The Telecommunications Authority (TA) has today published the second consultation paper on licensing of third generation mobile services titled "Licensing Framework for Third Generation Mobile Services: Analysis of Comments Received, Preliminary Conclusions and Further Industry Consultation". He invited comments from the public and the industry over a 6-week consultation period until 13 November 2000.

"3G is the next generation of mobile communications. It will provide tremendous opportunities not only in network operation but also in content creation and service application," a spokesman from Information Technology and Broadcasting Bureau said.

"Our purpose is to come up with a licensing framework that will meet our policy objectives, which are to promote the development of the telecommunications industry in Hong Kong, to protect consumers' interests and to maximise the benefits to the society as a whole."

Under the policy considerations above, the TA has proposed in the consultation paper to issue four 3G network licences by a hybrid method with an 'open network' requirement. The hybrid method involves a pre-qualification exercise before spectrum auctioning. "The pre-qualification exercise will ensure that applicants will meet a minimum standard of investment, network rollout and financial capability. Allocation of licences by spectrum auction is an allocation process that is efficient, fair and transparent," the spokesman explained.

With the open network requirement, successful bidders will be required to open up part of their 3G network capacity to service providers. While the number of licences to be issued for 3G network operation will be limited by spectrum availability, this requirement will introduce more competition at the content and service application level.

"Such an arrangement will encourage the development of our telecommunications and information technology industry. In particular, our small, innovative content and service providers will stand to benefit. This network and service separation regime is also most suitable for Hong Kong by giving all of our six incumbent 2G operators room to participate in the 3G business."

"It is also important for us to maintain at the same time investment incentives to roll out the 3G network needed to support a vibrant content and service application business." The TA therefore invites comments on the regulatory regime to support the open network requirement, including the percentage of the network to be opened between 30% to 50%, and the basis for determining prices of interconnection when commercial negotiations fail.

The TA invites comments on various auctioning methods based on either a lump sum or royalties payment with a guaranteed minimum. The royalties payment option enables the Government to capture the upside if 3G turns out to be very successful, while alleviating the pressure on capital requirement in particular during the initial years in rolling out the network.

"We believe that the proposed arrangement should achieve all of our policy objectives. Through the two-stage assessment and allocation process, we will ensure that the operator with the capability and best business case will be awarded a licence. The open network requirement, which will form a licence condition, will greatly encourage the development of new 3G application. At the end of the day, consumers stand to benefit from quality and competitive 3G services.

Taking into account the feedback on technical requirements from the first consultation exercise and the proposed open network arrangement, the TA suggests that four 3G network licences should be issued. He also sets out his views on a number of key regulatory issues such as the bidding by new entrants and incumbents on an equal basis and roaming arrangement between 2G and 3G.

The TA aims to finalize the licensing framework for the 3G services in around end 2000/early 2001 and issue licences in 2001.

Background

On 21 March 2000, the TA issued the first consultation paper on the licensing framework for 3G. The consultation ended on 22 May 2000. The TA received 49 submissions all of which are posted on the web site of the Office of the Telecommunications Authority (OFTA) at http://www.ofta.gov.hk.

Having studied the submissions and views received, the TA published a second consultation paper today to further consult the industry and interested parties before finalizing the licensing framework. The consultation paper set out and invite comments on the TA's views on the licence allocation method, treatment of new entrants, number of licences to be issued and other regulatory issues.

Those who are interested should forward their comments by 13 November 2000 to the Office of Telecommunications Authority by mail to: Office of the Telecommunications Authority, 29/F., Wu Chung House, 213 Queen's Road East, Wan Chai, Hong Kong, by fax to (852) 2803 5112, or by e-mail to syflam@ofta.gov.hk. All submissions should be addressed to Senior Regulatory Affairs Manager (Services Licensing).

Submissions should be made in writing. An electronic copy of the submission in Word 7.0 format should be provided wherever possible. The TA reserves the right to publish all submissions received and reveal the identity of source.

End/Tues, October 3, 2000