CONFIDENTIAL
XCC(91)127
being shouldered by smaller businesses and residential customers. Consequently, according to BAH's analysis, the majority of such users would actually be better off if this cross-subsidy were removed altogether, accompanied by a reduction in IDD charges of 11% or more (paragraph 16 above refers).
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HK Telecom has expressed a willingness to discuss with us the details of the incremental liberalisation option and to consider making reductions in international telephone charges on particular routes, although it opposes the proposal for an overall 13% cut in such charges. Nevertheless, it has a number of concerns about specific proposals under this option. Its primary concern is with regard to the terms and conditions of interconnection for a second local network and for direct interconnection to HKTI's international gateway by such a network and the networks of mobile telephone service operators. Since Telco has an obligation under the Telephone Ordinance to provide telephone service on demand anywhere in the Territory, HK Telecom has stressed the need to agree arrangements under which a second network operator would contribute a fair share to the cost of providing this universal service through interconnection charges.
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Other concerns expressed by HK Telecom include its view that any proposal to permit the widespread establishment and operation of international private circuits by companies other than HKTI would violate the letter and spirit of HKTI's exclusive rights and would, in any case, be open to wide abuse. We do not agree with this opinion. Also, while HK Telecom is prepared to discuss with us the implications of allowing international simple resale of data and facsimile transmission capacity, it has indicated that it sees significant difficulties in implementing such a proposal.
Proposed Way Forward
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One measure of the significance of telecommunications in Hong Kong is that it produces a total annual revenue for service providers of HK$17 billion (1990). BAH forecast that this figure will grow to HK$80 billion (1991 prices) by 2005. A multiplicity of companies, including some of the largest in the world, are involved in providing telecommunications services in Hong Kong, not just HK Telecom. All these companies, together with the users of these services, which includes nearly everyone in the community, have a direct interest in the changes to regulatory policy that we are now contemplating.
Executive Council
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