As a result of the decision, Hong Kong's fixed-line market will remain controlled by four companies - Hongkong Telecom, New T&T, New World Telephone and Hutchison Telecom.

Multinational telecoms companies including US giant MCI WorldCom expressed interest in investing up to $2 billion over 10 years in the SAR's fixed-line market if the Government removed the regulatory hurdles preventing entry.

Local operator CTI had also said it would apply for a licence to build a fixed-line network.

The Government was lobbied aggressively by the four existing licence-holders which argued any moves towards full competition would undermine their profitability.

Overseas companies and their representatives urged the Government to open the market to full competition to enhance the SAR's international competitiveness and add weight to its ambitions to become a regional communications hub.

The United States Consulate expressed disappointed at yesterday's announcement.

'We welcome Hong Kong's steps in recent months to liberalise the telecommunications and broadcast markets but are disappointed the Government has decided not to allow additional competition in the local fixed-line market,' it said.

'We believe the best way to bring the benefits of accelerated competition to Hong Kong would be to open up the market to additional qualified telecoms companies.' Mr Kwong rejected claims the Government was restricting competition.

'We believe if we want to provide competition in a shorter period of time, it is better to encourage the existing FTNS [fixed telephone network service] operators to extend their networks,' he said.

While the fixed-line market will remain closed to new entrants, Mr Kwong announced a package of measures designed to further liberalise the market for international calls.

He said an unlimited number of international gateway licences will be issued but initially would be limited to the fixed-line operators and companies that use satellite or have investments in cables connecting to Hong Kong.

This will allow foreign companies to operate their own international capacity in Hong Kong without having to lease lines from Hongkong Telecom, paving the way for companies such as British Telecommunications, AT&T, Global One and MCI WorldCom to expand in the SAR.

The Government will also encourage FTNS wireless transmission, such as wireless local loop, and will issue guidelines and start taking licence applications for wireless FTNS networks later this year.

Jardine Fleming telecoms analyst Dylan Tinker described the Government's moves as a compromise that protects the investment by the FTNS operators while allowing for market liberalisation.

'I don't think many foreigners would have put in a lot of money in the domestic fixed-line market,' Mr Tinker said.

'Besides data traffic, it's not attractive. It's historically been unprofitable for Hongkong Telecom and now there's four operators in the market.' Hongkong Telecom said it welcomed the announcement but insisted it be able to compete on an equal basis with any new entrants to the market.

'We must be allowed to compete fairly against these large competitors on an even basis,' it said.

'We have demonstrated in submissions to the Telecommunications Authority that we should no longer be hamstrung by the constraints of being labelled a 'dominant' player.' MCI WorldCom, which has long lobbied for an FTNS licence and planned to lay structural infrastructure, supported the Government.

'We will be reviewing today's positive news from the Government to determine the opportunities that this development poses for our company,' said MCI WorldCom Asia-Pacific president William Barney.

Long-distance operator City Telecom, which supported the Government's announcement, said it would apply for a licence to build a wireless FTNS network to provide broadband Internet and basic telephone service.

SmarTone Communications, which has an eye on an external communications facilities (gateway) licence, said it was considering either leasing or buying cable and also the possibility of using satellite.

While the fixed-line players will cheer . . . they saw exclusivity over the external facilities as a key part of their business. Analysis, Page 9