CONFIDENTIAL
XCC(91)127
CONSULTANTS' RECOMMENDATIONS
(a) General
20
BAH consider that the net direct economic benefits of the full liberalisation option are so much greater than those that would be obtained under the incremental liberalisation option (paragraph 18 above refers) that they warrant immediate unilateral termination by the Government of Telco's exclusive franchise and HKTI's exclusive rights. If this is not done, BAH recommend a sub-optimal option that would achieve the same order of net direct economic benefits by combining the incremental liberalisation option with an immediate 13% cut in charges for international services. (Such a reduction would be of a similar order to the 10% cut in international charges that British Telecom has recently agreed to in the U.K.) BAH consider this recommendation to be sub-optimal because it would not yield the full extent of indirect benefits of full liberalisation, such as greater service innovation and flexibility, and network diversity.
(b) Cable television
21
BAH recommend against requiring linkage between a second local network and cable television. While there are limited economies of scope to be gained from combining the two, BAH believe that it should be left to prospective operators to decide whether they wish to offer a combined cable television and telecommunications network.
(c) Scheme of control
22
Regarding a replacement for Telco's Scheme of Control Agreement, which expired on 31 March 1991, BAH (like Telco) favour a price-capping scheme (restricting the overall annual increase in charges to a certain percentage below the prevailing inflation rate), on the grounds that it would give greater incentive for improving efficiency. Whereas Telco had previously proposed a price-cap applying to local telephone charges only, BAH advise that it should also include international telephone charges. BAH's main criticism of Telco's proposal is that it would result in an even greater cross- subsidy from international to local services at a time when our competitors are moving in the opposite direction, towards cost-based pricing. An increasing level of cross-subsidy for local services funded by high international charges unrelated to the cost of service provision would further distort the current price structure and undermine Hong Kong's competitive position as an international telecommunications hub, as well as adversely affecting business competitiveness in general.
Executive Council
No comments yet.
Private notes are available after approval.