The Asia Pacific region has become the fastest growing telecom

market in the world. Not only does the region contain two of the
world’s most populous and emerging countries - China and India, it
is home to some of the world’s most sophisticated telecom markets
such as Hong king, Japan, Singapore and Australia.

While telecom liberalization and privatization are taking place in the

asian markets, Hong Kong has become a power house for telecom
convergence, introducing a innovative carrier licensing framework
that provides rights to exploit fixed, broadband and wireless
services under the same license.

Let’s give some info about this market: Hong Kong is a leader in
telecommunications with a strong market infrastructure. With 56
lines per 100 people, Hong Kong has the highest teledensity in Asia,
except for Japan. All exchanges are digital. More than 3.5m people
have mobile phones, one of the highest densities in the world.

The Office of the Telecommunications Authority (OFTA) is

responsible for regulating the rapidly developing and increasingly
competitive telecommunications industry in Hong Kong.

With the support of the Legislative Council, the Telecommunications

(Amendment) Bill 2001 was passed and enacted in May 2001. This
legislation took effect in July 2001 to provide the legal basis for a 3G
licensing exercise. Then in July the Government issued an
Information Memorandum, inviting applications for Hong Kong's
third generation mobile services (3G) licences and setting out the
reserve prices for the 3G auction, the auction rules and various
other elements of the licensing framework.

The Information Technology and Broadcasting Bureau confirmed that

a hybrid method will be used for the issue of four 3G licences
involving a pre-qualification process followed by spectrum
auctioning. The hybrid method will help ensure the quality of future
3G networks as well as allocate efficiently spectrum.

Recognising the recent downturn of the telecommunications market,

the Information Technology and Broadcasting Bureu has introduced
a royalty-based payment scheme that is intended to minimize the
financial burden on operators. The royalty scheme is underpinned
by a schedule of minimum payments, which minimise government's
credit risk but allow it to share the upside of the 3G business.

In October, Carrie Yau, the Hong Kong Secretary for Information

Technology and Broadcasting, revealed the identity of the four
bidders who had been successful in their applications for provisional
3G licences after the completion of the pre-qualification process of
the 3G services auction.

The four successful bidders were: Hong Kong CSL Ltd., co-owned by
Telstra and Pacific Century Cyberworks; Hutchison 3G HK Ltd., co-
owned by Hutchison Whampoa and NTT DoCoMo Inc.; SmarTone 3G
Ltd., wholly owned by SmarTone Telecoms Holdings; and Sunday 3G,
wholly owned by Sunday Communications.

In June, 2004, the Hong Kong government said it was considering

the creation of a 'super regulator' for the territory's
telecommunications and broadcasting industries.

Currently, the two sectors are regulated by the Office of the

Telecommunications Authority (Ofta) and the Broadcasting Authority
respectively. However, as the industries have begun increasingly to
encroach on each other's territories, the Hong Kong authorities have
announced plans to consult the public by the end of this year on the
proposed creation of a super-regulator.

Nowadays, fixed and mobile services are licensed under fixed carrier
licences and mobile carrier licences respectively, with different
rights and obligations imposed on the network operators. With the
advent of new technologies, fixed and mobile services will converge.
In the new environment, says OFTA, it may become difficult to
classify a service as a fixed or mobile service as the service may be
used by customers at fixed locations on some occasions and in
motion on other occasions. Accordingly, the existing separate
licensing frameworks for fixed and mobile services may not be
sustainable in the FMC environment.

A public consultation on the introduction of Broadband Wireless

Access (BWA) services is in progress. These services will serve both
fixed and mobile customers. It is therefore necessary to review the
need for a unified licence that would suit all forms of networks and
services.

Under the proposed unified carrier licensing framework, a licensee

may be allowed to provide (i) fixed services; (ii) mobile services; or
(iii) both fixed and mobile services, depending on the scope of
services proposed by the licensees in their licence applications.

It is proposed that once the unified licensing framework is in place,

the existing fixed carrier licence and mobile carrier licence would no
longer be issued to new entrants or to existing licensees whose
licences are due for renewal. Existing fixed or mobile carriers would
however be permitted to continue to operate under their existing
licences until the licences expire. No fixed or mobile carriers would
be required to surrender their existing licences while the licences
remain valid. Instead, they may have the discretion to convert their
current licences to a unified carrier licence which covers their
existing scope of service, or covers a wider scope of services.
A copy of the draft unified carrier licence can be downloaded from
OFTA's website at www.ofta.gov.hk.

With the emergence of FMC, other relevant regulatory arrangements

(e.g. interconnection charging arrangement between fixed and
mobile networks and fixed/mobile number portability) will need to
be reviewed. Before changing the existing regulatory regimes, it is
important to assess the costs and benefits of any possible change.
OFTA will conduct economic studies and initiate separate public
consultations on these regulatory arrangements.

Under the Telecommunications Ordinance, network operators that

install and operate telecommunications facilities for carrying
communications across public streets or unleased land may obtain
"carrier licences" from the Telecommunications Authority. At
present, there are two major types of carrier licences, namely, fixed
carrier licence and mobile carrier licence. Typically, fixed carrier
licences are issued to fixed network operators operating copper
wires and optical fibres and mobile carrier licences are issued to
mobile network operators operating 2G or 3G wireless networks.