CONFIDENTIAL
*
Hong Kong today benefits from a broad array of low-priced local telephone services that are being continuously upgraded through heavy investment in new technology. There is little doubt that private-sector discipline and the profit motive, key elements of Hong Kong's regulatory approach, have combined to produce exceptional benefits for Hong Kong telecom users. Moreover, in the non-franchised areas of mobile, data, and value-added services, a wide range of products and services is available, and new technologies (e.g. PCNs, broadband) are set to enhance customer choice and reduce prices even further.
Where competition has been introduced elsewhere, it has been primarily in long- distance and international services. Significant positive changes have resulted, especially in markets where service levels were low and prices high. In the three countries where a second network has been introduced, competition and its impact to date on local telephony
have been much more limited.
B -
FUNDAMENTAL POLICY ISSUES
RAISED BY A SECOND LOCAL NETWORK
In contemplating introduction of a second fixed-link local network alone, Hong Kong is considering an approach that is unique worldwide, all other countries having allowed competition in long-distance/international only or across the board. It is important, therefore, to establish what the introduction of a second network would actually mean for Hong Kong - drawing where appropriate on experience elsewhere - and to clarify the policy issues that will result. These policy issues primarily concern who will benefit and at
what cost.
First, what will the second network really do for Hong Kong? It is highly likely that a second network would develop as a limited network, targeting mainly large business users with international services. Experience of LECS in many countries shows that local service, per se, is unprofitable. This is particularly true in the case of Hong Kong with its low monthly rental and no per-call charge. Because of its obligation to serve everyone in Hong Kong, Telco provides services to many smaller customers at below-acceptable investment returns or at a loss. Its overall profitability is
McKinsey & Company, Inc.
CONFIDENTIAL
9
No comments yet.
Private notes are available after approval.