Jake's View

Keep telecoms firms on long-term deals

Allowing new player in the mobile-network market will not bring more competition but service disruptions and higher charges

PUBLISHED : Tuesday, 12 March, 2013, 12:00am
UPDATED : Tuesday, 12 March, 2013, 4:34am

Our public officials like to crow that Hong Kong's telecommunications are the most competitive in the world, and they can indeed congratulate themselves on the transition from a stodgy, consumer-gouging monopoly 30 years ago.

But whether the accolade will continue to be deserved is now in question.

Things look suspiciously as though the authorities are willing to tolerate higher tariffs and lower service standards in order to please interests across the border.

The circumstances involve the expiry in 2016 of licences for the 3G mobile services that now carry the bulk of Hong Kong's mobile-phone traffic.

A decision on the structure of these licences post-2016 must be made by October. The four existing operators will otherwise have little incentive to continue investing in networks that they may shortly lose.

Three options have been proposed. The first is to grant existing operators first refusal on their licences post-2016, which effectively means straight-through continuity for them. The second would put all the licences up for a new auction to all bidders. But the third option is the important one here, as it is favoured by the Communications Authority. It is to take about a third of the spectrum away from the existing operators and auction it to an unspecified newcomer.

There is actually no difficulty in specifying the newcomer. It will be China Mobile, which has already announced its interest and already offers 3G services by leasing time from the existing operators. It cannot get its own direct access, as the 3G spectrum is saturated.

Superficially, it seems an acceptable proposal, but there are several things wrong with it.

In the first place, it will not bring more competition. The four existing operators already compete fiercely. If anything, there are too many suppliers in this market.

It will also cause service disruptions as the existing operators find themselves having to serve their full clientele on networks that have suffered a cutback in spectrum.

This will particularly be true in the first three years as the new operator builds out its network without yet being able to offer full services on it. Mobile services on the MTR will be most affected.

Finally it will bring general tariff increases. A third of the infrastructure investment in the existing networks will have been made redundant but must yet be paid for.

It makes no sense and reminds me of the time a few years back when the government commissioned a study on whether the big oil companies were cheating us on petrol prices.

Although no evidence was found, the study's purpose was shortly made obvious when the government evicted existing operators of filling stations and turned them over to PetroChina and Sinopec. It wasn't done to benefit consumers.

The objective was to please Beijing.

I suspect much the same thing here. China Mobile wants in. It doesn't want to lease time or go to the expense of buying out an existing operator.

It wants in the easy way, and this way is to have a Mr Big in Beijing twist the arm of our Communications Authority.

The better way of doing things post-2016 is already apparent from practice elsewhere in the world. It is to let existing operators keep their licences on long-term agreements, with variable pricing to be decided by shorter-term negotiations.

In Britain, for instance, operators have been given perpetual licences. It doesn't give them absolute freedom, and it doesn't perpetually fix a price. It simply says that, unless circumstances change drastically, the regulatory authority will have no reason to revoke the licence and grant it to someone else.

And how much money should the public purse get from a mobile operator for such a licence?

Simple. It is whatever royalty (fee, lease payment, call it what you will) causes a licence to be valued at only one dollar in the marketplace by anyone bidding to buy out that licence.

This would tell you that the operator considers it only just feasible to remain in business and the public has extracted every cent it can get.

But I expect our existing mobile operators to shun this idea as much as they do the prospect of having to share the spectrum with China Mobile.