The Government today (July 18) issues the Information Memorandum, inviting applications for Hong Kong's third generation mobile services (3G) licences. The Information Memorandum sets out the reserve prices for the 3G auction, the auction rules and various other elements of the licensing framework.
"As announced in February this year, our hybrid method for the issue of four 3G licences involves a pre-qualification process followed by spectrum auctioning. The hybrid method will help ensure the quality of future 3G networks as well as allocate spectrum in a fair and efficient manner," a spokesman for the Information Technology and Broadcasting Bureau said.
"Recognising the recent downturn of the telecommunications market, we have introduced a royalty-based payment scheme that is intended to minimize the financial burden on operators. The royalty scheme is underpinned by a schedule of minimum payments, which minimise government's credit risk but allow it to share the upside of the 3G business," the spokesman explained, adding that under the scheme, each licensee will pay the same percentage royalty on its network turnover.
The Government also announced today the reserve prices for the auction together with the bidding schedule which defines the minimum annual fees related to given royalty percentages. For the first phase auction (i.e., the royalty auction), the reserve price is five per cent of network turnover, subject to an annual minimum payment of HK$50 million for each of the first five years, and rising annual payments from year six onwards during the 15-year licence period.
"In setting the reserve price, we aim to encourage entry to the auction, but are also mindful to set a reasonable minimum price for a scarce public resource like spectrum. We have also taken the current market conditions into account. The reserve price represents a fine balance of all the relevant factors," the spokesman elaborated.
"To tie in with the scheme of royalties and minimum annual payments, we have also specified a bidding schedule which lists out the series of annual minimum payments corresponding to each royalty percentage bid. The schedule is designed to discourage irrational bidding by accelerating the increase in minimum payments at a rate faster than the royalty percentage increase," the spokesman added.
The Government has also set the reserve prices for the second and third phase auctions, i.e the mechanisms to resolve any connections between bidders in the unlikely event that they arise and to allocate specific frequency bands to the successful bidders. The reserve prices for both mechanisms have been set at HK$0, because the objective to set a reasonable minimum price for the spectrum is achieved by the reserve price for the first phase auction.
It is our aim to conduct an open, transparent and fair auction. The Government will maximise transparency of the bidding exercise without affecting the integrity of the auction. We will therefore release full information on the auction as early as possible. However, to minimise opportunities for collusion, bidders' identities will be preserved during the main bidding stage. Sufficient safeguards have been built into the auction design to ensure that the auction will be conducted fairly.
Furthermore, the Information Memorandum provides information on the auction rules and the relevant regulatory issues. In accordance with the framework announced in February 2001, there will be an open network access requirement whereby 3G licensees are required to open up at least 30 per cent of their capacity for use by non-affiliated Mobile Virtual Network Operators (MVNOs) and content and service providers (CSPs). A successful licensee who is a 2G operator must offer domestic roaming service to any new entrants. "The requirements will promote entry, ensure a competitive and vibrant 3G market and preserve a level playing field for all operators to compete with," the spokesman continued.
"We have also made clear that we will not issue any additional licences for cellular communications before 2005. This licensing exercise is the opportunity for interested operators to bid for spectrum for the 3G services in Hong Kong," the spokesman explained.
"Bidders will have nine weeks to prepare their applications. They must submit their applications on either September 17 or 18, 2001. Our plan remains to hold the auction in September 2001 so as to enable Hong Kong consumers to enjoy 3G services as about the same time as in other advanced countries," he added.
Background
3G is the next generation of mobile telecommunications, which will allow mobile access to personalised multimedia services, anytime, anywhere. It should create enormous opportunities for both network operators and providers of content and service applications. Small innovative enterprises should have great potential in this market.
Hong Kong remains a leader in mobile services and technology, with a highly competitive market of six network operators, and high penetration rates of 80 per cent (April 2001). With such a market, Hong Kong is ideally placed to enjoy the full benefits of 3G.
With the support of the Legislative Council, the Telecommunications (Amendment) Bill 2001 was passed and enacted in May 2001. The relevant subsidiary legislation also took effect in July 2001 to provide the legal basis for the 3G licensing exercise:-
To invite applications for the 3G licences:-
for the 3G auction pursuant to section 32I of the Telecommunications Ordinance (as amended by the Telecommunications (Amendment) Ordinance 2001) and the Regulation ("the Gazette Notices") by publication in the Gazette. The Telecommunications Authority has also issued an Information Memorandum (with the Gazette Notices as appendices) as a general guide to the licensing exercise.
A copy of the Information Memorandum is available on the website of the Office of the Telecommunications Authority (www.ofta.gov.hk).
The Government engages N M Rothschild & Sons (Hong Kong) Limited and Allen & Overy to advise on the auction design and implementation of the licensing exercise.
END/Wednesday, July 18, 2001
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