HKT-CSL merger sets stage for mobile spectrum auction in fourth quarter

Cut in PCCW's spectrum under terms of CSL buyout approval and end to court challenge to allow industry regulator to widen market

PUBLISHED : Monday, 05 May, 2014, 5:38am
UPDATED : Monday, 05 May, 2014, 5:38am

With the approval of PCCW's latest acquisition in the telecommunications sector, the government has set the stage for auctioning chunks of 3G spectrum held by the city's leading mobile network operators.

The Communications Authority last Friday consented, with conditions, PCCW subsidiary HKT's US$2.43 billion takeover of CSL New World Mobility, the largest wireless services provider with 3.9 million subscribers as of June last year.

Prominent among the handful of conditions listed by the industry regulator were for HKT and CSL to divest a combined 29.6 megahertz of their existing 3G spectrum and to refrain from taking part in any 3G spectrum auction for five years.

The divested spectrum would be "made available for assignment to other mobile network operators and new entrants through a competitive bidding process that is planned for the fourth quarter", a spokesman for the authority said.

We were disappointed that no other operator had taken any action
HKT spokesman

A hefty reduction in spectrum holding for HKT-CSL "would avoid the effect of substantially lessening competition" in the market, according to the authority. It said the merged group would control 39 per cent of the 537MHz of 2G, 3G and 4G spectrum - the radio frequency bands over which wireless network services are provided - assigned by the government to date.

The authority had announced in November last year that the government would take back and auction off a third of the 3G spectrum held by each of the four incumbent 3G mobile network operators "to encourage competition and allow new investment to enter the local market".

The 3G licences of HKT, CSL, SmarTone Telecommunications and Hutchison Telecommunications expire in October.

The legal challenge to the government's 3G spectrum reassignment plan has also ceased.

A HKT spokesman told the South China Morning Post at the weekend the company had withdrawn the case for judicial review that it filed in February against the government because other operators were not up to the challenge.

"We filed the judicial review application relating to 3G reassignment on the last allowable day as a precautionary matter to preserve our options," the spokesman said. "We had worked with the other mobile network operators on the issues but were disappointed that no other operator had taken any action to file their own judicial review."

In its filing with the stock exchange on Friday, HKT said it intended to draw down on its bridge loan of up to US$2.5 billion to fund the CSL acquisition.

A Barclays report in February described the HKT-CSL merger as "a meaningful, positive catalyst" in the telecommunications sector on prospects of higher margins and lower marketing costs for the remaining players.

"HKT will be moving quickly to integrate the CSL business with a view to realising the operational synergies and benefits for our customers as soon as possible," the HKT spokesman said.

Already the city's largest fixed-line network and pay-television operator, HKT will again become the biggest wireless services provider, with about 37 per cent market share in terms of mobile subscribers after the merger.