OFTA, Office of the Telecommunications Authority, Hong Kong

Questions and Responses

Deadlines for Submission of Questions

For all questions received by the Telecommunications Authority (the "TA") at or before 12:00 Noon on 12 September 2001, the TA will provide responses on the OFTA website before 12:00 Noon on 15 September 2001. For questions received by the TA after 12:00 Noon on 12 September, the TA will use his best endeavours to provide responses on the OFTA website by 12:00 Noon on 15 September 2001.

The TA does not intend to provide any further information in relation to Applications on the OFTA website after 12:00 Noon on 15 September 2001 unless in exceptional circumstances.

The TA has received the following questions in relation to the Information Memorandum and as mentioned in Section 7.2 of the Information Memorandum, the TA now sets out his responses to them.

Terms not otherwise defined herein shall have the same meaning ascribed thereto in the Notice issued by the TA on 18 July 2001 (the "Notice"), or as the case may be, in the Information Memorandum. Unless otherwise noted, references to paragraphs are references to paragraphs of the Notice.

Question 1

The 2G Bidding Group definition contains some similarities with the definition of Connected Bidder at least through the use of the definition of Bidding Interest with the difference, inter alia, that the 2G Bidding Group definition adds the 2G Operator component. The TA has recognized that, although unlikely, there might be a need to go through the Second Phase to ensure disconnection between Provisional Successful Bidders. By the same rationale and given the scope of the definition of 2G Bidding Group, it is possible that Bidders may be in a 2G Bidding Group without knowing thus not having secured the prior consent of the TA under paragraph 3.1.3. Only when and if the TA passes the Ownership Structure of the Applicant (page 10 of the Application Form) will the Bidders be able to confirm that indeed they were part of a 2G Bidding Group. Would the TA entertain a "disconnection stage" in the unlikely event that Bidders are inadvertently part of a 2G Bidding Group where the Bidder would ensure a disconnection with one of the related 2G Operators?

Response

The Notice does not permit a "disconnection stage" in relation to 2G Operators who are part of a 2G Bidding Group. A 2G Operator should ensure that there are no linkages between itself and another 2G Operator which would make it part of a 2G Bidding Group. If it is discovered that a Bidder which has been determined to be a Qualified Bidder under paragraph 3.1.2 of the Notice is part of a 2G Bidding Group, the TA may disqualify that Bidder from the Auction.

In reference to paragraph 3.1.3:

Question 1a
	Can the TA expand on the type of conditions it may impose upon a Bidder which is in a 2G Bidding Group in order to give the consent referred to in paragraph 3.1.3?

Response
	The TA may require that each 2G Operator in a 2G Bidding Group amend its 2G Licence(s) to incorporate the domestic Roaming Special Condition. The TA may impose additional conditions on the 2G Operators or the Bidder, as he sees fit, having regard to the potential effect on competition in the mobile market, the likelihood of the creation of a dominant position in the mobile market and any other issues raised by the existence of the relevant 2G Bidding Group. For example, the TA, if he sees fit, may impose additional conditions to ensure that the 2G Operators, despite their cooperation in the rollout and operation of the 3G network, will compete against each other in the market for the provision of 2G and 3G services as separate economic entities and on the basis of arms' length commercial arrangements.


Question 1b
	Can the TA confirm that the type of conditions it may impose upon a Bidder which is in a 2G Bidding Group in order to give the consent referred to in paragraph 3.1.3 relates only to the Bidder itself and not to the 2G Operators which are part of its 2G Bidding Group or persons having a Participation or Bidding Interest in the 2G Bidding Group?

Response
	No. Conditions may be imposed on all or any of the relevant 2G Operators comprised in the 2G Bidding Group (see response to a) above).


Question 1c
	Since the Notice does not provide for the time frame for obtaining the prior consent of the TA nor the process for applying for the same but only the Information Memorandum, which is said to be for information purposes only and with no binding effect, contains some guidance in that respect, can the TA advise if the timing for applying for consent under paragraph 3.1.3 referred to in Section 5.4.1 of the Information Memorandum is a firm time frame or will the TA show some flexibility on timing given the circumstances?

Response
	The timeframe given in Section 5.4.1 of the Information Memorandum is a firm timeframe to which the TA expects all parties, including the TA himself, to adhere. Deviation from this timeframe would be made only in exceptional circumstances, e.g. as contemplated in response to Question 2.


Question 1d
	Without prejudice to the TA's prerogatives to assess mergers and acquisitions of 2G Operators under the Ordinance, the TA has stated in the past that he would decide upon the merit of granting consent under paragraph 3.1.3 based upon competition considerations. Should persons seeking consent under paragraph 3.1.3 provide competition economics arguments in their submissions for consent under paragraph 3.1.3? Should these arguments be made in the context of 2G services, 3G services or both?

Response
	Given the short time available for a Bidder to prepare its application, and the fact that the application would not be treated as full application for a merger or an acquisition, the TA does not expect the application to contain a full competition economics analysis which would be required if it were a full application for a merger or an acquisition. However, the application must contain sufficient details and economics arguments to assure the TA that the level of competition in the 2G and 3G services market would not be significantly reduced from its present or expected levels, and that no dominant player in the relevant markets would emerge as a result of the proposed cooperation in the rollout and operation of the relevant 3G network.


Question 1e
	Would the TA's consent be given in writing? Would the decision be substantiated?

Response
	Each consent given will be given in writing. The relevant Bidder, when submitting its Application, will need to provide a copy of such consent with its Application (see paragraph 2.1.2(g) of the Notice).


Question 1f
	Should the application be made by the prospective Bidder or the 2G Operator which would be part of the 2G Bidding Group? If it has to be made by the 2G Operator which would be part of the 2G Bidding Group, can it be made by only one 2G Operator or does it have to be made by the two 2G Operators which would be part of the 2G Bidding Group? If it has to be made by the Bidder, can it be made on behalf of a company to be incorporated by its prospective shareholders?

Response
	The application for consent regarding a 2G Bidding Group may be made by the 2G Operator(s), or by the Bidder, or shareholders of a Bidder that has yet to be incorporated. As stated in the response to e) above, the relevant Bidder will need to provide a copy of the consent with its Application. Please note that if a 2G Bidding Group submits an Application for pre-qualification, it must be as a structure approved by the TA in its consent.


Question 1g
	Given the nature of the definitive agreements that would have to be entered into to confirm that two 2G Operators would actually go forward and file an application as part of a 2G Bidding Group and that the said definitive agreements might not be finalized until the later of the Application Dates, can the TA consider accept notice that the 2G Operators would not co-operate in bidding by the fact that 2G Operators would be Connected to two different Bidders not part of a 2G Bidding Group (i.e. by the fact that they are applying separately)?

Response
	The parties who have received consent should still inform the TA of their intention not to submit an Application from a 2G Bidding Group, even if such decision is taken close to or on the Application Dates.

Question 2
	Section 5.4.1 of the Information Memorandum stipulates that "if more than one application is received from the same 2G Operator, the TA has the discretion to approve just one application, or no application at all." (emphasis added) Should prospective applicants understand that the TA would not approve more than one application under paragraph 3.1.3 per 2G Operator? Would the TA consider providing more than one consent to the same 2G Operator which would be conditional upon the 2G Operator using one of such consents and being part of only one of the two 2G Bidding Groups consented to by the TA?

Response
	As stated in Section 5.4.1 of the Information memorandum, the TA will retain the discretion to approve just one application, or no application at all. The TA will not consider an application, nor give his consent, with respect to a 2G Bidding Group (the "First 2G Bidding Group") comprising a 2G Operator or a person which has, or in respect of which there exists, a Bidding Interest or 2G Interest in that First 2G Bidding Group if the TA already has under consideration, or has given his consent to, an application with respect to, another 2G Bidding Group (the "Second 2G Bidding Group") comprising the same 2G Operator or the same person which also has, or in respect of which there exists, a Bidding Interest or 2G Interest in that Second 2G Bidding Group. In exceptional circumstances, the TA may, on the request of the relevant 2G Bidding Group: allow one application to be substituted for another application; provide his consent in relation to a substituted application. In these circumstances, the TA may deviate from the timeframe for submitting applications set out in the Information Memorandum. The consent given will cease to have effect if the relevant 2G Bidding Group withdraws its application and substitutes it with another application. The TA may impose any conditions to the consent as referred to in paragraph 3.1.3. As stated in Section 5.4.1 of the Information Memorandum, if consent is given, the relevant 2G Operators must enter the Auction in the configuration to which the TA has consented. It would be open to a person to decide subsequently not to submit an Application under Section 1, Part 2 through a 2G Bidding Group which has obtained the consent of the TA but to submit such an Application in a different format which does not require the prior consent of the TA in accordance with the Notice. The TA must be notified in these circumstances.

Question 3
	What are the differences, if any, between the blocks of 14.8 MHz paired spectrum and the 5 MHz unpaired spectrum that are going to be auctioned?

Response
	The overall spectrum available for allocation in this licensing exercise has been determined for 3G mobile use by the International Telecommunication Union. It was decided that only four licences should be awarded so that each licensee has the scope and flexibility to build a high quality network that can cope with Hong Kong's geography and population density. There are small technical differences between the blocks of spectrum allocated to each licence, arising from their position in the band and the interference characteristics that are specific to those positions. Experience in other auctions has shown that some bidders do have preferences as to which bands they receive, and the Third Phase of the Auction allows bidders to exercise any such preference through an auction mechanism.

Question 4

Referring to Section 4.4 of the Information Memorandum (p.37): Licensees are required to provide a Performance Bond to the Government in an amount equal to the sum of the next five years' Minimum Annual Fees, or the remaining years of the Licence, if less than five years. Referring to Section 4.5 of the Information Memorandum (p.38): At the time of grant of a Licence, each Licensee must provide a Performance Bond. Referring to Appendix C of the Information Memorandum (p.93): Minimum Annual Fee refers to the amounts which correspond to a Royalty Percentage as set out in the Bidding Schedule.

Question 4a
	Since the Bonded Sum (Minimum Annual Fees payable for the first five years of the Licence) is not known until the auction is completed and Licence awarded, will the TA allow a specified period of time for the Licensee to finalise the terms of the Performance Bond (in particular the Bonded Sum) with its bankers or does the Licensee have to provide the Performance Bond to the TA immediately after the grant of a Licence? What kind of information in relation to the Performance Bond Issuer must be submitted to the TA for approval and when should this be provided?

Response
	The Bonded Sum will be known before the Auction is completed (which will be prior to grant of the Licence) as the final Applicable Royalty Percentage will be determined after completion of the Second Phase (if any). If there are no connections to be resolved in the Second Phase, this percentage will be unchanged from that determined in the First Phase. The Performance Bond must be provided in accordance with the Conditions. In particular, the Performance Bond shall be in the form determined by the TA substantially in the form set out in Schedule 5 to the Notice. It is the Bidder's responsibility to demonstrate to the TA that the bank providing the Performance Bond is a Qualifying Bank. This may be done in advance of grant of the licence. The TA will give the successful Bidder at least three Business Days notice of the date of grant of the Licence. The Performance Bond must be in place at the time of grant.


Question 4b
	The 5-yr Performance Bond has to be rolled over throughout the 15-yr Licence Period. The Bonded Sum for each 5-yr period should change according to the bidding schedule to reflect increasing Relevant Minimum Fee starting from the 6th year to the 15th year. Does the TA set any cut-off date for the submission of revised Performance Bond each year? Does the cut-off date relate to any Milestones in relation to the roll out (a mechanism used in awarding the 2G licence previously)? Could the Licensee change its financier (i.e. the Performance Bond Issuer) during the Licence Period at its own discretion (i.e. for whatever reasons other than its financier no longer being a qualifying bank)?

Response
	According to the Conditions, the Licensee shall at all times during the validity period of the Licence maintain in full force the Performance Bond for an aggregate amount equivalent to the next five years' Minimum Annual Fees or the Minimum Annual Fees for the remaining years of the Licence period (if less than five years). The Licensee must therefore provide the TA with a revised Performance Bond on each anniversary of the date of grant of the Licence. This requirement does not relate to any milestones in relation to the network roll-out. As long as a Performance Bond or Performance Bonds in the required amount are maintained at all times, the Licensee may change the issuer of the Performance Bond, subject to satisfying the TA in advance that the new issuer of the Performance Bond is a Qualifying Bank.

Question 5

Section 3.2.4 of the Information Memorandum specifies that "Licensees are required to meet a population coverage obligation of not less than 50% by 31 December 2001 using their own Network Infrastructure. All base stations installed are to be configured so as to be capable of supporting services operating at a minimum of 144kbps"."

Question 5a
	Does this requirement apply to both uplink and downlink capability at 2006 timeframe?

Response
	Yes, the requirement will apply to both uplink and downlink capability.


Question 5b
	Does this requirement apply to both PS and CS services (Packet/Circuit switched)?

Response
	Special Condition 1.1 of the Licence states that "all base stations to be installed shall be configured so as to be capable of supporting services operating at a minimum of 144 kbits per second for an individual customer, being the speed at which the information is transferred across the air interface from the base station to the customers' apparatus connected to the network of the licensee and vice versa". In verifying whether this licence condition has been met, the TA will check whether the Network is capable of transferring data at the rate of at least 144 kilobits per second in the areas which the Licensee claims have been covered by the Network. Once this capability is provided, whether circuit-switching or packet-switching is used in the delivery of the data is not a concern under the licence condition. In the 3G environment, the TA expects the data to be delivered using the packet-switching mode. Thus once the minimum data rate of 144 kilobits per second has been met for the packet-switching mode, it is not necessary for the TA to check whether that minimum data rate is met for the circuit-switching mode.


Question 5c
	What if the market doesn't require that datarate? Should the licensee still be obliged to overdimension the network to cater for this requirement?

Response
	The Licensee must comply with the Conditions of the Licence.

Question 6
	Are there any shareholding restrictions on 3G licence recipients? (i.e. the company must maintain the current shareholder structure for a certain amount of time after receiving a 3G licence) If so, what exactly are those restrictions?

Response
	Please see Special Condition 22 of the Licence (the conditions of the Licence are attached at Schedule 2 of the Notice) for the conditions governing a 3G Licensee's ownership (the Notice is attached at Appendix H of the Information Memorandum). The Notice also contains the detailed ownership rules, the details of which are summarised at Appendix A of the Memorandum. The disclosures to be made in an Application are set out in the instructions section of the Application Form (please see Appendix 1 of the Notice).

Question 7

Question 7a
	Has Hong Kong ever had MVNOs?

Response
	There are currently no MVNOs in Hong Kong of the type, and having the rights, described in the IM and the Conditions.


Question 7b
	Before the Information Memorandum was published, what were the major differences in views on MVNO access between the Government, industry and the public? For example, what are the differences between the Government's view and the industry's? Did existing operators hold different views from other SMEs?

Response
	Please refer to Section 1.1 and 2.2.1 of the Information Memorandum for the policy background on Open Network Access. The detailed industry consultation paper and responses received from the industry and the public are posted on the OFTA web site, in the 'Industry Consultation Papers' section of the '3G Licensing' page.


Question 7c
	How does one apply to become an MVNO?

Response
	Please refer to Section 3.3 of the Information Memorandum for information on the licensing of MVNOs. The application process is described in Section 3.3.2.


Question 7d
	The Briefing to Industry and Analysts on the Hong Kong 3G Auction dated 18 July 2001 sets out a number of requirements for becoming an MVNO. Does an MVNO have to meet all the 4 requirements below or either of them? provide its own mobile switching and gateway infrastructure; manage its own interconnection and international roaming arrangements; maintain its own customer care and subscriber management systems; and issue its own SIM cards.
Response
	Please refer to Section 2.2.4.1 of the Information Memorandum for the detailed explanation of the minimum requirements for MVNOs to have the benefit of access under the Open Network Access policy. An MVNO must meet all the minimum requirements stated.


Question 7e
	How does an MVNO pay the MNO? What is the basis of the fee calculation? Is the fee determined by the MVNO and the relevant MNO through negotiation or by the Government?

Response
	Fees and payment terms between MVNOs and MNOs should be determined by commercial negotiation. The TA may intervene under section 36A of the Ordinance in the event that an MVNO (which is not affiliated to the relevant licensee) and that licensee cannot agree with each other on the terms of interconnection and either of them calls upon the TA to intervene in the dispute. Please refer to Section 2.2.6.1 of the Information Memorandum.


Question 7f
	How will disputes between MVNOs and MNOs be dealt with? Are there any measures stated by law?

Response
	The TA has the power to intervene and determine certain aspects of disputes between MVNOs and MNOs. Please refer to Section 2.2.6.1 of the Information Memorandum, section 36A of the Ordinance and Special Condition 12 of the Licence for details.

Question 8
	Paragraph 2.1.4 of the Notice states that a Bidder shall be subject to, and obliged to comply with, the terms and conditions of the Notice from the time that the Bidder's Application is received by the TA. Accordingly, the rules regarding Confidential Information specified in the Activity Rules in Part 6 of the Notice apply from the date the TA receives the Application. Paragraph 6.5.6 of the Notice, however, excludes from the definition of Confidential Information certain information provided prior to the Application Date. This exclusion is unnecessary if the Activity Rules only apply from the Application Date. Please confirm that the provisions regarding Confidential Information apply from the date the TA receives the Bidder's Application or, if they apply from a different date, advise the relevant date.

Response
	The terms and conditions of the Notice including those relating to Confidential Information apply to a Bidder from the time its Application is received by the TA. If information is exchanged in the circumstances set out in paragraph 6.5.6(ii) and (iii), there will not be a breach of the Notice. It follows that, possession of that information after the later of the Applications Dates will not be a breach of the Notice. However, the transfer of that information after the later of the Application Dates would be a breach of the Notice. The exceptions in paragraph 6.5.6(ii) and (iii) are to prevent a person specified in that paragraph from becoming an Insider to a Bidder in respect of which, despite having exchanged information, it does not ultimately participate in the Auction.

Question 9

Question 9a
	From the response of Question 5, the minimum of 144kbps requirement will apply to both uplink and downlink capability. However, the compliance condition requires only either uplink or downlink coverage plot, whichever results in the smaller coverage area. Is it true that the once either link is achieved to have 144kbps, then this compliance condition is achieved?

Response
	The 144 kbps requirement refers to the capability which must be met by both the uplink and the downlink. This is specified in the Special Condition 1.1 (b) of the Mobile Carrier Licence given in Schedule 2 to the Notice at Appendix H of the Information Memorandum. Special Condition 1.1 (a) specifies the coverage requirements. Section 3.2.4.2 on "Compliance" explains how the Licensee will be required to demonstrate the compliance with the coverage requirement. Where the coverage plots for the uplink and downlink are different, the smaller plot will be taken as the coverage area of the Service. This is because within the smaller plot, the requirement for the 144 kbps capability is met for both the uplink and downlink directions. This is not necessarily so within the larger plot.


Question 9b
	In Section 3.2.4.2 of the Information Memorandum, the compliance conditions mentioned both "measurement" and "coverage calculations". So, which approach is mandated for providing coverage plots? By real-time measurement or by coverage simulations?

Response
	Either method may be used. It is expected that coverage calculations will be made using appropriate and recognised propagation models. Where necessary, actual measurements will be conducted for verification of the coverage based on calculations.

Question 10
	Specification by the TA Can the prospective applicants consider information contained in the Information Memorandum as information "specified by the Authority" where the Notice mentions that the TA will specify certain aspects such, inter alia, as referred to in the definitions of Application Locations, of TA Account, Deposit Banks and paragraphs 2.1.3(a)?

Response
	Yes. Where the Information Memorandum provides such information, it can be treated as having been "specified by the Authority". However, please note that changes to such information may in exceptional circumstances need to be made. These will be published on the OFTA website.

Question 11
	Section 3, Interpretation With respect to the interpretation of "random method", could the TA clarify if the method it will use is mechanical or electronic? In either case, can the TA specify what type of method it will use and the details thereof? Will both tied Bidders invited to witness the tie breaking event? Will it be a one round or multiple round determination process.

Response
	The TA cannot disclose the random method that will be used, or whether it will be electronic or mechanical. Tied Bidders will not be invited to witness the tie breaking event, but ICAC observers will be present to ensure fairness in choosing and implementing the random method. The TA intends to use a single round determination process.

Question 12
	Paragraph 3.3.1 The TA has publicly represented that should there be only 4 Qualified Bidders, there would not be an auction and the Applicable Royalty Percentage would be the First Phase Reserve Price. Given the discretion the TA gave himself in paragraphs 3.3.1, should prospective applicants now understand that the TA might decide to hold a First Phase Auction even if there were only 4 Qualified Bidders? How would the Applicable Royalty Percentage be determined if there were only 4 Qualified Bidders? When would the First Phase Auction stop? Should the TA exercise his discretion and hold a First Phase Auction in the event there were 4 Qualified Bidders or less, would that not be in contravention to S.5 of Telecommunications (Method for determining spectrum utilization fees) (third generation mobile services) regulation (as amended) made under S. 32I of the Ordinance? How would such situation be reconciled with the definition of Final Bidding Round?

Response
	The TA will not hold a First Phase auction if there are four or less than four Qualified Bidders and in such event the Applicable Royalty Percentage will be the First Phase Reserve Price.

Question 13
	Surrender of 2G licence Under paragraph 5.2.3, the Third Phase Bidder needs to provide the TA with the relevant 2G Licence. Can the TA confirm that the appropriate endorsements will be made on the same day? If not, can the TA confirm the timing for returning the 2G Licence?

Response
	The TA intends to endorse and return the relevant 2G Licence as soon as practicable and without unreasonable delay. If possible, the TA intends to endorse and return the 2G Licence on the same day as the Licence is granted to the relevant Third Phase Bidder.

Question 14
	Payment of Cash Sums Where should the Third Phase Bidders pay the Cash Sums on the grant of the Licences if it does not want the TA to draw on its Letter of Credit?

Response
	The TA will provide the prospective Licensee with details of the account to which such payments should be made when notifying the prospective Licensee of the date on which he intends to grant the Licence.

Question 15
	Change in Application Paragraph 6.4.1 does permit changes in a Bidder's Application Form which results from a person ceasing to be a direct or indirect shareholder of that Bidder. Since change in shareholding do not occur in a vacuum and ownerships are expressed in percentages in part 4 of the Application Form, can the prospective applicants interpret paragraph 6.4.1(a) as an exception permitting a person to dispose of its shareholding in favour of another shareholder who already has a Participation or Bidding Interest? If the answer is no, what is the intend scope of the exception? Is the exception meant to only allow a disposing shareholder to fragment its divesting interest into blocks which do not constitute into the hands of the purchaser a Participation or a Bidding Interest? Since the Application Form does require the disclosure of the directors of the Bidder and the Bidder might not have control over the individuals on its board. Should any director resign from its position and thus create a change in the Application Form, would that constitute a breach of the Activity Rules? Should clause 6.4.1 refer to part 3 and 4 of the Application Form rather than all parts?

Response
	6.4.1(a) allows the sale of some or all of a Bidding Interest in a Bidder to the other parties disclosed on the Application Form as having a Bidding Interest in the Bidder, or the sale of some or all of a Bidding Interest to other parties, provided that the sale does not create a Bidding Interest in the hands of a new party. Resignation of a director and the appointment of a new director under normal circumstances is unlikely to result in the TA exercising his discretion under paragraph 6.1.1 provided that the relevant Bidder has demonstrated to the reasonable satisfaction of the TA that none of the purposes of that activity is related to the Auction. In addition, the Bidder must notify the TA in accordance with clause 6.4.2. Clause 6.4.1 refers to all parts of the Application Form.

Question 16
	Advisers In reference to paragraph 6.5.5, can the prospective applicants assume that the list of Advisors to the TA published in S. 5.11.7 of the Information Memorandum is exhaustive?

Response
	Yes.

Question 17
	Directors, employees and agents Given that Bidders will only receive section 4 of the other Bidders' Application Form after the end of the First Phase and never receives Section 3 on Insiders, how can they comply with the paragraph 6.5.7 if they do not know who are the other Bidders and their Insiders?

Response
	The obligations under paragraph 6.5.7 apply before the disclosure of information on the Application Form. It is the Bidder's responsibility to ensure it and its Insiders' compliance with 6.5.7.

Question 18
	Compliance with Activity Rules Paragraph 6.8.1 requires the Bidders to comply with any certificate, undertaking, representation, warranty and declaration given in accordance with the Notice. Are Bidders expected to comply with such requirement of the Activity Rules only until the grant stage or are expected to comply for ever? Shouldn't the Licence conditions apply after the grant stage?

Response
	A Bidder which is successful in the Auction must comply with the terms and conditions of the Notice until it is granted a Licence. On the grant of the Licence, the licensee must comply with the Conditions and all other applicable legislation. A Bidder and all other relevant persons must comply with the terms of each Irrevocable Undertaking given pursuant to paragraph 4.6.11 even after the Licences are granted.

Question 19
	Disqualification Power Can the TA expend on what would make a person not fit or proper to hold a Licence under paragraph 7.1.2 if it has complied with all other provisions of the Notice?

Response
	Please see the last paragraph of Section 5.4 of the Information Memorandum.

Question 20
	Special Condition 1.3 of Schedule 2 to the Notice When is the TA expected to publish the guidelines referred to in Special Condition 1.3 of Schedule 2 to the Notice?

Response
	The guidelines referred to in Special Condition 1.3 of the Licence will be issued from time to time by the TA. The first set of guidelines is expected to be issued within three months of licensing so that the successful Bidders can be consulted before issuing these guidelines. As indicated in the TA's briefing to the industry, it is intended that the first set of guidelines will permit the type of sharing which is already widely practised for the 2G networks.

Question 21
	Special Condition 22 of Schedule 2 to the Notice Has the TA received legal advice on his authority to indirectly regulate competition through Special Condition 22 of the Licence before the Chief Executive in Council passes the legislative support for same? The TA has indicated that Special Condition 22 was an interim measure and would be replaced by forthcoming competition regulation. Does the TA propose to amend the Licences upon enactment of a full fledge competition framework? What if such framework is not adopted? Would the TA amend the Licences in such case?

Response
	The TA considers that the first part of the question is not relevant. Upon enactment of the necessary legislation for the regulation of ownership or control of the Licensee, the TA may pursuant to Special Condition 22.2 of the Licence generally or specifically in relation to a particular statement or representation referred to in Special Condition 22.1 by notice to the licensee waive the requirement for the licensee to comply with the said statement or representation.

Question 22
	Connected Bidder Statutory Declaration, Appendix 3 to the Notice In other jurisdictions where connections where an issue, the applicants where not required to make any declaration in respect of connection until the licensing authority had provided a copy of the other applicants' bidding group and where asked to disconnect at that time (or outbid each other). Although the TA does specify that Section 4 of the Application Forms will be provided at the end of the Final Bidding Round to allow "reconfirmation" that no connection exists, the Applicants are still required to file the Connected Bidder Statutory Declaration at the application stage. Connection between Bidders is a factual matter and its final determination requires factual information from both bidding group potentially involved in the connection. Why, if the TA has provided specifically for a disconnection stage, does it require a declaration from the Applicants on connections before providing them with means to factually determine if they are connected or not? If an Applicant had made an honest declaration that, to the best of its knowledge, it was not connected but it turns out factually to be connected to an other Applicant, what would be the process for the TA to determine if that Applicant had made all due enquiries to assess the connections?

Response
	This requirement is intended to identify, where possible, the existence of any Connected Bidders in advance of the Second Phase, and thus to simplify the due diligence that must be undertaken to determine whether any Provisional Successful Bidders are Connected Bidders in relation to each other. If an Applicant has declared that it is not a Connected Bidder in relation to any other Applicant but this subsequently turns out to be wrong, then it is the responsibility of each of the relevant Applicants to demonstrate, to the reasonable satisfaction of the TA, that it made the declaration to the best of its knowledge, information and belief having made all due enquiries before making the declaration. Any such case will need to be considered individually on its own merits, and the process cannot be determined in advance.

Question 23

Question 23a
	OFTA mentioned that the final date to submit requests for consent from OFTA in relation to a Bidder being in a 2G Bidding Group is 8 August 2001. Will OFTA or the TA publicise whether any applications have been received by it, and if so, the identity of the applicant?

Response
	No. The TA will not publish information on requests by 2G Operators to bid jointly. However, any such 2G Operators may publish the fact that they have sought consent to bid jointly. The TA intends to publicise whether any applications were received or the identity of the applicant after the successful Bidders are selected.


Question 23b
	By what date will OFTA give its answer to requests for consent referred to above? Will it announce or publicise the outcome of the application?

Response
	The TA intends to make a decision within three weeks of receipt of any request to co-operate in the Auction, i.e. by 28 August. The TA will not at that time announce any decisions.


Question 23c
	Will OFTA announce the identity of all parties who have been qualified to bid in the auction and any that have not qualified? If so, when will this be announced?

Response
	The TA intends to publicise the identities of all qualified and disqualified Bidders after the successful Bidders are selected.


Question 23d
	Will licensees be able to create security interests over their 3G licences for the purpose of raising financing and if so, will OFTA consent be required to create such interests?

Response
	The TA has in the past given consent to such arrangement on the express condition that, in the event of enforcement of the security, any transfer or assignment of the licence, or any permission, right or benefit under it, must be subject to prior written consent of the TA, and that the TA's consent to the security arrangement does not prejudice his future decision regarding the transfer or assignment of licence, or any permission, right or benefit under it.


Question 23e
	Will the shareholders of licensees be able to pledge their shares in the licensee entity as security for financing and if so, will OFTA consent be required to create such security interests?

Response
	Depending on the terms of the financing arrangements, the arrangement may fall within the regulation on the ownership and control of Licensees as described in Section 3.2.6 of the Information Memorandum. This will include a situation where there is a change in the legal ownership of the shares in the Licensee as a result of the enforcement of the security.

Question 24
	Section 2.2.4.1 in the Information Memorandum sets out the general requirements under which an MVNO should operate. With respect to the requirement "provide its own mobile switching and gateway infrastructure, for circuit and/or packet switched traffic" what is the meaning of "provide its own"? Ownership of the infrastructure or just to provide the infrastructure (e.g. via a leasing agreement)?

Response
	The MVNO in the context of Section 2.2.4.1 may use any mechanism to "provide its own" infrastructure equipment by owning or leasing the infrastructure provided that it is not using the infrastructure of the Licensee with which interconnection is sought. By "leasing", a long-term "financial lease" is required, but not a short-term "operating lease". An MVNO which does not meet this requirement may seek access to, or interconnection with, the Network of a Licensee on a commercial basis.

Question 25
	Section 2.5.2 of the Information Memorandum provides that the Licensees will have to provide mobile number portability ("MNP") from launch of service, and mobile numbers are to be portable between 2G and 3G services, in addition to within 3G services. Please confirm that such requirement would be regarded as fulfilled and any 3G licensees allowed to launch 3G mobile services so long as it has achieved the capability to perform database dipping and associated call routing functionality, notwithstanding that other 2G/3G licensees, fixed network operators, MVNOs and any other operators may not have physically interconnected for the purposes of MNP and may not have properly equipped with MNP functionality.

Response
	After issue of the 3G Network Licences, OFTA will invite the Licensees to participate in the industry working group to work out the technical and operational arrangements for the implementation of the MNP required under the Licences. The TA therefore expects that all operators involved would be ready to support the MNP functionalities of the Licensees when they launch their 3G Network Services. However, in the event that the other operators are not ready due to the circumstances to which General Condition 17 of the Licence applies, the Licensee would not be regarded as being in breach of the Special Condition requiring the MNP, and it would not be precluded from launching its services, so long as it has already implemented the functionalities required to meet the MNP obligation under the licence (e.g. it has achieved the capability to perform database dipping and associated call routing functionality for the MNP under the licence).

Question 26

Question 26a
	Refarming of 2G spectrum Will it be allowed for 2G operators to use their extra-capacity on 2G spectrum to provide 3G services?

Response
	Yes. Please see Section 2.1.2.2 of the Information Memorandum.


Question 26b
	Environment / Radiation Will there be any limitations in terms of radiation? Any limited number of base stations per area?

Response
	Please see Section 2.4.1 of the Information Memorandum and the Code of Practice for the Protection of Workers and Members of the Public Against Non-ionising Radiation Hazards from Radio Transmitting Equipment issued in May 2000 which is available on the OFTA Website. Provided that the limits in the Code of Practice are complied with, there is no limit for the number of base stations per area.


Question 26c
	Network and equipment sharing As I understand from the Information Memorandum, 2 successful bidders are not allowed to share their network, unless OFTA approves it. What is the underlying reason for this? Are there any specific parts of the network on which this regulation does not apply (sites, offices, space on buildings, antennas, towers, ducts, electronic equipment, NodeBs, physical locations, etc.)? In which cases will network sharing be allowed by OFTA?

Response
	As stated in Section 3.2.4.1 of the Information Memorandum, in order to "promote competition in the market in terms of network coverage and quality" Licensees are not permitted to share networks without the TA's prior consent. The TA will issue guidelines on forms of sharing of network elements that will not require further consents. Please refer to the response to Question 20.

Question 27

Question 27a
	Section 2.7.2.3 of the Information Memorandum refers to "radio station shelters" where approval by the Building Authority is required. What is the definition of "shelters"?

Response
	The term "radio station shelters" is used generally to represent the accommodation necessary for the housing of radio base stations.


Question 27b
	Section 2.7.2 of the Information Memorandum refers to the approval by the Town Planning Board, the Building Authority and the Lands Department. What is the sequence of application of these various approvals and the minimum lead time required for obtaining all these approvals?

Response
	Given that the design and location of each individual radio base station is different, the sequence for submitting applications and the lead time for obtaining the approvals is likely to be different for each application. Like other telecommunications operators, 3G operators should comply with all relevant procedures valid at the time of application in obtaining the necessary approvals.


Question 27c
	Unlike the Town Planning Board approval which is required to be given within a time limit of two months, the Lands Department approval as outlined in Section 2.7.2.4 of the Information Memorandum is a much longer process. There are no published guidelines or policies based on which such approval is granted, for example it is unclear as to which government and non government bodies the Lands Department needs to consult and seek opinion before granting approval, which makes the whole process seemingly non-transparent and difficult for applicants to comprehend and to assess time required for the process. Given the commitment required to be given by the 3G licensee in the licence in relation to the network rollout, could OFTA elaborate on its position in facilitating the approval process of these various departments and bodies?

Response
	As mentioned in Section 2.7.2 of the Information Memorandum, in order to facilitate the approval process, OFTA may assist the Licensees in keeping track of the application by liaising with various government departments


Question 27d
	Way forward, given the penetration rate of the mobile service already exceeds that of the fixed line service, mobile service is undeniably an essential service and public utility. Has OFTA considered liaising with other government departments to reclassify 3G mobile services as public utility and thereby exempting the mobile operators from obtaining all these approvals outlined in Section 2.7.2 of the Information Memorandum?

Response
	So far there is no plan to classify mobile services as a public utility.

Question 28
	Under Table 4.2 on page 41 of the Information Memorandum, the intended treatment for "payment to content providers, applications and service providers, other service providers" is that "these will not be included as Network Turnover". Does this mean that such payment will be deducted from the gross turnover in order to arrive at the net amount for royalty levy?

Response
	We were referring to amounts collected from customers on behalf of content providers, applications and service providers, and other service providers by a Licensee who will then pay the corresponding amounts back to that respective party. These amounts will not be counted as Network Turnover and so would be deducted from any gross turnover figures provided to the extent they include these items.

Question 29
	In relation to an MVNO, will it be a mandatory or licensing requirement for an MVNO to own the Gateway Number Database and Administration Database for MNP purpose?

Response
	It will not be a mandatory or licensing requirement for the MVNO to own their "Gateway Number Database" or "Administration Database" for Mobile Number Portability.

Question 30
	Under Section 2.2.6.1 on page 13 of the Information Memorandum, it is mentioned that the expected minimum length of interconnection agreement between MNO and MVNO will be three years. Given the fact that it is the established policy that interconnection arrangement will be first left to the commercial negotiation between the parties concerned and that the PNETS licence for MVNO is valid for 12 months only, will it be possible to have a shorter contract term via overt commercial negotiation? Will the same arrangement be equally applicable to the interconnection agreement between MNO and CSP?

Response
	It is open to MNO and MVNO to agree on the duration of the contract based on commercial negotiation. The same arrangement will not apply to CSPs for which there is a separate regime based on published tariffs.

Question 31
	The rollout obligation is specified under Section 3.2.4 of the Information Memorandum. In what way will the TA examine whether the Licensees have duly complied with this rollout obligation. Will there be any guidance or code of practice to standardize the procedure for measurement of coverage?

Response
	The TA will examine whether the population coverage obligation of a Licensee as been fulfilled based on inter alia (a) the coverage plot provided by the Licensee; and (b) the distribution of population provided by the Hong Kong Census and Statistics Department from time to time. The TA may require the Licensee to provide coverage plots in any form which the TA considers appropriate.

Question 32
	Number of representatives of a Bidder permitted to enter into the bidding room is limited to eight. Is it possible to nominate more than eight representatives in the Application Form?

Response
	Yes, a Bidder can nominate more than eight representatives in the Application Form but only eight of them are allowed to enter the bidding room.

Question 33
	It is mentioned under the Application Instructions on page 70 of the Information Memorandum that the Bidder must also have transferred the Deposit (if paid in cash) by 4:00 p.m. on the last of the Application Dates. Does it mean that the payment of the Deposit by cash can be made separately after submission of the Application Form as long as it is within the specified deadline?

Response
	No, the Applicant is required to confirm in the Application Form (section 5 - checklist) that the Deposit has either been provided together with the Application Form in the form of a Letter of Credit or in cash (clear funds) with a certified true copy of the relevant document provided together with the Application Form.

Question 34
	Will there be any mechanism to allow any aggrieved Bidder to appeal to the Auctioneer during the bidding process?

Response
	There is no specific procedure set out mechanism is made available in the Notice for Bidders to appeal to the Auctioneer during the bidding process and individual complaints will be dealt with by the Auctioneer on a case by case basis.

Question 35
	What is the rationale to mandate the use of 144kbps for compliance to the roll-out obligation in section 3.2.4 of Information Memorandum? What is the data rate requirement for roll-out obligation usually adopted by the TA of other countries? In 3GPP TS 34.108 v3.4.0, 144kbps is not defined as a major service bearer data rate to be used in different traffic class. What is the impact if the data rate requirement change to other data rates such as 128kbps?

Response
	The objective of setting 144 kbps as the minimum requirement for the 3G network is to ensure that the Licensee will comply with the coverage obligation using 3G radio base stations rather than using a 2.5G network. As regards the data rate requirement for measuring the roll-out obligation in other countries, the enquirer is requested to carry out his own research. The Licensee is obliged under Special Condition 1.1 of the Mobile Carrier Licence to cover, by not later than end of 2006, an area where at least 50% of the Hong Kong population live from time to time with base stations capable of supporting services operating at a minimum of 144 kbps. Base stations which are capable of supporting services up to only 128 kbps are not in compliance with this requirement.

Question 36

Section 2.2 Open Network Access

Question 36a
	When does a 3G licensee need to submit its ONA measurement methodology?

Response
	The methodology should be submitted upon request by the TA and in any case must be submitted to substantiate any claim by the Licensee that it has met the ONA obligations.


Question 36b
	Since there will be different technical configuration for MVNO and CSP, the ONA measurement methodology will be different for different technical configuration. Please clarify if a Licensee can use different ONA measurement methodologies for MVNOs and CSPs.

Response
	The TA's concern is that the Licensee's network is open to NSPs and that the methodology will measure the degree of openness, whether to non-affiliated MVNOs or non-affiliated CSPs. The Licensee is free to develop its own methodology, which may differ for the two types of NSP, subject to the TA being satisfied with the methodology as a whole. If in doubt, Licensees are advised to consult with the TA on these matters when developing their measurement methodologies.


Question 36c
	Section 2.2.3 provides that a Licensee must publish a wholesale tariff or tariffs for the service available to CSPs. Please clarify when such wholesale tariffs should be published.

Response
	The Licensee must publish wholesale tariffs to be available to CSPs at the same time when such pricing information is made available to its internal service provision arm or affiliated service providers in order to satisfy the non-discriminatory requirement or 3 months before the launch of its 3G service, whichever is the earlier. These tariffs will need to be based on service and bearer characteristics for which the network is configured. The Licensee is able to vary such wholesale tariffs from time to time, provided that they are non-discriminatory in relation to use of the network by non-affiliated CSPs and the Licensee's group, internal or affiliated CSPs.


Question 36d
	Section 2.2.3 provides that a Licensee must publish a reference MVNO Network Capacity Agreement. Please clarify when such reference MVNO Network Capacity Agreement should be published.

Response
	The reference MVNO contract must be published at the same time when such pricing information is made available to its internal service provision arm or affiliated service providers in order to satisfy the non-discriminatory requirement or 3 months before the launch of the Licensee's 3G services, whichever is the earlier. The TA expects that the terms of such reference contract would change from time to time as the market develops.


Question 36e
	In the situation when the TA is considering intervention in relation to interconnection requirements from a CSP, would the TA consider 30% openness as one of the criteria on which the decision to intervene was based?

Response
	In considering regulatory intervention in relation to interconnection/access requirements from a CSP, the TA will consider, among other factors, whether the Licensee is meeting the continuing 30% openness criterion under the "Open Network Access" obligations.


Question 36f
	Section 2.2.4.1 (Forms of NSP - MVNO) refers to the requirement for the licencees to publish a reference contract for interconnection with the MVNO. When will the licencee be first required to publish such reference contract?

Response
	Please see response to d. above.


Question 36g
	In section 2.2.6.2 (CSPs), it is stated that the cost basis to be applied in setting a tariff will be set out in guidelines to be issued by the TA in due course. When does the TA expect that such guidelines will be issued?

Response
	OFTA intends to issue the guidelines within three months from issue of the 3G Licences.

Question 36h
	Section 2.2.8.1 (NSP licensing procedures - MVNOs) refers to the proposed PNETS licence for MVNOs. When will OFTA make such draft available for perusal and comment?

Response
	As the Information Memorandum states, OFTA will make such a draft available in due course. The PNETS licence will be applicable to MVNOs using any mobile spectrum frequencies in Hong Kong, so will be dealt with separately from the 3G auction process.

Question 37

Section 4 Spectrum Utilization Fees
With reference to Table 4.2: Intended treatment of revenue and cost items in the Accounting Manual:

Question 37a
	Item 1 on the left hand side column refers to interconnection charges for origination or termination of calls as one of the items to be included as Network Turnover for the purpose of computation of the Royalty Amount. Please clarify as to the meaning of such term and the intended scope. For example will charges for origination or termination of inter-operator short message be included within the scope of such "Interconnection Charges"? Does the term "calls" here apply only to local calls? What about IDD calls?

Response
	Revenue for calls that use the spectrum allocated to the Licensee under its Licence is included in Network Turnover, regardless of the source of that revenue or the application which is provided over the spectrum. Please see item 3 of Table 4.2 in relation to the treatment of IDD calls.


Question 37b
	Item 6 provides that payment to content providers, applications and service providers, other services providers "will not be included as Network Turnover." Please clarify that these payments can be deducted from Network Turnover.

Response
	Please refer to the response to Question 28.


Question 37c
	In item 8, it is stated that the interconnection charges payable to other Hong Kong telecommunications operators are costs to the 3G licensee and therefore do not affect the calculation of Network Turnover. Can this be taken to exclude PNETS from the calculation of Network Turnover?

Response
	Interconnection charges payable to other telecommunications operators are costs to the 3G Licensee in providing the telecommunications service which generates the revenue. In other words, the revenue received for the provision of the telecommunications service is treated as the Network Turnover, and the interconnection charges paid (being a cost) are not deducted from the revenue for the calculation of Network Turnover. The charge commonly called the "PNETS charge" is a type of interconnection charges and will therefore be treated accordingly. See Table 4.2 on page 41 of the Information Memorandum for further details of how different revenue and cost items are intended to be treated.


Question 37d
	According to Section 4.5, a Licensee must at all times maintain in full force and effect a Performance Bond or Bonds equivalent to the next five years' Minimum Annual Fees. Accordingly, throughout the term of the Licence, a new Performance Bond equivalent to the next five years' Minimum Annual Fees or the remaining Minimum Annual Fee for the duration of the Licence (if the Licence is less than five years) will have to be provided by the Licensee on each anniversary of the award of the Licence. Please clarify if the Performance Bond provided by the Licensee on the preceding anniversary will be released upon the TA's receipt of the new Performance Bond.

Response
	Yes, the Performance Bond provided on the preceding anniversary will be released upon the TA's receipt of the new Performance Bond.


Question 37e
	We note from Item 4.5 that the tenor for each Performance Bond is five years. We understand that the commission fee payable by the Licensee to the Qualifying Bank for such a long term Performance Bond will be exceptionally high. We consider that the interest of the TA is well protected even if the tenor of each Performance Bond is reduced to one year since the TA will still be holding a Performance Bond covering the Minimum Annual Fees for the next five years at any one time provided that a new Performance Bond is given to the TA on each anniversary of the award of the Licence. As such, will the TA consider of shortening the term of each Performance Bond to one year?

Response
	No. The performance bond must be provided in the form (including in the correct maturity) set out in the Notice.


Question 37f
	In section 4.7 (Accounting separation), reference is made to an Accounting Manual which sets out the guidelines and requirements which each licensee will need to follow in maintaining its accounting record. Will OFTA please clarify as to the expected date that such Accounting Manual will be available for consultation.

Response
	The TA is expected to conduct a consultation with the licensees within six months after the issue of the licences.


Question 37g
	In section 4.7.1 (Financial reporting), the Royalty Year is defined to be the year to each anniversary of grant of the Licence, and it is in respect of each Royalty Year that the licensee will be required to produce all regulatory accounts. To reduce the administrative burden, is it possible for the Royalty Year to be changed to end on a month end date or even be changed to coincide with calendar year?

Response
	The TA intends to issue the licences as soon as practicable after the Third Phase auction. The final steps to be completed at the Grant Stage are set out in Part 5 of the Notice issued by the TA at Appendix H of the Information Memorandum. The TA does not currently otherwise intend to synchronize the grant of the 3G licences with any specific date.

Question 38
	Section 5 - The Auction On page 55 Section 5.7.1 (First Phase - principles) of the Information Memorandum, it is provided that "in the event that a tie re-occurs, the winner will be selected from the tied Bidders by a random method. In such cases, the only Bidders subject to random selection will be those who had originally tied." Please confirm as to whether the term "those originally tied" refers to the three tied Bidders or the two tied Bidders in relation to which the tie re-occurs?

Response
	It is possible that First Phase Tied Bidders could re-tie at the same Final Offer that was made by another (originally higher) Bidder (this higher Bidder's Final Offer being the maximum Revised Final Offer that may be made by the First Phase Tied Bidders in the Tied Bidding Round). However, only the original First Phase Tied Bidders would be subject to random selection. For instance, assume that Bidder A has made a Final Offer of 5.90%, Bidders B and C have made Final Offers that tie at 5.20% and it is necessary to resolve the tie to determine the Provisional Successful Bidders. Bidders B and C would be given a further chance (the Tied Bidding Round) to increase their Final Offers (i.e. make Revised Final Offers), but are limited to a maximum Revised Final Offer of 5.90%. If B and C both then made Revised Final Offers of 5.90%, they would be subject to random selection to determine which would be Provisional Successful Bidder. Bidder A would not be subject to random selection, having already been determined as a Provisional Successful Bidder.

Question 39
	Appendix H - Schedule 2 Conditions of Licence Special Condition 14 requires the licencee to publish the tariffs for the service operated under the licence. Please confirm that this requirement applies only to services offered from time to time by the licensee.

Response
	Yes, this applies to services offered from time to time by the licensee.

Question 40
	Appendix 5 - Performance Bond According to item 10(c) of Appendix 5, the Bank will have to notify the Authority promptly if the Bank ceases to be a Qualifying Bank. It is, however, uncertain as to what actions the Licensee will have to take upon the happening of such event. Will the Licensee be obliged to provide the Authority with a new Performance Bond within a certain period of time? Please clarify.

Response
	Yes. The Licensee's obligation is to maintain in full force and effect a Performance Bond, in the appropriate amount, provided by a Qualifying Bank. In the event that the bank ceases to be a Qualifying Bank, the Licensee would be in breach of its obligations under Special Condition 3 of its Licence if it does not provide in time a new Performance Bond by another Qualifying Bank.

Question 41

Appendix H Appendix 1 - Application Form

Question 41a
	Is there any special requirement on the sealing of the envelope as referred to in paragraph 8 (Submission instructions) in the "Application Form Instructions"?

Response
	There are no specific instructions as to how the envelope should be sealed. The key purpose of sealing the envelope is to ensure that no persons other than the Auctioneer will have access to the documents inside the envelope. The Applicant is advised to consider this when deciding on the appropriate sealing method.


Question 41b
	In the application form, names of the employer of each of the Applicant's Representatives are required to be disclosed. What is the definition of "employer"? Does it mean the company with which the Applicant's Representative has a legally binding employment contract? Or a company for which Applicant's Representative is performing work?

Response
	Yes, the employer should be the company with which the Applicant's Representative has a legally binding employment contract. The Applicant's representative should state what its relationship is with the Bidder if that person is not employed by it.


Question 41c
	Can the copy of the Memorandum and Articles of Association of the Applicant, which is required to be submitted as one of the supporting documents with the Application Form be certified true by a director or secretary of the Applicant or a solicitor?

Response
	Yes, the Memorandum and Articles of Association can be certified by a director or the company secretary of the Applicant or by a solicitor.


Question 41d
	The Application Form is required to be signed by two Representatives who are directors of the Bidder. Is the Roaming Consent Letter attached as Appendix 8 to the Notice similarly required to be signed by a director of the relevant 2G operator?

Response
	Yes, the Roaming Consent Letter must be signed by a director of the 2G Licensee.


Question 41e
	Considering that the auction process will be completed fairly expeditiously, why is the Letter of Credit required to be issued for a term of 364 days from the day of issue? Would OFTA consider accepting a Letter of Credit for a term of 180 days?

Response
	The TA will only accept a Letter of Credit for a term of 364 days from the day of issue. The Letter of Credit must be provided in the form as specified in Appendix 7 of the Notice issued by the TA at Appendix H of the Information Memorandum.

Question 42
	What will be the consequence if a Third Phase Bidder fails to provide a bank guarantee for the first 5 years and hence decides not to or is unable to proceed to be granted a licence? Does OFTA anticipate that it will require or will usually require the whole sum of the HK$250M deposit to be forfeited and if not what factors will OFTA take into account in the exercise of its discretion?

Response
	The question describes a default situation which is a very serious breach of the terms and conditions of the auction. It will lead to immediate forfeiture of the whole of the Deposit.

Question 43
	We understand that royalty payments can be included in the calculation of wholesale price with a 20% rate of return. Can a 3G licensee who makes royalty payments before its 3G service launch (and the first provision of the wholesale service) recover those royalty payments through the wholesale charges, given that service launch prior to the first royalty payment seems unlikely (including potentially because of the technical and other matters which will need to be addressed post-auction, such as the industry process for MNP referred to in OFTA's response to question 25)?

Response
	Spectrum utilization fees paid by the Licensee during the entire validity period of the licence will count towards the Licensee's costs for the calculation of wholesale prices.

Question 44
	Has OFTA set a date for the commencement of Phase 1 of the auction? If not, does OFTA anticipate that Phase 1 will commence or is likely to commence in the week commencing 17 September or that it is more likely Phase 1 will commence in the week commencing 24 September? Does OFTA anticipate the auction commencing in the morning or in the afternoon? If OFTA is unable to confirm any of these details of the Phase 1 auction commencement, when does OFTA anticipate it will be able to provide these details to the bidders?

Response
	Bidders' Representatives should be prepared for the First Phase of the Auction to begin at any time on or after 19th September. Please refer to Section 5.7.2 of the Information Memorandum. The First Phase may take place outside normal working hours during the weekend or on a public holiday.

Question 45
	When will OFTA commence to clear the PHS band for TDD deployment and when will the clearance process be completed?

Response
	It has been pointed out in page 4 of the Information Memorandum that there is no definite date for phasing out cordless telephones conforming to PHS standards. The status remains unchanged.

Question 46
	What is OFTA's policy towards IMT-2000 Mobile Satellite Systems in the 1980-2010MHz and 2170-2200MHz bands? Will this spectrum only be reserved to MSS which is compliant with the IMT-2000 requirements or will this spectrum also be available to other non-IMT-2000 satellite systems (whether existing now or in the future)? If OFTA does not have a position as yet on these issues, when does OFTA anticipate that it will address these issues?

Response
	OFTA has not finalized its position with regard to the use of the bands 1980 - 2010 MHz and 2170 - 2200 MHz. This will be subject to further consultation with the Radio Spectrum Advisory Committee or the industry as appropriate.

Question 47

Under paragraphs 5.1.1 to 5.1.6 of the Notice, a Third Phase Bidder may notify the TA whether it is subject to an Approval. If the Third Phase Bidder does not obtain the Approval by the Approval Date, the Third Phase Bidder will not be entitled to the grant of a Licence and its Deposit may be forfeited.

"Approval" is defined in paragraph 1.2.1 to mean "any shareholder approval which is required by law or any regulatory authority before a Licence is granted to a Bidder which is not capable of being reasonably obtained prior to the date on which the Application by that Bidder is submitted in accordance with section 1 of Part 2".

Question 47a
	Is each of the following approvals a shareholders approval which is "required by law or any regulatory authority" under the definition of "Approval" in paragraph 1.2.1: (i) shareholders approval required under an enforceable contract between the shareholders of a Bidder (or of a holding company of a Bidder) or their respective holding companies ("Shareholders Agreement"); (ii) shareholders approval required under the Memorandum of Association or the Articles of Association of a Bidder. In each of the cases in (i) and (ii) above, the shareholders approval may not be obtainable before the Application Dates due to the length of the notice period required for shareholders meeting or the time which a shareholder is allowed to have for making a decision under the Shareholders Agreement or the Memorandum of Association or the Articles, or other similar reasons. Does it mean that the approval is "not capable of being reasonably obtained prior to the date on which the Application by that Bidder is submitted"?

Response
	The two types of approval outlined in (i) and (ii) above are examples of the types of shareholder approval which are "required by law". However, the approval must be such that it is not capable of being reasonably obtained prior to the date of submission of the Application by the Bidder in order to satisfy the latter part of the definition of "Approval". Assuming that (i) refers to arrangements such as a consortium agreement, such approval should be obtained in advance of submission of an Application. The types of approval required under the Memorandum of Association or Articles of Association of a Bidder are likely to vary widely, and the TA cannot give guidance on these without further information. Generally, all approvals from major shareholders, particularly those that are actively involved in a bid, must be obtained in advance of submitting an Application. Please also see 47(b) below regarding shareholders' approval for a company which is part of a listed group.


Question 47b
	If a Bidder is listed (or is a subsidiary of a company which is listed) on The Hong Kong Stock Exchange, public shareholders approval may be required under the Listing Rules of the Stock Exchange. However, the Bidder may not wish to obtain such approval before the Application Dates because information regarding its interest in participating in the Auction or the bid it is willing to make is commercially sensitive and may affect the bid by other Bidders. In that case, will such approval required by such regulatory authority be regarded as "not capable of being reasonably obtained prior to the date on which the Application by that Bidder is submitted"?

Response
	The TA would regard this as one of the limited circumstances under which the required approval is "not capable of being reasonably obtained" prior to the date on which the Application by that Bidder is submitted. However, in such cases, where law and regulation permit, approvals from major shareholders should nonetheless be obtained in advance of submission of Applications.


Question 47c
	In the case of (b) above, if the Bidder only proceeds to obtain public shareholders approval after receipt of a Provisional Successful Bidder Notice, the timing of the procedure for obtaining public shareholders approval may result in a Bidder not being able to obtain an Approval before the Approval Date. Will the TA extend the time period for obtaining an Approval in accordance with paragraph 5.1.6?

Response
	The Bidder is advised to consult The Stock Exchange of Hong Kong Limited ("HK Stock Exchange") in respect of the timing for obtaining such approval or to seek a waiver from the HK Stock Exchange from complying with any shareholders' approval requirement under the Rules governing the listing of securities on The Stock Exchange of Hong Kong Limited, where possible. According to paragraph 5.1.6 of the Notice, the TA may extend the deadline for obtaining an Approval for up to a period of six months after the date of the Third Phase Notice if the Bidder can demonstrate to the satisfaction of the TA that it has used its best endeavours to obtain a waiver of that Approval within the time period specified in the Notice.


Question 47d
	If a Bidder does not obtain an Approval by the Approval Date (and no extension is granted by the TA), apart from having its Deposit forfeited by the TA, will it have any further liability?

Response
	The TA's right to forfeit (all or part of) the Deposit is without prejudice to the provisions of any law or ordinance which may be applicable. Further, a Bidder who does not obtain an Approval by the Approval Date shall not be entitled to the grant of a Licence.

Question 48
	If an MNO has already utilised 70% or more of the Network Capacity and it cannot further expand its network (and therefore Network Capacity cannot be increased), and at the same time an MVNO comes to this MNO and asks for some Network Capacity, what can this MNO do? For example, an MNO has already opened up 25% of its Network Capacity to other MVNOs and it has used up the remaining 75%. What if another new MVNO comes to this MNO and requests access to Network Capacity?

Response
	In the above example, the MNO has not met its licence obligation to open up at least 30% of its Network Capacity to NSPs and should do so upon request by NSPs. The TA does not agree that there would be an absolute limit beyond which the Network Capacity could not be expanded. The TA considers that Network Capacity could always be expanded by additional investment, e.g. by increasing the number of base stations.

Question 49

Question 49a
	Does the Bidder's business plan fall within the definition of "Confidential Information" set out in paragraph 6.5.6 of the Notice?

Response
	Yes. The business plan, insofar as it contains information relating to the Auction (including the valuation of a Licence), constitutes Confidential Information in relation to that Bidder.


Question 49b
	Would a person to whom the Bidder's business plan was disclosed be considered, or deemed to be, an "Insider" (as defined in Section 2 of the Notice) of the potential Bidder for the purposes of the Notice when it receives the Business Plan prior to your Authority's receipt of such potential bidder's application for 3G licence?

Response
	The terms and conditions of the Notice including those relating to Confidential Information and Insiders apply to the Bidder in question once it has submitted an Application. Therefore, if the business plan was disclosed in advance of submission of an Application, the recipient would not at that time be an Insider. If the potential Bidder subsequently submitted an Application, then the recipient would, from the time of that submission, be considered an Insider to that Bidder. The possession of Confidential Information by an Insider does not of itself constitute a breach of the Notice. Under the terms and conditions of the Notice, the Bidder is responsible for ensuring that an Insider complies with the rules regarding Confidential Information. Disclosure of Confidential Information by an Insider of a Bidder after submission of the Application by that Bidder requires the consent of the Authority under paragraph 6.5.1 of the Notice.

Question 50

Question 50a
	According to paragraph (a) of the definition of "Insider" under paragraph 1.2.1 of the Notice, where an Insider is a body corporate, it will include any person who controls, who is controlled by, or under common control with, that person.

Question 50a (i)
	When Confidential Information is disclosed to an employee or a director of a body corporate:-

Question 50a (i) (A)
	Will such Confidential Information be regarded as having been disclosed to the body corporate?

Response
	Yes.

Question 50a (i) (B)
	Who is also an employee or director of other bodies corporate (e.g. a director of a holding company of the first mentioned body corporate), under what circumstances will such Confidential Information be regarded as having been disclosed to such other bodies corporate?

Response
	These other bodies corporate will also be Insiders for the purposes of the Notice.

Question 50a (ii)
	If a Bidder discloses Confidential Information to a holding company of the Bidder, will all companies in the group (i.e. all holding companies of the Bidder and all subsidiaries of each of those holding companies) become Insiders as a result of the application of paragraph (a) of the definition? If so, a long list of body corporate Insiders will have to be included in Section 3 of the Application Form while in fact such bodies corporate may not have received any Confidential Information. Please clarify if this interpretation of paragraph (a) of the definition reflects the intention of the TA.

Response
	Yes. For the purposes of completing section 3 of the Application Form only, the Bidder only needs to set out (a) those persons to whom the Bidder knows Confidential Information has been given and (b) in the case of a body corporate, any person who controls the Bidder. In the case of (a) those individuals to whom Confidential Information has been provided should be given as well as the name of the organisation of which they are an employee, director, officer, trustee or partner if they were given that Confidential Information in such capacity. If an individual has been given information in his capacity as a director of only one company, X, but he is also the director of ten other companies, then he only needs to provide details of company X on the application. A worked example has been placed on the TA's website on 10 September 2001. The treatment by the TA of Insiders for the purposes of completing the Application Form has no effect on the terms and conditions of the Notice. All those persons falling within the definition of "Insiders" contained in the Notice will be treated as such for the purpose of the Notice notwithstanding that their details have not been included in a Bidder's Application Form.

Question 50b
	According to paragraph (b) of the definition of Insider, a partnership can be an Insider:-

Question 50b (i)
	Under what circumstances will Confidential Information be regarded as having been disclosed to a partnership? In particular, in preparing for the Auction, a Bidder may engage consultants (e.g. accountants and lawyers) to assist it. If a consultant is a member of a partnership, will the Confidential Information be regarded as having been disclosed to the partnership as a result of which all partners within that partnership will be regarded as Insiders (although the other partners have never received any Confidential Information)?

Response
	Where Confidential Information is disclosed to a partner, all other partners (i.e. co-partners) within the same partnership will be Insiders for the purposes of the Notice.

Question 50b (ii)
	Who are "co-partners"? What is the difference between "co-partners" and "partners"?

Response
	The term "co-partners" is used in the context of the Partnership Ordinance (Cap. 38) to distinguish a partner from his fellow partners.

Question 50b (iii)
	Will each partner or co-partner need to be named in Section 3 of the Application Form? Further, will the Bidder be required to submit a revised Application Form and a Bidder Compliance Certificate in accordance with paragraph 6.4.2 of the Notice each time a new partner or co-partner joins the partnership?

Response
	For the purposes of completing section 3 of the Application Form only, only the names of those partners who have actually received Confidential Information need to be included together with the name of the partnership to which they belong. The Bidder is not required to submit a revised Application Form or a Bidder Compliance Certificate each time a new partner joins the partnership unless that partner has actually received Confidential Information.

Question 50c
	In Section 3 of the Application Form, if the Insider is a body corporate or partnership, is it sufficient to state the Insider's company name or the name of the partnership under the column headed "Name"? How should the other three columns be filled in?

Response
	For the purposes of completing section 3 of the Application Form, if the Insider is a body corporate, it is sufficient to state the name of the company or the partnership. In the column headed "role", the relationship of the relevant body corporate such as "holding company" should be stated. It will be sufficient for a Bidder to insert "N/A" in the other columns.

Question 50d
	If a body corporate or a partnership is already shown as an employer of an Insider under Section 3 of the Application Form, is it necessary to show such body corporate or partnership as an Insider in the ownership structure chart?

Response
	No, unless that body corporate falls within paragraph 4i), ii) or iii) of the Application Form Instructions in Appendix 1 of the Notice.

Question 51
	Under paragraph 4.6.8(b) of the Notice, where two or more Connected Bidders notify the TA of the same bid in the Sub-Auction held pursuant to paragraph 4.6.7, the order of the Connected Bidders who shall participate in the Third Phase shall be determined by the TA. Is that order to be determined in accordance with paragraph 4.6.10? If not, what method will be used by the TA to determine the order?

Response
	The order referred to paragraph 4.6.8(b) of the Notice (i.e. the order in which a Bidder is considered to be a Connected Bidder as against the Highest Connected Bidder) is not the order to be determined in accordance with paragraph 4.6.10 of the Notice. For the purposes of paragraph 4.6.8(b), the TA will employ a random selection method.

Question 52

Question 52a and b
	Where Bidder A holds a Bidding Interest in Bidder B and is thus a Connected Bidder in relation to Bidder B by virtue of paragraph (a) of the definition of "Connected Bidder" in paragraph 1.2.1 of the Notice, Bidder B may not necessarily fall within the definition of "Connected Bidder" in relation to Bidder A or any other Bidder. As a result, Bidder B may not be a Connected Bidder at all. Please clarify if this interpretation of the definition of "Connected Bidder" is correct. In the definition of "Connected Bidder Group" in relation to Bidder A above in paragraph 1.2.1 of the Notice, is the reference to "that Bidder" in paragraph (a) a reference to Bidder A or Bidder B? If it is Bidder A, the Connected Bidder Group in relation to Bidder A will only comprise of Bidder A (as paragraph (b) does not apply to Bidder B if the interpretation of the definition of "Connected Bidder" in (a) above is correct). Please clarify if this interpretation of the definition of "Connected Bidder Group" is correct.

Response
	The definition of "Connected Bidder" refers to Bidders which are closely connected to another. For the purposes of the definition of "Connected Bidder", where Bidder A holds a Bidding Interest in Bidder B and is a "Connected Bidder" in relation to Bidder B, Bidder B is also a Connected Bidder in relation to Bidder A. This applies equally to subparagraphs (b) and (c). The TA has today (in a Modification Notice) modified the Notice by amending the definition of "Connected Bidder" contained in paragraph 1.2.1 of the Notice by adding "and Bidder B is a Connected Bidder in relation to Bidder A" after "(Bidder B)" and deleting "it" in subparagraph (a) and substituting "Bidder A". This is to put it beyond doubt that if one Bidder has a Bidding Interest in another Bidder, they are connected to one another and are, accordingly, "Connected Bidders" in relation to each other.


Question 52c and d
	Is the reference to the "relevant Bidding Interest" in paragraph 4.6.11(a) of the Notice limited to the Bidding Interest or Bidding Interests which created the Connection? If the answer above is no, what other Bidding Interest or Bidding Interests is paragraph 4.6.11(a) referring to? For example, in the case of (a) above, can the company which holds a Bidding Interest in Bidder A give an Irrevocable Undertaking to satisfy paragraph 4.6.11(a) (assuming that the Irrevocable Undertaking contains an agreement with respect to the Bidding Interest held by Bidder A in Bidder B)?

Response
	"Relevant Bidding Interest " in paragraph 4.6.11(a) of the Notice refers to the Bidding Interest which has caused a Bidder to be a Connected Bidder.

Question 52e
	If the answer to (c) above is yes, in the case of (a) above, there will be no "relevant Bidding Interest" in Bidder A. How may Bidder A satisfy paragraph 4.6.11(a)?

Response
	Bidder A can satisfy paragraph 4.6.11(a) by having the relevant party/parties provide the required Irrevocable Undertakings specified in that paragraph.

Question 52f
	Does the reference to "any person or persons whose consent or agreement is required to enable the first mentioned person to perform all of its obligations under the Irrevocable Undertaking" in paragraph 4.6.11(a) require the provision of Irrevocable Undertakings by the relevant shareholders, financiers, The Stock Exchange of Hong Kong Limited and even OFTA itself whose consent or agreement is required? If a number of Irrevocable Undertakings have to be obtained or any of such Irrevocable Undertakings cannot reasonably be obtained prior to the deadline for the submission of these Irrevocable Undertakings (for example, those to be obtained from a bank or a regulatory body), will OFTA extend the deadline i.e. two Business Days after the date of the Second Phase Notice?

Response
	Yes. The reference to "any person or persons whose consent or agreement is required to enable the first mentioned person to perform all of its obligations under the Irrevocable Undertaking" in paragraph 4.6.11(a) will include shareholders, financiers, The Stock Exchange of Hong Kong Limited and OFTA if their consent is required. OFTA will consider extending the deadline for the submission of an Irrevocable Undertaking in exceptional circumstances but would expect all relevant enquiries in relation to Connected Bidders, and if required, all consents or agreements relating to any Connected Bidder to be made well in advance of submitting the Application particularly given the requirement for the Bidder to provide a statutory declaration as set out in Appendix 3 of the Notice.

Question 53
	Paragraph 5.1.5 of the Notice empowers the TA to impose a Penalty on a Third Phase Bidder if the Third Phase Bidder does not notify the TA in accordance with paragraph 5.1.2. Paragraph 5.1.2 only refers to a Third Phase Bidder which is not subject to an Approval. However, it will only be reasonable if all Third Phase Bidders who have failed to notify the TA in accordance with paragraph 5.1.1, whether or not they are subject to Approvals, shall be penalised by the TA. As such, should the reference to paragraph 5.1.2 in paragraph 5.1.5 be to paragraph 5.1.1?

Response
	The correct cross-reference should be to paragraph 5.1.1. The TA proposes to modify the Notice to effect this change.

Question 54

Question 54a
	Does the qualification "provided that the relevant Bidder has received the prior written consent of the Authority" in paragraph 6.5.4(b) of the Notice apply to disclosure of Confidential Information to all those entities set out in that paragraph?

Response
	The qualification applies to all the entities set out in paragraph 6.5.4(b).


Question 54b (i)
	Where a Bidder or an Insider of a Bidder discloses Confidential Information to any of those entities set out in paragraph 6.5.4(b) would such entity (or the relevant staff of such entity) become an Insider?

Response
	If a Bidder discloses Confidential Information to one or more of the entities set out in paragraph 6.5.4(b), that entity would strictly be an Insider in relation to that Bidder. However, it is not anticipated that the information which is required to be submitted to the entities specified in paragraph 6.5.4(b) in the course of their regulatory or statutory functions would be Confidential Information.


Question 54b (ii) (iii)
	The Bidder may not know who in such entity have received the Confidential Information. As a result, it may not be able to list these recipients (the "Recipients") in Section 3 of the Application Form. In that case, is it sufficient to state the name of the entity to which Confidential Information is disclosed but not the Recipients? If such entity is regarded as an Insider and is a body corporate (e.g. The Stock Exchange of Hong Kong Limited), would the companies in the group to which such entity belongs also be regarded as Insiders pursuant to the definition of "Insider" under paragraph 1.2.1 and therefore required to be listed in Section 3 of the Application Form? What should the Bidder do if it does not know the identity of those companies?

Response
	A Bidder is not required to list any of the entities in paragraph 6.5.4(b) in the Application Form.


Question 54b (iv)
	If such entity discloses the Confidential Information to other persons, would such other persons be regarded as Insiders pursuant to the definition of "Insider" under paragraph 1.2.1 and therefore be required to be listed in Section 3 of the Application Form? If such other persons in turn disclose the Confidential Information to other persons ("Further Recipients"), would the Further Recipients be regarded as Insiders as well? What should the Bidder do if it does not know the identity of those persons (as the foregoing may occur beyond the Bidder's control and without its knowledge)?

Response
	Further Recipients will also be regarded as "Insiders" although the Bidder is not required to list these persons under section 3 of the Application Form. The Bidder should ensure that Confidential Information is only disclosed in accordance with paragraphs 6.5.2 and 6.5.4 of the Notice.


Question 54b (v)
	A Bidder is required to make a number of declarations in the Bidder Compliance Certificate with respect to its Insiders. Where such Insider is an entity set out in paragraph 6.5.4(b), a company in the group to which that entity belongs or a person to whom that entity discloses the Confidential Information, the Bidder will not be able to make those declarations unless the entity, the company or the person mentioned aforesaid confirms the correctness of the declarations to the Bidder. As such entity, company or person may not be under an obligation to make such confirmations and the Bidder has no control over any of them, it or he may refuse to do so. Would the TA provide some guidance as to what the Bidder should do in that situation?

Response
	The TA acknowledges that the Bidder may have difficulty in obtaining the relevant confirmations of correctness from the Hong Kong Stock Exchange and other entities set out in paragraph 6.5.4(b) of the Notice. The Bidder is, however, required to take all steps to obtain such confirmations well in advance and, in the event that it is not practicably possible to obtain such confirmations, the Bidder should notify the TA by annotating the Application Form.


Question 54c
	A Bidder may have to disclose Confidential Information (e.g. its interest to participate in the Auction) to a bank when arranging the issuance of a letter of credit as the Deposit. Would your answers to (b)(i) to (v) above be applicable to this scenario?

Response
	If a bank receives Confidential Information from a Bidder in the course of arranging the payment of that Bidder's Deposit, whether cash or Letter of Credit, it will also be considered as an Insider of the Bidder.

Question 55

Question 55a
	There is a reference to intermediate undertakings in each of Section 4 ii) and Section 4 iii) of the Application Form Instructions), but not in Section 4 i). Assuming a company (Company A) has a Bidding Interest in a Bidder through its subsidiaries, but none of those subsidiaries has a Bidding Interest in the Bidder by itself, are those subsidiaries required to be shown in the ownership structure in accordance with Section 4 i) of the Application Form Instructions? Will the details of those subsidiaries of Company A be required to be shown as "factors that determine why Company A has a Bidding Interest in the Applicant" under Section 4 i)?

Response
	Yes, those subsidiaries are required to be shown in the ownership structure. An example of this is provided in the worked example of an Application to be posted on the TA's website on 8th September. Yes, the details of those subsidiaries are required to be shown.


Question 55b
	In relation to the soft copy to be provided pursuant to Section 4 b) of the Application Form Instructions, would the TA please confirm whether only the names of the entities listed pursuant to 4 i) to 4 v) have to be provided, not any other details such as the factors which determine why each entity has a Bidding Interest in the Applicant?

Response
	Yes, only the names of the entities have to be provided in relation to the soft copy. A copy of the precise form of Excel sheet into which these should be inserted will shortly be placed on the TA's website for Bidders to download and complete.

Question 56
	Has the word "not" been omitted from the beginning of paragraph 4.4.1(g) of the Notice?

Response
	Yes. The TA proposes to modify the Notice to effect this change.

Question 57
	Following the selection of the Third Phase Bidders but before the announcement of the results of the Auction, will the Applicable Royalty Percentage and the identities of the Third Phase Bidders still be regarded as Confidential Information? If so, is a Third Phase Bidder forbidden from disclosing such information to a bank (which does not appear to fall within paragraph 6.5.2 as a "professional adviser") for the purpose of arranging for the issuance of a Performance Bond? Are the Third Phase Bidders also forbidden from disclosing such information to their suppliers and contractors for the purpose of carrying out work in anticipation of the grant of the licences? In fact, it is mentioned in the TA's Response to Q4a that a successful Bidder may need to contact its bankers to arrange for the issuance of Performance Bond as early as soon after the completion of the First Phase. This would only be possible if disclosure under the abovementioned circumstances is not forbidden. In any case, when will the TA announce the result of the Auction (including the identities of the Licensees and the Applicable Royalty Percentage)? We understand that the TA has in his presentation some time ago indicated the timing. When a Bidder plans in advance when it can begin to arrange for performance of its various obligations, can it rely on such indication to determine when a piece of information is expected to cease to be Confidential Information and can thus be disclosed to third parties such as banks for the purpose of issuing the Performance Bond?

Response
	In an industry presentation sometime ago, the TA stated that the Applicable Royalty Percentage and the Provisional Successful Bidders will be announced by the TA after the completion of the Final Bidding Round, at which point, this will no longer be regarded as "Confidential Information". In addition, at the sole discretion of the TA, the TA may disclose such details about the identity of these Provisional Successful Bidders and their respective Final Offers as he considers necessary after the completion of the Final Bidding Round. He may also publicise relevant details regarding the corporate structures of, and shareholdings in, the Provisional Successful Bidders at the same time he announces their identities, so as to better assist the public in understanding the identities of those Provisional Successful Bidders.

Question 58
	It is understood that a Bidder (Bidder A) is regarded as a Connected Bidder in relation to another Bidder (Bidder B) in situations where, for example, Bidder A holds a 15% or more shareholding in Bidder B, or if a third person holds a 15% or more shareholding in both Bidder A and Bidder B. Similarly, a 15% threshold is used in determining whether a 2G Bidding Group is regarded as formed. In practice, a shareholding of 15% is only a minority interest, and it will not always be possible for a Bidder to ascertain full information from, or control the activities and other investments of, a minority investor having a Bidding Interest in the Bidder, such as whether that minority investor (or its holding company) has a Bidding Interest in another Bidder or a 2G Interest in a 2G Operator. The Bidder can enquire with the minority investor, but it does not appear to be reasonable for the Bidder to face serious consequences like disqualification from the Auction (where a 2G Bidding Group is constituted) because, for example, (i) the information provided to the Bidder by the minority investor turns out not to be complete, (ii) the minority investor is itself not aware of its own shareholder's other interest (which again could be a minority interest) in another Bidder or 2G Operator, or (iii) the minority investor or its own shareholder acquires a 15% or greater interest in another Bidder or 2G Operator after providing information or confirmation to the Bidder in question. Where one or more public listed companies are directly or indirectly interested in a Bidder, it is also possible for a Connection or a 2G Bidding Group to be formed because of an acquisition of a shareholding in one of those listed companies by a third party which is interested in another Bidder or 2G Operator. Where a Connection is formed because of a Bidding Interest of the nature like the above, it may not be possible for the Bidder concerned to deliver to OFTA an Irrevocable Undertaking by the persons holding the relevant Bidding Interest or 2G Interest. Does OFTA have discretion not to disqualify a Bidder if a declaration in the Connected Bidder Statutory Declaration turns out to be incorrect? Does OFTA have discretion not to disqualify a Bidder which is part of a 2G Bidder Group but has not obtained consent from OFTA prior to the Application Date? Similarly, does OFTA have discretion not to require two Provisional Successful Bidders to bid against each other in the Sub-Auction in the Second Phase even if the required Irrevocable Undertakings cannot be provided? If there is any such discretion, in exercising it will OFTA take into account any fact that a Connection or a 2G Bidding Group relationship is remote as illustrated above and is beyond a Bidder's control?

Response
	If the Connected Bidder Statutory Declaration turns out not to be true and accurate in circumstances where it was declared on behalf of the Bidder to the best of the knowledge, information and belief of the relevant person and that person made all due enquiries of the other persons set out in the Statutory Declaration, that Bidder will be a Connected Bidder and the Second Phase of the Auction will apply to it. If a Bidder who is part of a 2G Bidding Group does not obtain consent from the TA under paragraph 3.1.3 of the Notice, that Bidder will not be a Qualified Bidder. If two Provisional Successful Bidders are Connected Bidders in relation to each other, and they are unable to provide (or procure the provision of) an Irrevocable Undertaking to the TA as required under paragraph 4.6.11, the relevant Bidders will be required to participate in a Sub-Auction.

Question 59
	In relation to the Deposit HK$250 million in support of the 3G Application, a certified true copy of evidence of payment will be required to produce together with the Application Form. Presumably a document certified by a Solicitor or Notary Public is generally accepted in Hong Kong. Is this also acceptable to the TA? Alternatively, will the TA accept a plain copy of the payment slip duly certified by a Director or Company Secretary of the Applicant or by the Hongkong Bank or Bank of China?

Response
	Either format would be acceptable. It is the confirmation to the TA that the funds have been received in its account that is the most critical element. The TA may investigate if he does not receive such confirmation even if he has got the evidence submitted by the Bidder.

Question 60

Under Section 4.5 (Performance Bond) of the Information Memorandum, it is stipulated that:

"At the time of grant of a Licence, each Licensee must provide a Performance Bond, issued by a Qualifying Bank, in an amount equivalent to the Minimum Annual Fees payable for the first five years of the Licence, with a maturity date, for the full amount of the Performance Bond, of the fifth anniversary of award of the Licence.

Thereafter, the Licensee must at all times maintain in full force and effect a Performance Bond or Bonds equivalent to the next five years' Minimum Annual Fees or the remaining Minimum Annual Fees for the duration of the Licence, if less than five years. These must be provided by a Qualifying Bank. The Performance Bond must be provided in the form attached at Schedule 5 to the Licence."

Does the second paragraph above means that

(i)	By the end of the first anniversary of the Licence, we have to provide the performance bond with an amount equivalent to the Minimum Annual Fees payable for 2nd to 6th years of the Licence, and
(ii)	By the end of the second anniversary of the Licence, we have to provide the performance bond with an amount equivalent to the Minimum Annual Fees payable for the 3rd to 7th years of the Licence and etc.?

We ask this question since the word "Thereafter" in the second paragraph above may also mean "after the first five years".

Response

(i)	Yes
(ii)	Yes

Question 61
	Referring to Sections 2.1.2.1 and 2.1.2.4 of the Information Memorandum, would the TA consider mobile data communications services employing the re-use of radio frequencies such as Mobitex as coming within the category of services for which the Government would not issue additional licences before 2005?

Response
	Mobile data communications services employing the re-use of radio frequencies such as Mobitex do not come within the category of services for which the Government would not issue additional licences before 2005.

Question 62

Question 62a
	Would you please advise whether and how the confidentiality rules are intended to apply to discussion or disclosure between prospective or proposing Bidders or others (including prospective MVNO's) before the Application Date?

Response
	Please see the response to Question 8.


Question 62b
	Would you please advise whether it is permissible for a prospective or proposing Bidder to enter into an arrangement for the supply of MVNO services to a prospective or proposing Bidders or others (including prospective MVNO's) prior to or after the Application Date or both?

Response
	Please refer to Section 5.4 of the Information Memorandum which states that in order to pre-qualify, the Bidder must not have "entered … into any MVNO arrangement with any other Bidder". The Bidder is required to provide an MVNO Statutory Declaration as set out in Appendix 4 of the Notice with its Application. This, however, does not rule out any MVNO arrangement between a Bidder and other parties not participating in the Auction before or after the Application Date.

Question 62c
	Would you please confirm that the statement on page 47 of the IM that, in order to pre-qualify, Bidders must not have "entered...into any MVNO arrangement with any other Bidder" is concerned with a Bidder not having entered into an arrangement to obtain services as an MVNO (rather than supplying services as a carrier to an MVNO) as provided in the Appendix 4 MVNO Statutory Declaration?

Response
	This interpretation is correct.

Question 62d
	What is the rationale for the 6.5.6(iii) exclusion from the meaning of Confidential Information within the Appendix H notice?

Response
	Please see the response to Question 8.

Question 63
	In the event of Tied Bids in the first phase of the auction, would it be possible for the Tied Bidders themselves to participate in the random process?

Response
	Yes. The TA has considered the matter further and the response to Question 11 is now superseded by this response. The TA does not propose to disclose the random method that will be used, or whether it will be electronic or mechanical. However, Tied Bidders will be asked to witness and participate in the tie breaking event, and ICAC observers will be present to ensure fairness in choosing and implementing the random method.

Question 64

In various places in your responses to Q 47 posted on the OFTA website, you say that where law and regulation permit, approvals from major shareholders should nonetheless be obtained in advance of submission of Application. We would like to have your clarification on the following issues:-

Response

A Bidder should obtain all approvals under contractual arrangements and its memorandum and articles of association before the date on which it submits its Application. The TA will not accept that these kinds of approval are "not capable of being reasonably obtained prior to the date on which the Application is submitted" as provided in the definition of "Approval" in the Notice. The following responses should therefore be read in this light.

Question 64a
	In your responses to Q 47 a and b as posted on the OFTA website, you refer to "major shareholders". The term "major shareholders" is not defined (or indeed used) for the purposes of the Listing Rules, Takeovers Code or the Companies Ordinance. The Listing Rules however do provide for circumstances where approval for a transaction can be given by a single or closely allied group of shareholders holding more than 50% of the voting shares of the company. Accordingly, at least in your response to Q 47 b, your use of the term "major shareholders" seems to be being used in the sense of shareholders together holding a majority of the relevant voting shares. Does your response to Q 47 b only imply that written approval from shareholders holding more than 50% of the shares of the bidder should be obtained by that bidder for the purposes of the Listing Rules (if possible) rather than requiring the bidder to obtain any lower level of shareholding approval (i.e. de facto commercial approval)? For example, a bidder may have 5 shareholders together accounting for 50% or more of the voting shares, but it is only possible to get approval from only 3 of those shareholders (which together hold say 40%) before the relevant bidder submits an Application, and not from the 4th and 5th shareholders (for concerns about commercial sensitivity). Is it the case that in these circumstances the bidder need not seek approval from the holders of 40%, if (and because) such approval would not itself be sufficient for the purposes of the Listing Rules? If a "major shareholder" is not necessarily a shareholder holding more than 50%, what percentage of shareholding will make shareholder(s) "major shareholder(s)"? If "major shareholders" approval refers to approval from shareholders holding less than 50% (i.e. de facto commercial approval), does this approval need to be in writing?

Response
	The reference to "major shareholders", as envisaged in the responses to the particular questions and circumstances drawn up in Questions 47(a) and (b), is a reference to the body of shareholders of a Bidder which collectively is in a position to give a binding and irrevocable approval in relation to the submission of the Application by the Bidder. All approvals should be in writing.

Question 64b
	The Listing Agreement provides that information should not be divulged outside the Issuer and its advisers in such a way as to place in a privileged dealing position any person or class or category of persons. Accordingly, it is virtually impossible to seek approvals from major shareholders without divulging to them information in such a way that the provisions of the Listing Agreement are not breached. In these circumstances, does OFTA accept that such approval from major shareholders would not be capable of being reasonably obtained in advance of submission of Application? In your responses to Q 47 c as posted on the OFTA Website, you refer to consultation with the Stock Exchange. Does this mean that bidders should consult the Stock Exchange before the Application is submitted, or following the issue of a Provisional Successful Bidder Notice?

Response
	The TA, as has been the precedent with other authorities issuing 3G licences worldwide, is unlikely to accept the requirement to obtain shareholders approval under a shareholders agreement or under its memorandum or articles of association as grounds for a Provisional Successful Bidder delaying the grant of a Licence to it under Part 5 of the Notice. It is not for the TA to interpret the provisions of the Listing Agreement or the Listing Rules for Bidders in relation to specific circumstances affecting Bidders. However, it does not appear to the TA that a Bidder is precluded in all circumstances from divulging information to its shareholders for the purposes of securing advanced approval (See Note 2.1 of the Listing Agreement in fact contemplates disclosure in strict confidence in certain examples). Potential Bidders which are listed (or part of a listed group) should consult their legal advisers to ensure compliance with the Rules governing the listing of securities on the Stock Exchange. Responses to both Question 47(b) and (c) are relevant.

Question 65
	Qualifying Bank is defined in the Information Memorandum as an institution holding a full banking licence under the Banking Ordinance whose long term debt rating is, or is higher than a certain level. How do I know whether the bank that my company is using is "Qualified"?

Response
	The Hong Kong Monetary Authority ("HKMA") maintains a list of all banks holding a full banking licence in Hong Kong. To ensure that the bank that your company is using is "Qualified", please check with the HKMA or consult with your bank representatives. Please also note that Qualifying Bank must also have a credit rating which is the same or higher than those set out in the Notice. The credit rating which the TA is using is the issuer rating of each bank with a full banking licence in Hong Kong. However, if there is no issuer rating or if the bank's long term deposits rating is higher than the issuer rating then the bank's long term deposits rating will be used. Depending upon where that bank is incorporated, either the local or the foreign long term bank deposits rating will be used.

Question 66
	Where the letter of credit is provided by a company which (a) is incorporated and registered in Hong Kong, (b) has a full banking licence, (c) is unrated and (d) is a subsidiary of a US bank which has an S&P credit rating of A, will that letter of credit be treated as one from a Qualifying Bank?

Response
	First you must distinguish between a branch and a subsidiary of the US bank. A branch is legally indivisible from the US bank and will have the same credit rating as the US bank. A subsidiary of the US bank is a separate legal entity and its own credit rating will be considered when evaluating whether it is a Qualified Bank. In the example above, the subsidiary would not be considered as a Qualifying Bank if it had to rely on its US parent bank's credit rating. If, however, the US bank had a branch in Hong Kong which had a full banking licence, then a Letter of Credit issued by that branch would be treated as one issued by a Qualifying Bank.

Question 67

Which banks are "Qualifying Banks" for the purposes of the Notice?

Response

Please refer to the definition in the Notice. The list below consists of institutions which, as at 11th September 2001, to the Authority's knowledge, hold a full banking licence under the Banking Ordinance and whose long term debt rating is, or is higher than at least one of Moody's A2, Standard & Poor's A, Duff & Phelps A or Fitch-IBCA's A. This list is not exhaustive, may change from time to time and may not include all banks which are Qualifying Banks for the purpose of the Notice. It remains the responsibility of Bidders to check whether any bank is a Qualifying Bank within the definition in the Notice.

Name of Bank

Place of incorporation

ABBEY NATIONAL TREASURY SERVICES PLC UNITED KINGDOM

ABN AMRO BANK N.V. NETHERLANDS

AMERICAN EXPRESS BANK LIMITED UNITED STATES

AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED AUSTRALIA

BADEN-WURTTEMBERGISCHE BANK AKTIENGESELLSCHAFT GERMANY

BANCA DI ROMA S.P.A. ITALY

BANCA MONTE DEI PASCHI DI SIENA S.P.A. ITALY

BANCA NAZIONALE DEL LAVORO S.P.A. ITALY

BANCO BILBAO VIZCAYA ARGENTARIA S.A SPAIN

BANCO DI NAPOLI S.P.A. ITALY

BANK AUSTRIA AKTIENGESELLSCHAFT (FORMERLY KNOWN AS SPARKASSE STOCKERAU AKTIENGESELLSCHAFT) AUSTRIA

BANK BRUSSELS LAMBERT S.A. BELGIUM

BANK OF AMERICA, NATIONAL ASSOCIATION UNITED STATES

BANK OF MONTREAL CANADA

BANK OF NEW YORK (THE) UNITED STATES

BANK OF NOVA SCOTIA (THE) CANADA

BANK OF SCOTLAND UNITED KINGDOM

BANK OF TAIWAN TAIWAN

BANK OF TOKYO-MITSUBISHI, LTD.(THE) JAPAN

BANK ONE, NATIONAL ASSOCIATION UNITED STATES

BARCLAYS BANK PLC UNITED KINGDOM

BAYERISCHE HYPO-UND VEREINSBANK AKTIENGESELLSCHAFT GERMANY

BAYERISCHE LANDESBANK GIROZENTRALE GERMANY

BNP PARIBAS FRANCE

CANADIAN IMPERIAL BANK OF COMMERCE CANADA

CHASE MANHATTAN BANK (THE) UNITED STATES

CHEKIANG FIRST BANK LTD. HONG KONG

CHUGOKU BANK, LTD. (THE) JAPAN

CITIBANK, N.A. UNITED STATES

COMMERZBANK AG GERMANY

COMMONWEALTH BANK OF AUSTRALIA AUSTRALIA

COOPERATIEVE CENTRALE RAIFFEISEN - BOERENLEENBANK B.A. also called RABOBANK NEDERLAND NETHERLANDS

CREDIT AGRICOLE INDOSUEZ FRANCE

CREDIT LYONNAIS FRANCE

CREDIT SUISSE SWITZERLAND

DAI-ICHI KANGYO BANK LIMITED (THE) JAPAN

DAO HENG BANK LIMITED HONG KONG

DEUTSCHE BANK AKTIENGESELLSCHAFT GERMANY

DEVELOPMENT BANK OF SINGAPORE LTD. (THE) SINGAPORE

DG BANK - DEUTSCHE GENOSSENSCHAFTSBANK AKTIENGESELLSCHAFT GERMANY

DRESDNER BANK AG GERMANY

ERSTE BANK DER OSTERREICHISCHEN SPARKASSEN AG AUSTRIA

FLEET NATIONAL BANK UNITED STATES

FORTIS BANK BELGIUM

FUJI BANK LIMITED (THE) JAPAN

HACHIJUNI BANK, LTD. (THE) JAPAN

HAMBURGISCHE LANDESBANK GIROZENTRALE GERMANY

HANG SENG BANK LTD. HONG KONG

HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED (THE) HONG KONG

HSBC BANK PLC UNITED KINGDOM

HSBC BANK USA UNITED STATES

HSBC REPUBLIC BANK (SUISSE) S.A. SWITZERLAND

INDUSTRIAL BANK OF JAPAN, LIMITED (THE) JAPAN

ING BANK N.V. NETHERLANDS

KBC BANK N.V. BELGIUM

MITSUBISHI TRUST AND BANKING CORPORATION (THE) JAPAN

MORGAN GUARANTY TRUST COMPANY OF NEW YORK UNITED STATES

NATEXIS BANQUES POPULAIRES FRANCE

NATIONAL AUSTRALIA BANK, LIMITED AUSTRALIA

NATIONAL BANK OF CANADA CANADA

NATIONAL WESTMINSTER BANK PLC UNITED KINGDOM

OVERSEA-CHINESE BANKING CORPORATION LTD. SINGAPORE

OVERSEAS UNION BANK LTD SINGAPORE

ROYAL BANK OF SCOTLAND PLC UNITED KINGDOM

SANPAOLO IMI S.P.A. ITALY

SANWA BANK, LIMITED (THE) JAPAN

SHINKIN CENTRAL BANK JAPAN

SHIZUOKA BANK, LTD. (THE) JAPAN

SKANDINAVISKA ENSKILDA BANKEN AB (PUBL) SWEDEN

SOCIETE GENERALE FRANCE

STANDARD CHARTERED BANK UNITED KINGDOM

STATE STREET BANK AND TRUST COMPANY UNITED STATES

SUMITOMO MITSUI BANKING CORPORATION JAPAN

SVENSKA HANDELSBANKEN AB (PUBL) SWEDEN

TOKAI BANK, LTD. (THE) JAPAN

TORONTO-DOMINION BANK CANADA

UBS AG SWITZERLAND

UNICREDITO ITALIANO SOCIETA' PER AZIONI ITALY

UNITED OVERSEAS BANK LTD. SINGAPORE

WELLS FARGO BANK, NATIONAL ASSOCIATION UNITED STATES

WESTDEUTSCHE LANDESBANK GIROZENTRALE GERMANY

WESTPAC BANKING CORPORATION AUSTRALIA

YAMAGUCHI BANK, LTD. (THE) JAPAN