THE QUESTION HAS been asked: should we levy a spectrum utilisation fee on operators of our mobile telephone networks? It is not an immediately pressing question. The first of 11 licences for second generation (2G) mobile networks comes up for renewal only two years from now. The Office of the Telecommunications Authority (Ofta), however, has opted for a long lead time in consultations and thus has already asked for public input. Here is some of that input, then, and let me stress that it is public input. Almost all the other submissions that Ofta will get will be distinctly private, the network operators for the most part. They will have their profitability in mind, which is perfectly understandable but not the primary concern of the general public, however much the operators may cloak their proposals in professions of public interest. There are two key considerations here. The first is that 2G network operators have pretty much achieved saturation of their markets and certainly will have done so by 2005. Bear in mind here that we are not talking of the new 3G devices on which the likes of Hutchison Whampoa have poured enough money to rival the outflow of the Amazon River (with as little inflow of money back). We are talking the sort of mobile you carry with you at the moment. As the chart shows, we now have almost as many mobile phone subscribers as we have people living in Hong Kong. That ratio of 100 per cent penetration is no absolute barrier, as Taiwan has proved, but it must still be a benchmark of saturation and our ratio of 96.3 per cent certainly puts us well over mobile penetration rates in the rest of Asia. Thus any arguments the industry may have used in the past about encouraging sufficient investment to meet booming growth in demand need no longer apply. There is no longer reason for concessions in order to get the networks up and running. It is a different world now. And that brings up the second consideration. The concessions the industry has had are ones from the public purse. It has been given easy terms on usage of the radio spectrum, which may have been justified in its growth phase but need to be reconsidered now. Think of that radio spectrum in the same way we think of property. Our government owns it all and grants leases to private users for which they must pay, either at auction and tender or through lease conversion premiums when they wish to put their leased land to other uses. This is a big generator of fiscal revenue and one reason our taxes remain low. There is no reason why we should treat the radio spectrum differently. It is a public asset. If private entities wish to use it for private gain then they should pay for it in just the same way that they do when they wish to use public land for private gain. Now I recognise the counter-arguments. The big one the industry always makes is that if we charge it heavily for its use of the radio spectrum then it will just have to pass the extra costs on to mobile users in the form of higher tariffs. Nonsense. The industry charges users what it can induce users to pay, not a fixed margin over its costs. The argument is like saying that if we let Cheung Kong have development land for free it will pass all the savings on to the buyers of its flats. How many believers do we have for this theory? Why should we think it is any different with mobile phone networks? There are other arguments that Ofta will receive for not adopting the property model in use of the radio spectrum and you will hear them as the licence dates approach. It would be presumptuous to say that you can discount them all immediately without even hearing them, but that is still by far the likely outcome. Should we levy a spectrum utilisation fee? Yes, we should. Private users of public assets should not be given use of those assets for free, particularly when they no longer have any argument for a grace period on the grounds that they are putting together a new public service. We rob the public purse if we do not charge them. How should we determine that fee? By auction or tender open to all comers, just as we do with property. It is the best system we have for ensuring that the public purse is paid the full value for a public asset. We may not have to confront the question immediately on renewal of 2G licences but let us make sure we look at it in the proper way from the start.