The Telecommunications Authority (TA) announces today (30 August 2003) the arrangement to waive the submission of performance bonds due in October 2003 from the four licensees for third generation (3G) mobile services. The bonds are in respect of the sixth and seventh licence year.

"We have decided to give the 3G licensees another one-year waiver on the submission of performance bonds to assist the industry in response to changing market conditions. Our decision is taken after careful consideration of needs of the industry and the steps other Governments have taken to help their 3G licensees," said a spokesperson of the Office of the Telecommunications Authority (OFTA).

"The extension of waiver for one more year is an exceptional treatment unlikely to be offered next year in respect of the performance bond due in October 2004," continued the OFTA spokesperson.

The 3G licensees have, on the grant of the licences in October 2001, either submitted performance bonds to guarantee the payment of the spectrum utilization fee (SUF) for the first five years, or paid upfront the SUF for the first five years. In October 2002, the TA granted the 3G licensees a one-year waiver on the submission of performance bonds. Therefore, the extension of waiver of performance bonds due this year means that the Government has in hand guarantee for the payment of the SUF or payment thereof for the next three years.

"The waiver does not affect Government revenue as the licensees are still required to pay the SUF for all years within the 15-year licence period," continued the OFTA spokesperson.

By accepting the waiver, the four licensees would not be required to submit on 22 October 2003 a performance bond to guarantee payment of the SUF of HK$60.124 million for the sixth licence year and HK$70.249 million for the seventh licence year to be called in the event of serious default. However, those who have not done so already would still be required to pay HK$50 million for the SUF of the second licence year by 22 October 2003.

Background

On 22 October 2001, the TA awarded four 3G licences to Hong Kong CSL Limited, Hutchison 3G HK Limited, SmarTone 3G Limited and SUNDAY 3G (Hong Kong) Limited.

2. Under the present licence conditions, the four 3G licensees must:

  1. pay a SUF for each year - for the first five years, the annual SUF is HK$50 million. From the sixth year onwards, each will pay the higher of a rising minimum guaranteed SUF, or 5% of their network turnover for the relevant year; and
  2. submit a five-year rolling guarantee by way of a performance bond by a qualifying bank for each of the annual minimum SUF - before the licensees took up their licences on 22 October 2001, they submitted a HK$250 million bond, which is equivalent to the SUF payment of the first five years. Note In October 2002, the TA granted the four 3G licensees a one-year waiver on the submission of performance bond. The waiver shall expire in October 2003 and the four 3G licensees must submit by 22 October 2003 a performance bond to guarantee the payment of SUF of HK$60.124 million for the sixth year and HK$70.249 million for the seventh year. The Government should hold, as from 22 October 2003, a five-year rolling guarantee covering the third to the seventh years.

3. By accepting the waiver for one more year, the four licensees would not be required to submit a performance bond of HK$130.373 million (i.e., for the sixth and seventh year) each on 22 October 2003. Their licence conditions will be amended by mutual consent.

4. The decision to waive the submission of performance bonds for one more year is taken after considering very carefully a request from the industry. The Government extends the same waiver to all four licensees in order to maintain a level playing field.

Office of the Telecommunications Authority
30 August 2003

Note: Instead of offering a performance bond, SUNDAY 3G offered an upfront payment of HK$250 million to the Government to cover the SUF for the first five years. The Government accepted this upfront payment and announced in a press release issued on 22 October 2001 (see press release in CTB's website https://www.info.gov.hk/gia/general/200110/22/1022241.htm).