TNAG-2763-FCO40-3980-Hong-Kong-licensing-framework-for-satellite-television-broad-1993 — Page 21

CONFIDENTIAL

XCC(93)148

on subsidiaries in the regulatory regime for satellite television is to assist anti-avoidance controls which is relevant in particular for foreign ownership. If foreign ownership restrictions are relaxed, this reason for prohibiting subsidiaries is removed. Moreover, the independence of a broadcaster can be adequately reflected in its business record and be monitored by the market. The interests expressed to us so far indicate that if the ban on subsidiaries is not lifted, we will attract no new business and will have wasted our time developing a more user-friendly regime. For these reasons, we think that this Council's previous decision should apply equally to satellite broadcasters.

Payments to HKG

15

Hutchvision is required under its licence to pay both a licence fee and a service origination charge to the Hong Kong Government. The former is $46,000 a year. The latter is a type of royalty payment ($100,000 in year 1 rising to $8.5 million in year 12, i.e. $37.9 million over the life of its licence), given as recognition of permission to uplink from Hong Kong. The latter charge will be increased by 85% when Hutchvision's licence is amended in line with a decision by this Council on 30 June 1992. As we want to attract more satellite television business to Hong Kong in the face of increasing competition in the region, we consider it inappropriate to continue to charge "non-exclusive” licensees this type of royalty. However, a licence fee to recover in full the costs of regulating and monitoring the service provided should be charged. The cost recovery licence fee would essentially be determined by staff costs, equipment costs and administrative overheads. While the licence fees for future licences have to be worked out based on the number of channels and hours of broadcast, a calculation done on Hutchvision indicates that a cost recovery licence fee would represent savings of about $9 million on the present service origination fee and nominal licence fee combined for the 12-year period of the licence. Subject to approval by this Council, we propose to introduce the cost recovery licence fee when new licences are issued.

Length of Licence

16

There are satellite television broadcasters who have long-term plans and would be interested only in licences of at least ten years given that the project cannot realistically hope to break even within three years. There may also be broadcasters who want merely to test the market in Asia and may find short-term licences of say, three years, sufficiently attractive.

Executive Council