umbrella. This does generate additional cost savings of HK$16bn, but it is a poor alternative to full liberalisation as it offers no choice to the customer and does not
create an innovative and competitive environment. Can Hong Kong afford to forgo the benefits of the HK$17bn, just at a time when other regional centres are forging ahead in communications and when many companies are considering relocating elsewhere?
7.4 In view, then, of the global trend towards liberalisation, the importance of hubbing
activities to Hong Kong, and the unnecessary burden of cross-subsidisation being carried by the small to medium-sized companies, can the Government afford the consequences of not terminating HKTI's monopoly on international services?
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