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 subscribe to mobile data services provided on the 3G and 4G networks. Notwithstanding the sustained migration of mobile customers to the 4G network, the number of 3G mobile customers still exceeds seven million. The 3G network is supported primarily by 2 x 59.2 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 existing assignments of the 3G Spectrum will expire in October 2016. The CA announced on 15 November 2013 its decision to adopt a hybrid administratively assigned cum market-based approach to re-assign the 3G Spectrum for the new 15-year term, starting from 22 October 2016. The hybrid approach would best meet the multiple objectives in spectrum re-assignment, viz. ensuring customer service continuity, efficient spectrum utilisation, promotion of effective competition, and encouragement of investment and promotion of innovative services. On 15 November 2013, the Secretary for Commerce and Economic Development (“SCED”) also promulgated the related arrangements for determining the spectrum utilisation fee (“SUF”) of the re-assigned spectrum under the TO.
In April 2014, the CA approved the merger of two of the incumbent 3G operators. As a remedy to address the competition concern arising from spectrum concentration resulting from the merger, the merged entity was directed by the CA to divest 2 x 14.8 MHz of the 3G Spectrum upon expiry of the existing term of assignment. The divested spectrum was to be made available for re-assignment through auction. Following the merger, there remained three operators assigned with 3G spectrum. These incumbent 3G operators were offered the right of first refusal for re-assignment of a total of 2 x 34.6 MHz of the 3G Spectrum, the level of SUF for which was prescribed by the subsidiary legislation enacted in July 2014. All three incumbent 3G operators accepted the offers in August 2014. Following the right of first refusal exercise, the remaining 2 x 24.6 MHz of the 3G Spectrum, grouped into five frequency slots with a bandwidth of around 2 x 5 MHz each, was available for re-assignment through auction.
OFCA assisted the CA in finalising the auction rules and issuing the related Information Memorandum in September 2014 for auction of the 2 x 24.6 MHz of the 3G Spectrum. The auction was completed in December 2014. All five frequency slots were successfully auctioned off to three mobile network operators, including two incumbent 3G operators (the merged entity did not participate in the auction, pursuant to a direction imposed by the CA upon the approval of the merger to address the spectrum concentration issue) and an operator that is not an incumbent 3G Spectrum assignee. The auction fetched a total SUF of $2.42 billion, or $49.2 million per MHz. Based on the method for setting the SUF as prescribed by the subsidiary legislation, the SUF of the 3G Spectrum re-assigned administratively through right of first refusal stood at $4.57 billion, or $66 million per MHz, 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, that is, the numbers of years of the new term of assignments. Both the incumbents and new 3G Spectrum assignee are required to pay the SUF, totalling $6.99 billion for the new 15-year term of assignments, by August 2016.
In sum, 29.6 MHz out of the 118.4 MHz in the 1.9 – 2.2 GHz band will change hands with effect from October 2016. Counting from the completion of the spectrum auction, the incumbents and the new spectrum assignee would have about two years to prepare for the necessary network reconfiguration and roll-out of their networks respectively. In order to facilitate a smooth spectrum handover among the spectrum assignees so that the service impact on customers would be kept to a minimum, OFCA set up a Technical Working Group in March 2015 with the participation of all relevant mobile network operators for the purpose of handling the technical coordination matters in relation to the 3G spectrum re-assignment. OFCA will continue to coordinate with the operators for the spectrum handover.
Preparation for re-assignment of spectrum in the 900 MHz and 1800 MHz frequency bands
Frequency spectrum in the 900 MHz and 1800 MHz frequency bands is currently deployed for the provision of 2G, 3G and 4G mobile services. The existing assignments for 49.8 MHz of spectrum in the 900 MHz band and 148.8 MHz of spectrum in the 1800 MHz band will expire within the period from November 2020 to September 2021. In order to allow sufficient time for the industry to prepare for the spectrum re-assignment, the CA plans to launch two rounds of public consultation on way forward with a view to announcing its decision on the arrangements for spectrum re-assignment by the end of 2017. The related preparatory work has commenced in 2015.
Reduction of Telecommunications Licence Fees
In November 2012, the CA and the SCED issued a joint statement that promulgated their decision to reduce the customer connection fee level of Unified Carrier Licences (“UCLs”) from $800 to $700 for each 100 customer connections, and to reduce the mobile station fee level of Public Radiocommunications Service Licences (Paging) and Services-Based Operator Licences (Class 3) from $800 to $700 for each 100 mobile stations. Following the completion of the legislative procedure, the new licence fees took effect on 1 March 2013. In February 2013, PCCW-HKT Telephone Limited and Hong Kong Telecommunications (HKT) Limited (“PCCW and HKT”) applied for leave to lodge a judicial review (“JR”) application against the CA and SCED on their decisions on licence fees reduction. The Court granted leave to PCCW and HKT’s application for the JR in July 2013. The substantive hearing was held from 17 to 19 June 2015. The judgment was handed down on 11 August 2015. The Court of First Instance ruled in favour of the CA and the SCED and dismissed the JR application. PCCW and HKT lodged an appeal to the Court of Appeal on 4 September 2015.
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. HKTV announced on 20 December 2013 the completion of its acquisition of all shares of the original licensee holding the 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.
DTMB standard is the transmission standard adopted for the provision of free-to-air DTT services in Hong Kong. As the executive arm of the CA, OFCA is of the opinion that HKMTV’s switch to the DTMB standard without implementing effective technical measures to ensure that its Mobile TV Services will not be available for reception by an audience of more than 5 000 specified premises in Hong Kong will trigger the licensing requirement under the BO in relation to a free TV licence and/or pay TV licence. Furthermore, the reception of Mobile TV Services by household television sets via fixed installations, such as in-building coaxial cable distribution systems and rooftop antennas, will constitute the provision by HKMTV of a fixed service, in breach of Schedule 1 of the Mobile TV Licence, which 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 OFCA’s view that Mobile TV Services using the DTMB standard without effective technical measures 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. Leave was granted and the substantive hearing was conducted on 26 and 27 November 2014. On 29 September 2015, the Court of First Instance handed down its judgment in favour of OFCA and dismissed all the grounds of judicial review brought by HKTV and HKMTV.
Continued Efforts to Strengthen Consumer Protection in the Use of Telecommunications Services
Ongoing Implementation of “Mobile Bill Shock” Preventive Measures
The growing popularity of smartphones and advanced mobile devices has driven the growth of and demand for mobile data services in recent years. At the same time, the rise in 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”, which refers to 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 address this problem, a series of preventive measures have been promulgated by OFCA since May 2010 for the industry. These measures 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 pre-determined usage threshold is reached, or when their roaming data usage is triggered.
To increase the transparency of the relevant service information, OFCA has published measures implemented by individual operators on its website and provided regular updates. In parallel with these measures, OFCA has organised a series of consumer-education programmes to enhance consumers’ awareness and knowledge of mobile data services. OFCA has also posted a data usage calculator on its website, which serves as a tool for consumers to estimate their data usage consumption. In 2014, we handled 615 complaint cases in relation to “mobile bill shock”.
Progress of the Implementation of Fair Usage Policy Guidelines
Fixed and mobile broadband service providers offer a variety of service plans for consumers, including plans with “unlimited usage”. However, certain “unlimited usage” service 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 the FUP.
In order to protect consumer interests and enhance 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 2014, OFCA assisted the CA in handling 43 FUP-related complaint cases, which was slightly higher than the 38 cases handled the year before. None of them was found to be in contravention of the FUP guidelines.
Enhancement of the Broadband Performance Test System
Since December 2010 OFCA has posted on its website a broadband performance test system to enable broadband service users to measure the performance of their broadband connections, including download and upload speeds, network latency, packet loss and jitter. Apart from users of desktop and notebook computers, users of smart phones and tablets running Apple’s iOS and Google’s Android operating systems may also make use of the test system.
In December 2014, we completed the upgrade of the broadband performance test which now offers desktop users a speed test of up to 1 000 Mbps. In January 2015, we also updated the mobile apps to offer users of iOS-and Android-based mobile devices a speed test of up to 150 Mbps.
The broadband performance test system was accredited with a Certificate of Merit under the category of “Best Public Service Application (Web/Mobile Application) Award” in the “Hong Kong ICT Awards 2013”. From service launch to May 2015, more than 58 million tests were performed under this system.
Continuing to Facilitate the Implementation of Self-regulatory Measures
Enhancement of the 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, CAHK, an industry association, promulgated a self-regulatory Industry Code in December 2010.
Since July 2011, all major fixed and mobile network operators 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 number of complaints related to service contract disputes has been decreasing continuously since the implementation of the Industry Code, dropping from 1 277 cases in 2011 to 588 cases in 2014. Having reviewed and analysed consumer complaints on contractual disputes received since the implementation of the Industry Code, OFCA made a number of suggestions to CAHK for further improvements. CAHK accordingly revised the Industry Code in October 2014 following discussions with participating operators. Major revisions include:
- improving the arrangement for contract termination so that the arrangement does not cause inconvenience to customers or involve unreasonable delay;
- improving the arrangement for the provision of written confirmation for extension or renewal of contracts;
- stating clearly in the contract the calculation of the termination charge or the maximum amount involved if it is not feasible for the operators to provide service at the relocated premises due to the absence of network coverage;
- stating clearly in the contract the calculation of the first bill and the last bill within the contract term; and
- encouraging operators to implement better cooling-off period arrangements with greater flexibility.
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”. Promulgated and put into effect by CAHK in January 2010, the code governs the practices of third-party Content Service Providers (“CSPs”) in providing MCS and the establishment of an industry self-regulatory scheme. Under the code, all third-party CSPs are required to indicate clearly to their customers the chargeable nature of the services and obtain clear consent from them before initiating the delivery and provision of MCS. They are also required 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 complaint handling and random checks. 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 the end of March 2015, nine CSPs had successfully obtained LPAs from the AA. In 2014, the AA issued one warning to a CSP for failing to comply with the code.
Since the adoption of the code in January 2010, OFCA has been closely monitoring its effectiveness, and recorded a continued decrease in the number of related complaints, which has remained at a low level. During the year under review, only two cases were received on a monthly average, reflecting that CSPs generally comply with the voluntary code and customers are generally satisfied with the MCS.
Code of Practice in Relation to Billing Information and Payment Collection for Telecommunications Services
In October 2011, the CA issued a voluntary code of practice entitled “Code of Practice in Relation to Billing and Payment Collection for Telecommunications Services”, with a view to reducing billing disputes and enhancing the transparency of billing information. This code of practice provides guidance to telecommunications operators on chargeable items to be included in their bills and arrangements for payment collection. As at October 2014, seven local fixed and four mobile network operators had pledged compliance with the code. We have published on our website a consumer alert as well as a summary of the compliance status of all operators for the information of consumers. 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 content. 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 facilitated the setting up by the telecommunications industry of a voluntary CCSS for a trial period of two years starting from 1 November 2012. With the participation of all major telecommunications service providers in Hong Kong, the mediation service was provided by an independent mediation service centre (“CCSS Centre”) set up under CAHK. OFCA supported the CCSS trial by contributing the necessary funding, assessing the CCSS applications against the acceptance criteria, and monitoring the performance and the governance of the scheme.
During the two-year trial period from 1 November 2012 to 31 October 2014, OFCA received 357 applications (with 106 and 251 applications in the first and second trial years respectively) that met CCSS’s acceptance criteria. Among them, 159 cases were resolved before referral to the CCSS Centre, and 197 cases were satisfactorily settled after being followed up by the CCSS Centre. For the remaining case, though verbal agreement was reached between the parties to settle the case, the customer failed to turn up to sign the written settlement agreement.
Following the trial period, a review was conducted on the effectiveness of the CCSS and its usage by the public. With the encouraging outcome of the trial, the proven demand from customers and the positive feedback from the industry, OFCA has supported the long-term implementation of the CCSS from 1 May 2015 on the basis of the framework adopted in the trial scheme. More publicity and promotional activities will be launched in the future. OFCA will continue to provide funding, assess the CCSS applications, and monitor closely the operation and effectiveness of the CCSS.
Facilitation of the Landing of New Submarine Cable Systems in Hong Kong
During the year, OFCA continued to provide a single-point-of-contact service, assisting the operators to apply for the necessary statutory approvals to land two new submarine cable systems, the Asia-Pacific Gateway and the Asia Africa Europe-1, in Hong Kong. These two new systems are scheduled to land in Hong Kong in 2016.
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 at June 2015, there were around 2.29 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 84% of fixed broadband subscribers use broadband services with a speed of 10 Mbps or above.
According to a press release issued by the FTTH Council Europe in February 2015, Hong Kong ranked the third worldwide in fibre to home/building household penetration among the 39 economies under comparison. According to the “State of the Internet 4th Quarter, 2014 Report” published by Internet content delivery provider Akamai in March 2015, Hong Kong has an average peak connection speed of 87.7 Mbps, which is among the highest in the world.
Update on the Withdrawal of Regulatory Guidance on the Charging Principles for Narrowband Interconnection between Fixed Carriers
After an 18-month transitional period, the regulatory guidance on charging principles for narrowband interconnection between fixed carriers ceased to be effective on 16 October 2014. With the withdrawal of the regulatory guidance, fixed carriers are free to negotiate with each other commercially on the terms and conditions for narrowband interconnection, including whether interconnection charges are required for the exchange of traffic and, if any, the level of interconnection charges. Most of the fixed carriers have concluded new interconnection agreements among themselves after the withdrawal of the regulatory guidance, without the need for the CA to intervene.
Review of Licence Conditions in the Carrier Licences
Alongside the evolution of the carrier licensing regime over the past years, cross-sectoral legislation or regulation on specific matters, which applies across the board to all sectors including the telecommunications sector, has come on stream. The introduction of, and enhancements to, these cross-sectoral regulatory regimes over time have served to supersede the sector-specific controls imposed under the telecommunications licensing regime and rendered the latter inappropriate and unnecessary.
With a view to removing the anomaly of subjecting telecommunications licensees to both the sectoral and cross-sectoral regulatory controls on specific matters, OFCA assisted the CA and the SCED in a review of all licence conditions in carrier licences issued under the TO. A joint public consultation was conducted during September and October 2014 to solicit the views and comments of the industry and interested parties.
Having carefully considered the submissions received, the CA announced on 10 March 2015 its decision to remove five special conditions (“SCs”) governing road-opening works from the new UCLs issued thereafter. As for the existing carrier licences, OFCA issued a circular letter inviting the licence holders to return their licences to effect the corresponding removal of the SCs. Most of the major carrier licensees have already returned their licences for removal of the concerned SCs. The SCED also decided to remove a general condition concerning restrictions on attachment to public buildings and trees from the carrier licences, and will proceed to brief the Legislative Council and introduce the necessary legislative amendments to effect the removal.
Measures to Ensure Better Utilisation of the 8-digit Numbering Plan
In Hong Kong, the 8-digit telecommunications numbering plan has been adopted since 1995. With the emerging new services and the popularity of mobile communications services over the last two decades, it is anticipated that the demand for telecommunications numbers will continue to increase, in particular in the mobile communications sector. If the demand for additional numbers sustains, it is estimated that the numbers currently allocated for mobile services will be exhausted by 2018. There is a need to address the shortage of numbers for mobile services through better utilisation of the existing 8-digit numbering plan.We will assist the CA in conducting a public consultation exercise on way forward in the fourth quarter of 2015.