CONFIDENTIAL
Incentive-based pricing has several advantages. First, it leads to a predictable pattern of real tariff reductions and is very simple to explain to the public and to administer. Second, it ensures that Telco will continue to improve its efficiency and introduce innovative new services, and third, by providing a stable environment, promotes further investment in Hong Kong's telecommunications infrastructure. Finally, if the streamlined tariff approval processes adopted elsewhere were also included, it could reduce the regulatory burden and delays in new service introduction without weakening the Government's ability to protect consumer interests.
3. Encourage investors to target technologies of the future, such as wideband, radio-based, and other value-added services, which will keep Hong Kong's telecommunications infrastructure among the world's most advanced. As noted previously, new technologies such as mobile systems will help to provide competition and ensure that Telco continues to deliver high-quality service at low prices. It should be noted that many new services can only be introduced cost-effectively with Telco's participation because it can provide ready access to its customer base.
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4. Streamline the approval process for new services and allow all competitors, including Telco, to offer innovative products in all categories. Under the current Telephone and Telecommunications Ordinances, all tariff changes and
new services offered by Telco require approval by the Legislative Council. Before the new services and charges are presented to Legco, they come under the scrutiny of Government regulators, a process that is often time-consuming and cumbersome. According to data from Telco, approvals from the Office of the Postmaster General take 12 months on average, but the range is from six months to as long as four years. This compares unfavorably with other countries, such as the U.K. and Singapore, where approval time is considerably shorter (see Exhibit 14). As a result of this lengthy approval process, many services have been either introduced late or dropped totally to the detriment of users. For example, approval for an international translation service took over four years, and it was
finally introduced in 1991 (see Exhibit 15).
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Thus, with its current approval process, the Government inadvertently may be delaying the introduction of innovative services. It should consider streamlining this process, perhaps by amending the Telephone Ordinance to shift final approval authority from Legco to the Postmaster General, so that Hong Kong will be competitive with its international alternatives, most notably Singapore.
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McKinsey & Company, Inc.
CONFIDENTIAL
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