PCCW has launched a legal fight to overturn a controversial government decision to shake up the telecommunications sector by claiming back a third of the city's 3G mobile spectrum and auctioning it off later this year.
The telecoms giant - which dominates the city's HK$63 billion phone industry through its mobile subsidiary HKT - is challenging the decision taken in November by the Communications Authority on the grounds that it is "unlawful and irrational".
The regulator said it aimed to boost competition by taking back a third of the 3G spectrum held by four incumbent mobile phone firms - HKT, CSL New World Mobility, Hutchison Telephone and SmarTone.
It then plans to auction it off and reassign it when the current licences expire in October 2016.
The decision was criticised in some quarters for being made under political pressure to help state-owned China Mobile expand in Hong Kong's mobile market - a claim denied by Communications Authority chairman Ambrose Ho Pui-him at a Legco meeting last month.
China Mobile, the world's largest wireless network operator, does not have a 3G licence in Hong Kong but rents spectrum, or the bandwidth needed to provide mobile services, from other operators.
It has expressed interest in bidding for a licence.
PCCW - owned by Richard Li Tzar-kai, younger son of Asia's richest man, Li Ka-shing - has asked the High Court, in an application for judicial review, to order the government to reconsider its decision. The company claims the authority made an "elementary error" when it decided that an auction was necessary.
The company also contends that there was a "legitimate expectation" that its licence would be renewed.
"From the outset of modern regulation of mobile telephony, there has been a practice of renewing fixed-period spectrum licences upon expiry so long as efficient use is being made of the spectrum in question," it says.
"By forcing HKT to surrender part of its 3G spectrum holdings rather than renewing HKT's licence in full … the authority has frustrated HKT's and PCCW's substantive legitimate expectation of licence renewal," the application says.
PCCW also alleges that the Communications Authority was unfair to all four existing licence holders when it failed to seek their views on how to conduct the study that led to the decision to auction the spectrum.
PCCW argues the decision ignored the fact that China Mobile had access to 3G spectrum by renting it from existing service providers.
HKT is in the process of a HK$19 billion takeover of CSL in a bid to tighten its grip on the city's mobile phone sector.
The Communications Authority would not comment yesterday because legal proceedings have started. Under its plan, the existing licence holders have the right to retain two-thirds of the spectrum they currently hold.