Jake's View

Doubt cast on competition argument

With 3G mobile licences up for renewal soon, questions arise over the need to introduce a fifth player into HK's telecoms battlefield

PUBLISHED : Tuesday, 15 October, 2013, 12:00am
UPDATED : Tuesday, 15 October, 2013, 1:07am

Hong Kong's top consumer rights advocate has described a possible shake-up in the city's 3G mobile market as her "top concern" and questioned the idea that more competition would be a good thing.

SCMP, October 13

Let's clear the air here first. The reason that the government is thinking of cutting a slice of the spectrum away from each of the four existing mobile-phone operators in order to make room for a fifth may have nothing to do with competition at all.

There is a school of thought, and I lean to it, that political princelings in Beijing are pushing our bureaucrats to give China Mobile an entry to the Hong Kong market the easy way.

This school of thought holds that rather than buy out, or buy into, one of the existing operators (they are all for sale at a price), China Mobile will be handed a big part of the spectrum at what will be billed as a market price but will actually be much less than that.

And if this leads to service interruptions, then perhaps you must remember that there is more to life than your mobile and it is not our bureaucrats' fault that Beijing can be very pushy sometimes.

It’s pointless even discussing this if the object is only to give China Mobile an easy entry

But it does no good to ask our government officials if this is actually what is happening. They will tell you the licences for 3G mobile networks will soon be up for renewal, which is true, and the choice is between renewing them all, putting them all up for auction again and bringing one new operator in. All three options are being considered. It just happens that Secretary for Commerce and Economic Development Gregory So Kam-leung favours the third of these.

Let's play it their way then. Wider even than the radio spectrum is the spectrum from tightly controlled to wide open in which telecommunications has operated in Hong Kong in recent history.

Back in the late 1980s, Hongkong Telecom (now PCCW) was the biggest stock on the market for a period almost twice as large by market capitalisation as HSBC. It enjoyed this position, thanks to an outright monopoly on both local and overseas traffic, and it took full advantage of this monopoly in its pricing. If you suspect dark secrets in how it obtained these rights, well, you are not the only one.

Then in the space of a very few years, everything changed, and by the late 1990s we had one of the world's most open and competitive telecoms regimes. It was a rapid transition largely orchestrated by Alex Arena, now PCCW's operating boss.

The bureaucrats tried to go back to the old ways of doing things in 2001 with the first 3G licences. They wanted to hand them out for no fee at all on the basis of their judgment alone as to who should get them. Fortunately, common sense prevailed (one of then chief secretary Donald Tsang Yam-kuen's better calls) and we auctioned them.

There are still glitches to get in the way of full competition but overall, the city continues to be recognised as having perhaps the freest telecoms regime of any jurisdiction.

So why do our bureaucrats now worry themselves so about competition? We don't need five mobile operators to make the market competitive. Four is more than enough.

I fully concede that there are indeed valid questions to be asked about licence renewal. We cannot just let the existing operators continue with no review of their terms.

But we will also do ourselves no good if we make licence renewal too difficult for them. This would only encourage them to skimp on further capital investment. Why risk money that you could lose entirely at the next licence renewal?

I think the best answer lies somewhere between these two. It is a path that Britain, a pioneer in telecoms privatisation, seems to have followed. It is to make licence renewal more or less automatic if the industry regulator deems service standards to have been met but to leave the licence fee open to change at renewal time so that the public purse shares in the benefit and no operator walks away with a windfall profit.

But it's pointless even discussing this if the object in Hong Kong is only to give China Mobile an easy preferential entry.