ONE of the territory's largest internet providers yesterday said it would refuse to pay a levy to Hongkong Telecom until the Government ended a 'discriminatory and unfair' licensing system. Internet providers act as the interface between the computer user and the worldwide internet network, collecting a monthly charge and other fees. Asia On-line said it would take legal advice if Hongkong Telecom threatened to cut it off, which would mean its thousands of customers would no longer have access to the World Wide Web, electronic mail and other services. The levy is charged at nine cents per user per minute, but billed to the internet provider, which adds it to the customer's bill. But Asia On-line claims some of its rivals are not paying the charge - designed to compensate Hongkong Telecom for the long calls often made by internet fans - giving them an unfair price advantage. In a statement it said the levy, which worked out at $5.40 an hour, was 'a discriminatory and unfair 'royalty' system operated by the Office of the Telecommunications Authority on behalf of Hongkong Telecom'. It said the levy should be scrapped immediately, and complained that after months of negotiation the authority had not given a clear policy. It said it would monitor its data traffic and only pay on the small proportion of electronic mail traffic, where the law relating to the levy was clearest. Hongkong Telecom said last night it had yet to decide on its response. Alex Arena, the authority's director, said he expected to produce a consultation paper next week. 'There has been some confusion, and that's why I'm consulting with the industry,' he said. Mr Arena said the authority still needed to take legal advice on the terms of the licences and what kind of internet activities were covered. The levy issue came to a head in March, when raids by the Commercial Crime Bureau in association with the authority nearly wiped Hong Kong off the internet. Since then, internet providers have all been required to take licences and use telephone numbers beginning with 300, which carry the levy.