Applications Invited to Bid for Radio Spectrum for the Provision of Public Telecommunications Services

The Office of the Communications Authority (“OFCA”) today (19 September 2014) published an Information Memorandum (“IM”) inviting interested parties to participate in the auction of 49.2 MHz of paired radio spectrum in the 1.9 – 2.2 GHz band for the provision of public telecommunications services in Hong Kong. The auction will take place in December 2014. The IM sets out the minimum spectrum utilization fee (“SUF”), i.e. the reserve price for the spectrum auction, the auction rules and the salient elements of the licensing framework.

By way of background, the Communications Authority (“CA”) announced in November 2013 its decision to adopt a hybrid administratively-assigned cum market-based approach to re-assign 118.4 MHz of paired spectrum in the 1.9 – 2.2 GHz band upon the expiry of their existing assignments in October 2016 (“the 3G Decision”). Under the hybrid approach, each of the then four incumbent spectrum assignees (viz. Hong Kong Telecommunications (HKT) Limited (“HKT”), CSL Limited (“CSL”), Hutchison Telephone Company Limited and SmarTone Mobile Communications Limited) would be offered a right of first refusal (“RFR”) to be re-assigned two-thirds of its existing holding, viz. 19.8 MHz of spectrum through the RFR. The remaining one-third, amounting to 39.2 MHz of spectrum, and any spectrum not taken up by the incumbent spectrum assignees under the RFR would be re-assigned through auction.

Separately, the CA decided in April 2014 to give consent, with conditions imposed, to the acquisition by HKT Limited, the parent company of HKT, of CSL New World Mobility Limited, parent company of CSL, pursuant to section 7P of the Telecommunications Ordinance (“the Section 7P Decision”). Under the conditional approval, HKT and CSL are required inter-alia to divest 29.6 MHz of spectrum in the 1.9 – 2.2 GHz band, by not seeking the spectrum re-assignment. In addition, HKT, CSL, any company forming part of the same group as HKT and CSL (including but not limited to the holding companies, subsidiaries) and any joint venture in which HKT or CSL has an interest are not allowed to participate in the spectrum auction. The combined effect of the 3G Decision and the Section 7P Decision is therefore that a total of 49.2 MHz of spectrum becomes available for re-assignment through auction.

“Upon the offer by the CA, all the three incumbent spectrum assignees accepted in August 2014 the RFR to be re-assigned 69.2 MHz of the spectrum in the 1.9 – 2.2 GHz band. The CA now makes available the remaining 49.2 MHz of the spectrum for re-assignment through an auction to be conducted some time in December 2014,” a spokesman for OFCA said.

“The 49.2 MHz of spectrum will be divided into five frequency bands, each with a bandwidth of 9.8 MHz or 10.0 MHz. New entrants to the mobile market as well as the incumbent spectrum assignees (save for HKT due to the Section 7P Decision) may participate in the auction. A spectrum cap of 40 MHz is imposed on individual holding of spectrum in the 1.9 – 2.2 GHz band,” the spokesman said.

“The Government has set the auction reserve price at HK$ 48 million per MHz. The actual amount of SUF payable will be determined by the auction exercise,” the spokesman continued.

“The frequency bands will be assigned to the successful bidders under unified carrier licences with a validity period of 15 years each with effect from 22 October 2016. Network and service rollout obligation will be imposed only on the successful bidders which are new entrants to the 1.9 – 2.2 GHz band and any incumbent spectrum assignees which have obtained spectrum in the auction that is outside of their existing holdings. These successful bidders are each required to lodge a performance bond to guarantee their compliance with this obligation,” the spokesman added.

The IM can be downloaded from OFCA’s website. OFCA will accept applications to take part in the auction on 13 and 14 November 2014.

For the avoidance of doubt, the IM does not constitute an offer or invitation to participate in the auction, nor does it constitute the basis of any contract which may be concluded in relation to the auction. Nothing in the IM or the auction shall be construed as an approval of proposals made by the bidders, which are subject to the requirements of licensing or approval of the relevant authorities under the Telecommunications Ordinance or any other ordinance or otherwise unrelated to the auction.

Office of the Communications Authority
19 September 2014