When the Hong Kong government decided in November to take back and auction a third of the 3G spectrum held by each of the city's leading mobile network operators, one of its main reasons was to promote effective competition in the market. The exact opposite has so far been the result as consolidation looms for the city's HK$63 billion telecommunications industry. HKT, the telecommunications arm of Richard Li Tzar-kai's PCCW, agreed in December to buy CSL New World Mobility, the city's largest wireless network operator, for US$2.43 billion. If that merger proceeds, it is expected to give rise to a "substantial lessening of competition" as described by several industry respondents to the public consultation by regulator the Communications Authority. The number of mobile network operators in Hong Kong will not only be reduced to five from six, but the larger HKT operation would also have disproportionately more mobile spectrum - the radio frequency bands over which wireless network services are provided - than its nearest competitor. In December, the authority said the public consultation would help form its opinion on the HKT-CSL New World Mobility deal. The regulator can outright disapprove the proposed merger for likely causing a "substantial lessening of competition". It can also impose conditions to remove or avoid any anti-competitive situation from the transaction. Of the 27 submissions that the authority received on February 4, the filing made by SmarTone Telecommunications stood out. The company not only argued a case in which local market competition could be significantly diminished, but it was the sole firm to offer salient suggestions to eliminate the anti-competitive effect of the proposed merger. HKT, the largest fixed-line network operator and pay-television provider in Hong Kong, will also become the city's biggest wireless network services provider, after it buys CSL New World group from Australian parent Telstra and local property firm New World Development. SmarTone said it does not object to the proposed acquisition by HKT subject to "appropriate safeguards" set up by the authority. It suggested that HKT relinquish blocks of mobile spectrum from the 1.8-gigahertz and 850-megahertz bands, which are the lower frequency spectrum that provide better range and in-building penetration for 4G mobile services in the city. That would reduce HKT's holding of such spectrum to a reasonable level of 28.9 per cent from 39.4 per cent post-merger, ensuring healthy competition since spectrum is scarce. The authority must also increase its oversight on PCCW and HKT's ability to create competitive barriers through their offer of cross-platform deals in mobile, fixed-line, broadband and pay-television. According to SmarTone, it was not against the availability of cross-platform services by HKT and PCCW so long as their pricing is transparent and promotions can also be offered by other mobile operators "on terms no less favourable than are made to their subsidiary or other members of the PCCW group". In its application with the authority, HKT has offered "pro-competition measures" including maintaining wholesale services that the company and CSL provide to resellers and mobile virtual network operators, as well as network sharing deals. It also offered to return an additional block of 3G mobile spectrum to the government and promised not to take part in the 3G spectrum auction later this year.
