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The Government has licensed Hongkong Telecom to offer video-on-demand services but has withheld the award of a second available licence.

 Its decision means Hongkong Telecom's interactive multimedia division (IMS) has the chance to launch its service well before any competition.

 Award of a licence to Hongkong Telecom was widely expected because the company has been working on the project for years.

 Four companies applied for the two licences on offer but two bids were ruled out for failure to meet the criteria.

 The other remaining bid - by Star Interactive TV, part of Star Telecom International Holding - was not considered because of pending legal action against it by another contender, Future TV.

 The Government said it would undertake a review to see whether Star's bid could be considered in the light of the legal proceedings.

 Future TV alleges Star used information in its bid which had been taken from Future's own tender document.

 Deputy Secretary for Broadcasting, Culture and Sport Rita Lau Ng Wai-lan said it was for the courts to rule on this matter, but in the meantime, the Government would conduct is own review.

 'We want to complete the work as soon as possible, assess the allegations and then decide whether to reconsider [Star's] application,' she said.

 If officials awarded a licence to Star and the courts subsequently found against the company, the Government would find itself in an embarrassing position.

 Asked what would happen if Star's application was unsuccessful, Mrs Lau said that as a matter of policy, the Government wanted to have two licences awarded.

 This leaves open the possibility of another round of bidding.

  Until the situation is resolved, Hongkong Telecom has no competitors.

 Mrs Lau said it was not the Government's intention to give the company a competitive edge. 'If the allegation is that the Government is giving preferential treatment, it doesn't stand.'  Video-on-demand is one of a range of features Hongkong Telecom hopes to provide through its interactive television service.

 The technology uses the company's extensive network of fibre-optic lines throughout Hong Kong as a transport mechanism.

 Subscribers will simply plug into the telephone socket to gain access to a range of interactive services on their television sets.

 Hongkong Telecom is in a unique position because it controls the transport mechanism and has set itself up as a content provider.

 Chief executive Linus Cheung Wing-lam said the company welcomed competitors. 'We're happy with other licensees,' he said.

 This is because rival companies also have to use Hongkong Telecom's network to transport their services.

 Earlier this year, the Office of the Telecommunications Authority agreed that rival service providers would have to pay $500 a month per subscriber to Hongkong Telecom for use of its network.

 Many larger companies which had considered bidding for a licence pulled out, saying the costs imposed on them to use Hongkong Telecom's network were too high.

 Many analysts said the high connection fee meant that any competitor to Hongkong Telecom would find it nearly impossible to develop a profitable business.

 Rivals would have to subsidise each customer to the tune of about $300-$400 a month - before other start-up or running costs were considered. Hongkong Telecom has spent about $1 billion on its service and plans to spend $10 billion more over 10 years.

 Its IMS division managing director William Lo Wing-yam said the service had rivals even if they did not use the same technology to deliver the programming.

 'Video shops and cable TV do not have the same format but are capable competitors,' he said.



Telecom gets VOD nod