3G spectrum grab-and-sale plan flawed, say consultants

Consultants' report says proposal to seize and auction chunks of operators' existing 3G spectrum would severely degrade service

PUBLISHED : Tuesday, 26 March, 2013, 12:00am
UPDATED : Tuesday, 26 March, 2013, 5:22am

The Hong Kong government has underestimated the potential service disruption and high costs likely to be caused by its plan to seize and auction off chunks of 3G mobile spectrum a study by the British firm Plum Consulting commissioned by the city's four telecommunications network operators has found.

Phillipa Marks and Ken Pearson, senior consultants from Plum, said yesterday that the government's plan failed their review criteria in terms of service continuity, encouragement of investment and innovative services, efficient spectrum use and promotion of competition.

"The outcome would be worse than what they have concluded. We can't see where the benefits are going to be," Marks said. She referred to the 18 per cent reduction in service quality that the Communications Authority, the industry regulator, has estimated.

The outcome of the government's plan would be "a severe degradation in service quality", including dropped calls, low data rates at peak hours and poor roaming. The operators' high investment costs to maintain service quality would be passed on to consumers, the study said.

Plum was hired by the four leading local operators, Hutchison Telecommunications Hong Kong, CSL, SmarTone Telecommunications and PCCW's HKT, to analyse and advise them on the government's plan to redistribute their 3G spectrum allocations in the 1.9 gigahertz to 2.2GHz band, which are due to expire on October 2016.

Instead of automatically renewing licences, the government has said it prefers a so-called hybrid approach of taking away a third of each operator's 3G spectrum and auctioning these off to boost competition and maximise the use of the spectrum. The matter is up for public consultation, which closes on April 11.

Recently, we advised the Australian government on exactly the same issue [of spectrum licence renewal]
Phillipa Marks, senior consultants at Plum

Plum found flaws in the way the Communications Authority derived its proposed 3G spectrum licence fee of HK$77 million per megahertz, which was more than four times higher than the forecast international average of HK$17 million per megahertz in 2016. "That's way off the mark," Marks said.

Pearson suggested that the government follow the international practice of renewing efficiently used spectrum licences and initiating spectrum trading, which would allow the market to set the prices of available spectrum, much like the price of land in a secondary property market.

The two consultants from Plum are both familiar with the city's telecommunications market. Marks led the team which advised the government on its spectrum policy framework in 2007.

"Recently, we advised the Australian government on exactly the same issue [of spectrum licence renewal]," Marks said, adding that the government there concluded that renewal was the best option.