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Chapter 3 Meeting the New Challenges of the Telecommunications Market

Reassignment of the 3G Spectrum and Spectrum Utilisation Fee

Among the 17 million mobile service subscribers in Hong Kong, about three-quarters, or over 12 million, of them subscribe to mobile data services. The 3G network, hosting 10 million customers, remains the backbone network for the provision of mobile data services, notwithstanding the rollout of the 4G network by all the mobile network operators. The 3G network is supported primarily by the 2 x 60 MHz of spectrum in the 1.9 to 2.2 GHz band (“3G Spectrum”), which was assigned through auction to four mobile network operators in October 2001.

The CA announced in November 2013 the decision to adopt a hybrid administratively-assigned cum market-based approach to re-assign the 3G Spectrum upon expiry of the existing term of assignments on 21 October 2016. The Secretary for Commerce and Economic Development (“SCED”) has also decided to propose a regulation under the TO to determine the spectrum utilisation fee (“SUF”) of the related 3G Spectrum under the new 15-year term of assignments from 22 October 2016 to 21 October 2031.

Under the hybrid approach, the four incumbent 3G operators will be offered a right of first refusal for re-assignment of two-thirds of the 3G Spectrum holding, viz 2 x 10 MHz each. Should any of them decide not to exercise the right of first refusal in respect of the whole of such spectrum, the spectrum thus becoming available will be pooled together with the remaining one-third of the 3G Spectrum for re-assignment through auction. This arrangement is considered best able to meet the multiple objectives in the 3G Spectrum re-assignment exercise, viz. ensuring customer service continuity, efficient spectrum utilisation, promotion of effective competition, encouragement of investment and promotion of innovative services.

In May 2014, one of the four incumbent 3G operators was acquired by another incumbent. The merged entity was directed to divest 2 x 15 MHz of the 3G Spectrum upon expiry of the existing term of assignment, as a remedy to address the concern about spectrum concentration arising from the acquisition. A total of 2 x 35 MHz of the 3G Spectrum will therefore be offered to the incumbent 3G operators for re-assignment through right of first refusal (“RFR Spectrum”), and if all of them exercise the right in respect of all such spectrum, 2 x 25 MHz of the 3G Spectrum will be re-assigned through auction (“Re-auctioned Spectrum”).

The SUF of the Re-auctioned Spectrum will be determined by auction. Amendments to subsidiary legislation under the TO are made to prescribe the method for setting the SUF of the RFR Spectrum. The SUF per MHz of the RFR Spectrum is set at HK$66 million, which is the level of SUF payable by the incumbent 3G operators for the use of the 3G Spectrum in the last year of the existing term of assignments multiplied by 15 to take into account the 15-year assignment period, or the average of the SUF of the Re-auctioned Spectrum as determined by auction, whichever is higher, subject to a cap at HK$86 million per MHz. The auction of the 3G Spectrum is planned to take place towards the end of 2014.

Regulation of Broadcast-type Mobile TV Services

Since the launch of Mobile TV Services in February 2012, the China Mobile Multimedia Broadcasting (“CMMB”) standard has been used as the transmission standard. Hong Kong Television Network Limited (“HKTV”) announced on 20 December 2013 the completion of its acquisition of all shares of the original licensee holding the Unified Carrier Licence (“UCL”) that authorised it to provide Mobile TV Services (“Mobile TV Licence”) and subsequently renamed the licensee as Hong Kong Mobile Television Network Limited (“HKMTV”). In January 2014, HKMTV indicated to OFCA its proposal to switch from the original CMMB standard to the Digital Terrestrial Multimedia Broadcast (“DTMB”) standard.

Since the DTMB standard is the transmission standard adopted for the provision of DTT services by the incumbent free television licensees in Hong Kong, as the executive arm of the CA, OFCA considers that HKMTV’s switch to the DTMB standard without implementing effective technical measures to ensure its Mobile TV Service would not be available for reception by an audience of more than 5 000 specified premises in Hong Kong would trigger the licensing requirement under the BO in relation to a domestic free television programme service licence and/or domestic pay television programme service licence. Also, the reception of Mobile TV Services by household television sets via fixed installations, such as in-building coaxial cable distribution systems and rooftop antennas, would, in OFCA’s views, constitute the provision by HKMTV of a fixed service, in breach of Schedule 1 of the Mobile TV Licence. Schedule 1 of HKMTV’s Mobile TV Licence stipulates that nothing in the Mobile TV Licence authorises the licensee to provide any fixed services using the frequencies specified in the Mobile TV Licence, or to provide any service subject to licensing under any other ordinance.

HKTV and HKMTV disputed that Mobile TV Services should be subject to regulation by the BO. On 11 April 2014, HKTV and HKMTV applied to the court for leave to apply for a judicial review of OFCA’s positions. OFCA, will continue to support and assist the CA in handling the issues concerned in accordance with the legal procedures.

Continued Efforts to Strengthen Consumer Protection in the Use of Telecommunications Services

Ongoing Implementation of “Mobile Bill Shock” Preventive Measures

The emergence and increasing popularity of smart phones and advanced mobile devices have driven the growth and demand for mobile data services in recent years. In tandem, the ensuing increase of the number of consumer complaints relating to mobile broadband billing disputes has become a common concern among consumers. Many of these complaints involve “mobile bill shock”, i.e. the shock consumers experience upon receiving unexpectedly high mobile bill charges. “Mobile bill shock” is mainly caused by unintentional or inadvertent usage of mobile data services, locally or while roaming overseas.

To cope with this problem, OFCA has promulgated since May 2010 a series of preventive measures for the industry to adopt, which include allowing customers to opt out of individual services; setting a charge ceiling; setting a usage cap for all kinds of usage-based mobile services; and alerting customers through short messages when their predetermined usage threshold is reached, or when their roaming data usage is triggered.

To increase the transparency of the relevant service information, we have published the measures implemented by individual operators on our website and provided updates regularly. Along with these measures, we have organised a series of consumer education programmes to enhance consumer awareness and knowledge of mobile data services. We have also posted a data usage calculator on our website, which serves as a tool for consumers to estimate their data usage consumption.

With the implementation of these “mobile bill shock” measures by mobile network operators and our consumer education efforts, the number of related complaints decreased from 475 cases in 2012 to 422 cases in 2013.

Progress of the Implementation of Fair Usage Policy Guidelines

In order to meet the needs of a broad spectrum of customers, both fixed and mobile broadband service providers may offer service plans with “unlimited usage” for consumers. However, certain unlimited usage plans are in fact subject to usage restrictions imposed by service providers in the name of Fair Usage Policy (“FUP”). The FUP is intended to prevent excessive usage of network resources by individual customers, which may adversely affect the network performance and hamper other customers’ use of the service. For example, service providers may impose restrictions by lowering the network service priority or reducing the access speed for customers whose data usage has exceeded a specified threshold. Nevertheless, consumers may not be aware of the existence of the FUP or understand the relevant terms and conditions. Customers of unlimited service plans in particular feel aggrieved when their data usage is subject to restriction because of FUP.

With a view to protecting consumer interests and enhancing the transparency of service information, the CA issued a set of FUP guidelines in November 2011, governing how service providers should implement their FUP. The mandatory guidelines have been in effect since February 2012.

In 2013, we assisted the CA in handling 38 FUP-related complaint cases. The CA issued a warning letter to a mobile broadband service provider who had contravened the FUP guidelines.

Continuing to Facilitate the Implementation of Self-regulatory Measures

Industry Code of Practice for Telecommunications Service Contracts

In order to provide guidelines for the industry on drawing up telecommunications service contracts so as to improve transparency in the contracting process and increase customer satisfaction, the CAHK, an industry association, promulgated a self-regulatory Industry Code in December 2010.

With effect from July 2011, all major fixed and mobile network operators and one major external telecommunications services operator have implemented the necessary measures for complying with the Industry Code to provide personal and residential users of telecommunications services with better protection upon signing or renewal of service contracts. The objective of the Industry Code is to protect consumer rights and interests. The Industry Code also represents the proactive efforts of the telecommunications industry to address consumer complaints and disputes in relation to contractual matters.

The number of complaints related to service contract disputes decreased from 1 116 cases in 2012 to 894 cases in 2013. With reference to the implementation experience and the responses from consumers, OFCA made several recommendations to improve the Industry Code for CAHK’s consideration in May 2013. CAHK has been working closely with its members regarding the implementation of further improvements to the Industry Code.

Code for the Provision of Chargeable Mobile Content Services

To safeguard consumer interests and increase the transparency of the pricing information related to Mobile Content Services (“MCS”), OFCA has worked closely with the industry to draw up the voluntary “Code for the Provision of Chargeable Mobile Content Services”. The code governs the practices of third-party Content Service Providers (“CSPs”) in providing MCS and the establishment of an industry self-regulatory scheme. This was promulgated and put into effect by CAHK in January 2010. The code requires all third-party CSPs, before initiating delivery of MCS to customers, to indicate to them clearly the chargeable nature of the services, provide them with clear information on all charges, obtain clear consent from them for the provision of MCS, and also to set out clearly the unsubscribing mechanisms, which should be simple and convenient.

The code also provides for the establishment of an Administrative Agency (“AA”), which is responsible for assessing the capability of CSPs and securing their pledges in complying with the requirements of the code, and monitoring their compliance through random checks and complaint handling on a regular basis. A mobile network operator may only enter into a commercial contract with a CSP that has obtained a Letter of Positive Assessment (“LPA”) from the AA regarding MCS delivery and billing. As at end March 2014, 10 CSPs had successfully obtained LPAs from the AA. In 2013, the AA issued a total of five warnings to three CSPs who had not complied with the code.

OFCA has been closely monitoring the effectiveness of the code. Since the adoption of the code in January 2010, the number of related complaints received by OFCA has decreased and remained low. During the year under review, there was a monthly average of fewer than three cases, reflecting that the voluntary code has been working positively to address consumer concerns.

Code of Practice in Relation to Billing Information and Payment Collection for Telecommunications Services

In October 2011, OFCA issued a code of practice entitled “Code of Practice in Relation to Billing and Payment Collection for Telecommunications Services” to provide guidance to telecommunications operators on the chargeable items to be included in their bills and the arrangements for payment collection. Operators were invited to comply with this code on a voluntary basis.

As at September 2014, seven local fixed and four mobile network operators had pledged compliance with the code of practice. For the information of consumers, we have published on our website a consumer alert as well as a summary of the compliance status of all operators. We will continue to closely monitor the implementation and effectiveness of this code of practice.

Industry Code of Practice for Provision of Mobile TV Services

According to the Framework for Development of Broadcast-Type Mobile TV Services in Hong Kong, which was promulgated by the Government in December 2008 and revised in February 2010, the industry is required to develop a code of practice on the provision of mobile TV services, both local broadcast-type and streaming-type, for the purpose of self-regulation. In August 2012, CAHK issued a code of practice for mobile TV services. With a view to protecting children and public morals, the code requires mobile TV service providers to implement access controls for pornographic and obscene contents. Mobile TV service providers should also have regard to the prevailing standards of morality generally accepted by society, and in particular be vigilant about the likely effects of their television content on children.

Progress of the Implementation of Customer Complaint Settlement Scheme

To help resolve, by means of mediation, billing disputes in deadlock between telecommunications service providers and their residential/personal customers, OFCA has facilitated the setting up by the telecommunications industry of a voluntary CCSS for a trial period of two years starting from 1 November 2012. The mediation service is provided by an independent mediation service centre set up under CAHK with the participation of all major telecommunications service providers in Hong Kong. OFCA sponsors the CCSS operation and plays an active role in monitoring the performance and the governance of the scheme.

In the first 17 months of the trial operation of CCSS from 1 November 2012 to 31 March 2014, OFCA received 190 applications that met CCSS’s acceptance criteria. Among them, 102 were resolved before referral to the CCSS mediation service centre, and the remaining 88 cases were satisfactorily settled after being followed up by the CCSS mediation service centre.

Following the trial period, OFCA and the industry will assess the effectiveness of the CCSS and its usage by the public in considering the way forward.

Facilitation of the Landing of New Submarine Cable Systems in Hong Kong

In June 2013, a new submarine cable system, namely the South-East Asia Japan Cable System, came into operation. Another two new submarine cable systems, the Asia-Pacific Gateway and the Asia Africa Europe-1, are scheduled to land in Hong Kong in the coming two years. OFCA will continue to provide a single-point-of-contact service to assist the operators in applying for the necessary statutory approvals to land new cable systems.

Development of Fixed Broadband Services

Broadband access to various applications and content services has become an integral part of people’s lives in Hong Kong. With the continuous network rollout of fixed network operators, the Hong Kong community is able to enjoy the nearly ubiquitous coverage of broadband networks deploying various technologies. As of March 2014, there were around 2.24 million residential and commercial fixed broadband subscribers, with a household penetration rate of 83%. Broadband services are now available at speeds up to 1 Gbps. Over 92% of fixed broadband subscribers are using broadband services with a speed of 10Mbps or above.

According to a press release issued by the FTTH Council Europe in February 2014, Hong Kong, with 56.6% of households connected to FTTH or Fibre to the Building networks, ranked number three worldwide among the 35 economies under comparison. According to the “State of the Internet 1st Quarter, 2014 Report” published by Internet content delivery provider Akamai in June 2014, Hong Kong has a fast broadband with an average peak connection speed of 66 Mbps, which is among the highest in the world.

Update on the Review of Regulatory Guidance on the Charging Principles for Narrowband Interconnection Between Fixed Carriers

Regulatory guidance on the charging principles for narrowband interconnection between fixed carriers was first promulgated in 1995, when the local fixed telecommunications market was liberalised. Taking into account the significant changes and developments in the market and technologies over the past two decades, the regulatory guidance that applies to narrowband interconnection between fixed carriers is increasingly out of place when broadband interconnection is not subject to similar regulatory guidance. After a public consultation, the CA decided in April 2013 that the regulatory guidance would cease to be effective starting from 16 October 2014, after an 18-month transitional period. Fixed carriers are encouraged to make their best endeavours to conclude commercial agreements on interconnection. In the meantime, OFCA will continue to monitor the market developments during the transitional period and assist the industry in resolving problems, if any, arising from the withdrawal of the regulatory guidance.