CONFIDENTIAL
great value to a second network, which would otherwise be forced to build a territory-wide network or offer a very limited service. Yet, Telco would receive no comparable value from the second network as it would already have the capability to deliver calls to any
subscriber.
4. Should the Government focus on encouraging investments in new and emerging technologies such as PCNs and broadband rather than narrowband, fixed-link technology? Our earlier review of technology trends in
telecommunications pointed out that innovative services are coming primarily from emerging technologies, increasingly challenging wireline telephony. Would the Government discourage investment in these emerging technologies by making the overall market potentially less attractive with the introduction of a second network? Similarly, should the Government instead be focusing on encouraging the development of value- added services that enhance the capabilities of rather than duplicate the existing network?
Beyond these fundamental issues, there are several other important but secondary issues, which include the following:
5. Would construction of a second network given its demand for skilled workers add to Hong Kong's already high inflation rate? Hong Kong is currently facing a shortage of skilled labor, particularly in the construction and telecommunications industries. The port and airport development will be undertaken at the same time as would construction of a second network. This extra pressure on scarce labor resources will undoubtedly cause wages to rise. Wage settlements by Telco, Hong Kong's largest private-sector employer, generally have a knock-on effect through industry. While the exact impact is unpredictable, there is a risk that establishment of a second network could worsen inflation, which is already over 13 percent on an annualized basis.
6. How large a nuisance would construction of a second network create? Our estimate shows that about 50 kilometers of roads, mostly in congested business districts, would be affected for up to three to four years. This disruption from construction of a second network would be further compounded if it were to be a stand- alone network, rather than part of a cable television network.
7. How seriously would the second network exacerbate Hong Kong's already large balance-of-payments deficit in international calls?
McKinsey & Company, Inc.
COMMELITTAL
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