ENG-2001 — Page 451

COMMUNICATIONS, THE MEDIA AND INFORMATION TECHNOLOGY

Broadband Services

By the end of the year, over 95 per cent of the households and virtually all commercial buildings were covered by the broadband network. After two rounds of consultation, the Government issued in November 2000 a statement stipulating the regulatory framework for broadband interconnection. The regulatory framework promotes effective competition and consumer choice at affordable prices, maintains a fair and competitive market environment, and promotes investment in broadband infrastructure underpinning the service sector. The Government expects to implement all measures identified in the statement in 2002.

Public Mobile Phone Service

The market for public mobile phone services is highly competitive in Hong Kong. By the end of the year, six operators were operating a total of 11 digital systems, serving a customer base of over 5.7 million. This represented an annual growth rate of 8.9 per cent. The penetration rate of public mobile phone services was about 84 per cent, one of the highest in the world.

To enable Hong Kong to reap the benefits of the next generation of mobile services, the Government announced the licensing and regulatory framework for third generation mobile services in February, after extensive consultations. It was decided that four 3G network licences would be allocated by a hybrid method with a pre- qualification exercise followed by spectrum auctioning. The pre-qualification process was relatively light, but helped ensure the quality of the 3G network. Auctioning was considered an efficient and fair method to allocate spectrum. Under this licensing approach, the Government issued licences in October to four successful bidders, namely Hong Kong CSL Limited, Hutchison 3G HK Limited, SmarTone 3G Limited and SUNDAY 3G (Hong Kong) Limited. Each of them would pay a 5 per cent royalty, with a flat payment of $50 million in each of the first five years and rising minimum guaranteed payments from year six onwards during the 15-year licence period. The royalty scheme is an unprecedented but pragmatic approach that takes account of the financial burden borne by the operators.

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To ensure competition at both the network and service application levels, the Government also spearheaded the introduction of an open network access requirement. 3G network operators are required to make available 30 per cent of network capacity for interconnection to, or access by, non-affiliated Mobile Virtual Network Operators (MVNO) and/or content providers on a non-discriminatory basis.

External Telecommunications Services

Following an agreement made between the Government and the Hong Kong Telecom International Limited (now known as Reach Networks Hong Kong Limited), the latter surrendered its exclusive licence for external telecommunications. services in March 1998, eight years ahead of its expiry in 2006. This resulted in competition in the external telecommunications services market from January 1, 1999. Competition in the market has led to a significant drop in International Direct Dialling (IDD) call rates. Consumer savings in 1999 and 2000 amounted to an estimated $9.4 billion.

Competition in the external facilities market has also been introduced from January 1, 2000. Operators who bring in new submarine or overland cables, or use

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