APEC TEL 41 Update1 on Regulatory and Policy Developments Hong Kong, China (Position as at 10 May 2010)

A. Broadcast-type Mobile TV Services

The Government promulgated a revised implementation framework for the deployment of broadcast-type mobile TV services in Hong Kong on 11 February 2010. Accordingly, one frequency multiplex of 8 MHz (678MHz – 686MHz, also known as Channel No. 47) in UHF Band will be released for the provision of broadcast-type mobile TV services. On the other hand, two frequency multiplexes of 1.5 MHz (216.160MHz – 217.696MHz and 217.872MHz – 219.408MHz) in Band III previously proposed for such services will be reserved for DAB development. The revised implementation framework is available at http://www.cedb.gov.hk/ctb/eng/legco/pdf/framework.pdf.

The frequency multiplex in UHF Band will be assigned by auction. An Information Memorandum setting out the minimum spectrum utilization fee (SUF), the auction rules and other elements of the licensing framework was published by the Telecommunications Authority (“TA”) on 26 February 2010 and available at http://www.ofta.gov.hk/en/industry/mobiletv/im.pdf.

Regarding the SUF, the minimum fee or reserve price is set at HK$24 million. The final amount of SUF is to be determined by the auction.

A multiple round ascending format will be adopted for the auction whereby the frequency multiplex is auctioned over multiple rounds with the price adjusted upward if one or more bids are received in the immediately preceding round.

The successful bidder of the auction will be assigned with the frequency multiplex and granted with a unified carrier licence with a term of 15 years

1 The web sites of the Communications and Technology Branch of Commerce and Economic Development Bureau (CEDB) and the Office of the Telecommunications Authority (OFTA) provide more information on all the subjects covered in this Update. Their web addresses are www.cedb.gov.hk/ctb and www.ofta.gov.hk respectively. both for the frequency assignment and licence period. The successful bidder is required to use at least 75% of its transmission capacity for delivery of mobile TV services. In addition, the successful bidder is required to submit a performance bond as a guarantee on its network and service rollout within 18 months from the grant of licence to cover at least 50% of the Hong Kong population.

Regarding the regulation of mobile TV programming, the content of mobile TV should be subject to regulation by general laws but not the Broadcasting Ordinance (Cap. 562). To enable self-regulation, the industry will be required to develop codes of practice on provision of mobile TV services. The codes should include, among others, the requirement of conditional access with a view to protecting public morals and children.

To facilitate the rollout of broadcast-type mobile TV services, the government supports the successful bidder to set up transmitting stations by sharing the hilltop broadcasting sites and facilities of existing terrestrial television broadcasters.

As to the technical standards, the government will adopt a market-led and technology-neutral approach by leaving the market to select the technical standards for broadcast-type mobile TV services.

Potential bidders are required to submit their application for participation in the auction on 3-4 June 2010. The auction is tentatively scheduled to commence on 28 June 2010.

B. Review of PNETS and SBO Licensing regimes

In March 2009, the Telecommunications Authority (“TA”) conducted a public consultation to review the existing Public Non-Exclusive Telecommunications Services (“PNETS”) and Service-Based Operator (“SBO”) licences used for licensing of service-based operation of public telecommunications services in Hong Kong.

The PNETS licensing regime was introduced in the 1980s when local and external telecommunications services in Hong Kong were provided under exclusive franchises. The SBO licensing regime was more recently introduced in January 2006 under which licensees may operate local voice telephony service by employing various technologies, including Internet Protocol (“IP”) based technologies, in addition to most services covered by the PNETS Licence (except for those services related to mobile communications).

Having duly considered the comments received, the TA concluded his view and issued a statement entitled “Review of the Public Non-Exclusive Telecommunications Service and Services-Based Operator Licensing Regimes” on 19 October 2009. The TA decided to streamline the two licensing regimes and merge them into a single modified SBO licence with harmonised set of licence conditions for regulation of all service-based public telecommunications services. Furthermore, under the modified licensing regime, licensees authorised to provide IP telephony services will enjoy a fee reduction as well as increased flexibility of providing service to both fixed and mobile customers. The new licensing regime started implementation on 30 October 2009, and existing PNETS / SBO licences will be gradually converted into the new licence.

The aforementioned statement issued by the TA is available at: http://www.ofta.gov.hk/en/tas/sbo/tas20091019.pdf

The guidelines for the application of the new SBO licence are available at:- http://www.ofta.gov.hk/en/legislation/guideline_6d_2a/Guideline/SBO- Guideline.pdf

C. Consultation on the creation of class licence for UWB devices

In anticipation of the growing interest in UWB applications, the Telecommunications Authority (the “TA”) proposed to create a class licence so that the community may reap the benefit from the deployment of the technology in a timely manner. The TA issued a consultation paper in March 2009 to invite views and comments from all interested parties on the proposed regulatory framework for the use of UWB radiocommunications devices in Hong Kong. In March 2010, the TA issued a statement on this subject. In the light of limited availability of UWB devices, the TA considered that there was no imminent need to create the class licence which would allow the use of UWB devices at that stage. Nonetheless, the TA considered it advisable to put in place the necessary framework so that Hong Kong might respond to the possible market uptake of the UWB devices in a timely manner.

In this connection, the TA decided that if there was sufficient evidence indicating that nomadic or portable UWB-enabled consumer products proliferate in Hong Kong before September 2011, he would proceed to create the class licence as proposed in the Consultation Paper. The TA Statement is available at : http://www.ofta.gov.hk/en/tas/others/tas20100330ex.pdf

D. Review of Local Access Charge (“LAC”)

On 31 December 2009, the Telecommunications Authority (“TA”) issued a consultation paper to review the existing LAC regime.

LAC is the interconnection charge payable to the local network operators by external telecommunications services (“ETS”) providers for the conveyance of ETS traffic to and from the end users of the local network operators.

LAC was first introduced in 1999 when the ETS market was liberalised. At present, ETS operators are obliged to pay LAC to fixed network operators (FNOs) but not for the mobile network operators (MNOs). The existing level of LAC payable to the incumbent FNO in Hong Kong (i.e. PCCW-HKT Telephone Limited and Hong Kong Telecommunications (HKT) Limited) was prescribed by a determination made by the TA in December 1998 and was adjusted downward in June 2001. The LAC levied by the other FNOs is subject to commercial negotiation but the market rate follows the level determined by the TA.

Since the introduction of LAC, the local telecommunications market has undergone significant changes due to technological advancements, market competition as well as changes in regulatory regime in response to the market. The consultation aims at soliciting views from the industry on whether the existing LAC regime is still relevant, proportionate and conducive to the sustainable development of the industry and the consumer welfare. The consultation paper identified a number of options for possible development of the existing LAC regime:

 Option 1: Maintain status quo  Option 2: Maintain the obligation to pay the LAC and align regulation on FNOs and MNOs  Option 3: Maintain the obligation to pay the LAC and deregulate the level of LAC  Option 4: Deregulate the LAC regime

The consultation paper is available at: http://www.ofta.gov.hk/en/report-paper- guide/paper/consultation/20091231.pdf

The consultation was closed on 9 April 2010. The TA will decide the way forward after reviewing the submissions received.