Telecom urged to sell IMS Internet service division

The Government is being called on to formally investigate whether Hongkong Telecom's Integrated Multimedia Services (IMS) division should be divested from the rest of the company.

The call was made by the Hong Kong centre for Economic Research, in its submission to the Government's 1997 Telecommunications Review. It suggests the current structure could be holding back Hong Kong's progress from a digital age in which telecoms and computers merge.

Author Milton Mueller pointed out that since its launch last year IMS had captured a 35-40 per cent share of the Internet service market in the territory.

The existence of such a force could slow the future development of Hong Kong's market at a crucial time when the technologies of broadcasting, telecommunications, computing and publishing were converging, led by ever-more powerful computers, he claimed.

'Hong Kong is at a critical point right now where it could take the initiative, but it could suffer if the market is not opened properly' he said.

Mrr Mueller's report suggested the integration of IMS with the former monopoly phone company gave it enormous advantages over the opposition because: IMS had guaranteed access to large amounts of internally generated capital as a result of HKT's continued control of protected markets.

Given its staffing and service quality, the costs of IMS were higher than those of other Internet service providers - yet its prices were at the bottom of the market.

Other providers were dependent on HKT for essential inputs and must pay usage charges (called PNETS charge) to the company.

IMS was able to offer bundles of services, including the phone company's fixed-line and wireless products.

There was a danger IMS dominance would encourage providers of content and programming to form exclusive contracts with IMS, thereby concentrating access to content.

Dr Mueller said HKT had done nothing wrong or illegal, the problem was structural.

In response, HKT's director of regulatory affairs Keith Bernard said there was a great difference between size and domination of a market.

'We may have a large market share but not power over the market. There are more than 100 other Internet service providers. IMS as done well because it is an effective product,' he said.

He pointed out that the PNETS charge did not go into IMS coffers but is used by the company to improve the quality of the local network, benefiting all the Internet providers.