LiberalisationLiberalisation andand GrowthGrowth inin TelecommunicationsTelecommunications -- HongHong Kong,Kong, China'sChina's ExperienceExperience

TT FF So,So, AssistantAssistant DirectorDirector OfficeOffice ofof thethe TelecommunicationsTelecommunications AuthorityAuthority HongHong Kong,Kong, ChinaChina AgendaAgenda

„ KeyKey MilestonesMilestones inin LiberalisationLiberalisation ¾ IndependentIndependent RegulatorRegulator

¾ LocalLocal FixedFixed NetworkNetwork

¾ ExternalExternal FixedFixed NetworkNetwork

¾ MobileMobile NetworkNetwork

¾ InternetInternet AccessAccess ServiceService

„ LiberalisationLiberalisation BenefitedBenefited HKCHKC’’ss economyeconomy BackgroundBackground InformationInformation aboutabout HongHong Kong,Kong, ChinaChina

„ SpecialSpecial AdministrativeAdministrative RegionRegion ofof thethe PeoplePeople’’ss RepublicRepublic ofof ChinaChina

„ AreaArea 1,1001,100 sqsq kmkm

„ PopulationPopulation 6.9096.909 millionmillion

„ NumberNumber ofof HouseholdsHouseholds 2.237million2.237million

„ GrossGross DomesticDomestic ProductProduct perper capitacapita inin 20062006 –– US$US$ 27,00027,000

„ ServicesServices constituteconstitute aboutabout 91%91% ofof economyeconomy KeyKey TelecomTelecom StatisticsStatistics

Telephone line density 56% by population

Number of local fixed operators 10

Broadband penetration 75% by households

Mobile penetration 143.4%

Number of mobile operators 5 (four 3G operators)

2.5G/3G customers as a percentage 26 of mobile customers Public Wi-Fi access points 5288

Annual revenue US$ 6.6 billion (2007)

Annual capital expenditure US$ 0.8 billion (2007) IndependentIndependent RegulatorRegulator

„ LegalLegal basisbasis –– TelecommunicationsTelecommunications OrdinanceOrdinance „ TelecommunicationsTelecommunications AuthorityAuthority (TA)(TA) –– IndependentIndependent regulatorregulator empoweredempowered byby thethe OrdinanceOrdinance toto regulateregulate thethe telecommunicationstelecommunications industryindustry „ 19931993 • Office of the Telecommunications Authority (OFTA) established as the executive arm of the TA • paved the way for liberalisation LiberalisationLiberalisation inin LocalLocal FixedFixed NetworkNetwork andand ServiceService 19951995 „ EndEnd ofof domesticdomestic telecommunicationstelecommunications franchisefranchise „ ThreeThree newnew companiescompanies licensedlicensed • New World Telephone Limited • New T&T Hong Kong Limited • Hutchison Communications Limited to compete with the incumbent operator, Hong Kong Telephone Company „ InterconnectionInterconnection rulesrules establishedestablished LiberalisationLiberalisation inin LocalLocal FixedFixed NetworkNetwork andand ServiceService 19971997 „ FixedFixed numbernumber portabilityportability introducedintroduced

20002000 –– furtherfurther liberalisationliberalisation „ 55 wirelesswireless locallocal fixedfixed networksnetworks licensedlicensed „ CableCable TVTV operatoroperator allowedallowed toto provideprovide telephonetelephone servicesservices LiberalisationLiberalisation inin LocalLocal FixedFixed NetworkNetwork andand ServiceService 20032003 –– fullyfully liberalisedliberalised „ NoNo limitlimit onon numbernumber ofof licenceslicences „ TechnologyTechnology neutralneutral „ NoNo restrictionrestriction onon foreignforeign ownershipownership „ ServicesServices fullyfully privatised,privatised, nono governmentgovernment subsidysubsidy „ NoNo controlcontrol onon tariffstariffs „ CompetitionCompetition provisionsprovisions introducedintroduced „ MarketMarket driven,driven, propro--competition,competition, propro-- consumerconsumer policypolicy TelephoneTelephone LinesLines

4,500,000

4,000,000

3,500,000

3,000,000

2,500,000 No of Lines 2,000,000

1,500,000

1,000,000

500,000 B usi ness Residential Total 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 TrueTrue CompetitionCompetition DevelopedDeveloped inin MarketMarket

Market Share of incumbent in 2006 -2007

Business lines 69.4% Residential lines 65.9%

Incumbent Incumbent new entrants new entrants LiberalisationLiberalisation ofof ExternalExternal NetworkNetwork andand ServiceService

„ HongHong KongKong TelecommunicationTelecommunication InternationalInternational (HKTI)(HKTI) heldheld anan exclusiveexclusive licencelicence forfor externalexternal servicesservices inin 19901990’’ss „ InIn 1998,1998, HKTIHKTI receivedreceived HK$6.7HK$6.7 billionbillion cashcash compensationcompensation fromfrom thethe governmentgovernment toto surrendersurrender itsits exclusiveexclusive licence,licence, eighteight yearsyears earlierearlier thanthan thethe scheduledscheduled expiryexpiry inin 20062006 LiberalisationLiberalisation ofof ExternalExternal NetworkNetwork andand ServiceService 1999 „ External service-based competition introduced

2000 „ External facilities-based competition introduced

¾ New Technologies lowered operating cost ¾ Substantial reduction in IDD tariffs ¾ No limit on number of operators ¾ Mandatory interconnection between external and local fixed networks IDDIDD TrafficTraffic

10,000,000,000

9,000,000,000

8,000,000,000

7,000,000,000

6,000,000,000

5,000,000,000 No. of Minutes 4,000,000,000

3,000,000,000

2,000,000,000 Outgoing IDD 1,000,000,000 Incoming IDD Total - 96 97 98 99 00 01 02 03 04 05 06 07 IDDIDD TariffsTariffs

„ LiberalisationLiberalisation ofof externalexternal fixedfixed networks/servicesnetworks/services broughtbrought aboutabout substantialsubstantial reductionreduction inin IDDIDD tariffstariffs „ InIn 19991999 –– 20022002 (4(4 years)years) alone,alone, estimatedestimated consumerconsumer savingsaving reachedreached HK$HK$ 25.525.5 billionbillion (much(much higherhigher thanthan thethe compensationcompensation grantedgranted toto thethe incumbentincumbent operator)operator) „ InternationalInternational privateprivate leasedleased circuitscircuits priceprice alsoalso droppeddropped substantiallysubstantially (eg.(eg. inin 2001,2001, priceprice ofof IPLCIPLC forfor US/HKUS/HK droppeddropped byby 50%)50%) LiberalisationLiberalisation inin MobileMobile NetworkNetwork andand ServicesServices 1984 „ First mobile network introduced

1985 – 1989 „ Four analogue licences issued, later switched to GSM 900 and CDMA

1996 „ Additional 6 licences issued to provide GSM-1800

1999 „ Mobile number portability implemented, triggered acute market competition LiberalisationLiberalisation inin MobileMobile NetworkNetwork andand ServicesServices 2001 „ Four 3G licensed issued through spectrum auctioning; First MVNO licence issued

2007 „ One additional licence for CDMA 2000 issued

Now „ 152% subscriber penetration rate

Near future „ Several licences for broadband wireless access to be issued through spectrum auctioning LiberalisationLiberalisation inin MobileMobile NetworkNetwork andand ServicesServices

„ AllAll liberalisationliberalisation policiespolicies forfor fixedfixed networknetwork applyapply „ NaturalNatural limitationlimitation onon numbernumber ofof licenseeslicensees duedue toto limitedlimited availabilityavailability ofof spectrumspectrum „ SpectrumSpectrum auctionauction -- toto ensureensure open,open, fairfair andand efficientefficient useuse ofof spectrumspectrum

„ SpectrumSpectrum tradingtrading toto bebe consideredconsidered CellularCellular TelephonesTelephones

12,000,000

10,000,000

8,000,000

6,000,000 Number of Subscribers 4,000,000

2,000,000

Cellular Telephones - 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 InternetInternet AccessAccess ServiceService

„ OpenOpen toto fullfull competitioncompetition sincesince launchedlaunched inin 19901990’’ss

„ No/LowNo/Low marketmarket entryentry barrierbarrier

„ LowLow licencelicence feefee (HK(HK $750$750 perper year)year)

„ LightLight--handedhanded regulationsregulations NumberNumber ofof LicensedLicensed InternetInternet ServiceService ProvidersProviders

300

250

200

150

100

50 Li censees

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 InternetInternet TrafficTraffic VolumeVolume (Customer Access via Broadband Networks)

900,000

800,000

700,000

600,000

500,000 Terabits

400,000

300,000

200,000

via 100,000 Broadband

- 97 98 99 00 01 02 03 04 05 06 07 AllAll SectorsSectors NowNow OpenOpen toto CompetitionCompetition

„ PagingPaging servicesservices –– sincesince 19701970’’ss

„ ValueValue--addedadded servicesservices –– 19851985

„ MobileMobile phonephone networksnetworks andand servicesservices –– 19851985

„ LocalLocal fixedfixed networksnetworks andand servicesservices –– 19951995

„ ExternalExternal servicesservices –– 19991999

„ ExternalExternal facilitiesfacilities –– 20002000 2002 2003 2004 2005 2006 2007

Wireline-based fixed 7 9 9 10 10 10 carriers Wireless-based fixed 2 2 1 1 1 1 carriers Satellite-based external 5 4 5 6 6 6 fixed carriers Cable-based external 18 18 19 20 21 24 fixed carriers External telecom 213 217 230 226 248 252 services operators LiberalisationLiberalisation BenefitedBenefited HKCHKC’’ss EconomyEconomy

„ ConsolidatedConsolidated HongHong KongKong’’ss positionposition asas aa telecommunicationstelecommunications hubhub inin thethe AsiaAsia--PacificPacific RegionRegion „ HighHigh quality,quality, lowlow priceprice servicesservices enhancedenhanced competitivecompetitive advantagesadvantages ofof otherother sectorssectors „ ReducedReduced costcost ofof telecommunicationstelecommunications toto businessbusiness andand residentialresidential consumersconsumers „ CompetitionCompetition drovedrove serviceservice innovation,innovation, whichwhich inin turnturn enhancedenhanced productivityproductivity (increase(increase inin capacity,capacity, decreasedecrease inin unitunit cost)cost) „ FacilitatedFacilitated thethe rolloutrollout ofof informationinformation infrastructureinfrastructure inin HongHong KongKong FixedFixed LineLine TariffsTariffs MonthlyMonthly subscriptionsubscription

140

120

100

80

60 3

Hong Kong Dollar 40

20 Residential

Business 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 MobileMobile ServicesServices TariffsTariffs (Pre(Pre--paid)paid) LocalLocal callcall (peak(peak vsvs offoff--peakpeak rate)rate)

16

14

12

10

8

6 Hong Kong Dollar

4 3-min.local call (peak 2 rate) 3-min.local call (off peak 0 rate) 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 TotalTotal TelecomTelecom ServicesServices RevenueRevenue

60,000

50,000

40,000

30,000

Million in HK $ 20,000

10,000

0 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 FullFull--timetime telecommunicationtelecommunication staffstaff 40000 35000 30000 25000 20000 staf f 15000 10000 5000

0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 GDPGDP andand ServicesServices contributioncontribution

30,000

25,000

20,000 US$ 15,000

10,000

5,000

GDP 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 Service contribution :

Year 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 % 82.3 84.2 84.7 85.2 85.9 85.7 86.1 86.5 87.3 88.3 89.2 89.9 90.6 91.3 91.3 Thank you