Press Release
OFTA Concluded Investigation into Complaints on the Provision of Telecommunications Services at Banyan Garden Estate

The Office of the Telecommunications Authority today (11 August 2004) published its investigation report on complaints concerning the provision of telecommunications services at Banyan Garden Estate.

In October 2003, OFTA began receiving complaints concerning the supply of broadband Internet access and basic telephone services within Banyan Garden estate located in Cheung Sha Wan. Some residents in the estate complained that the management company had bundled into the monthly management fee, the charges for the telecommunications services supplied by operators selected by the management company. Because they are required to pay the same level of management fee irrespective of whether they use the services of the selected operators, they claimed choice of telecommunications services from other suppliers was restricted. Some operators in the market also complained that they were disadvantaged because of the arrangement between the management company and the selected operators.

Developed by the Cheung Kong Group of companies, the property is managed by Citybase, a wholly owned subsidiary of Cheung Kong (Holdings) Limited (CKH). In September 2003, Citybase entered supply agreements with Hutchison Multimedia Services Ltd (Hutchison Multimedia), Hutchison Global Communications Limited (HGCL) and PowerCom Network Hong Kong Limited (PowerCom) for the provision of the above telecommunications services. Citybase is an associated person of the three operators under the Telecommunications Ordinance.

OFTA's investigation was focused on whether any of the operators had breached section 7K of the Telecommunications Ordinance by receiving an unfair advantage from their associated entity, who had appointed them as the telecommunications service providers at Banyan Garden estate.

"After months-long in-depth investigation, the Telecommunications Authority (TA) determined that the above operators did receive advantages from "associated persons" as a result of the procurement and tendering procedure of the management company associated with the operators. The effect of this was arguably to place the competitors of the operators at a significant disadvantage," a spokesperson from OFTA said.

"However, the TA has concluded that the advantages gained could not be considered "unfair" within the meaning under section 7K(3)(c) of the Telecommunications Ordinance because no evidence could be found, during the investigation, that Hutchison Multimedia, HGCL or PowerCom had sought the advantages in question or were aware that they were unfair when they were received. Therefore the conduct complained of does not constitute a breach of the provision," the spokesperson continued to say.

Under section 7K(3)(c), telecommunications licensees are prohibited from giving undue preference to, or receiving an unfair advantage from, an associated person if, in the opinion of the TA, a competitor could be placed at a significant disadvantage, or competition would be prevented or substantially restricted.

"Although the conferment of the advantages enjoyed by the Hutchison group businesses in this case had arguably placed other operators at a significant disadvantage, any regulatory action in this particular case should, in the TA's opinion, be targeting the person conferring the advantages rather than the telecommunications operators involved. However, the TA has no jurisdiction under the Telecommunications Ordinance over the conduct of non-telecommunications licensees," the spokesperson explained.

"The procurement and tendering procedure of the management company, being a non-telecommunications licensee, is not a matter that can be addressed under the Telecommunications Ordinance. Telecommunications licensees have, however, special obligations under section 7K(3)(c) of not receiving unfair advantage from associated entities so as to put their competitors at a significant disadvantage. There would not be a breach of this provision if the award of contract by an associated person were through a competitive process."

"Until now it was probably normal practice that operators do not check with the associated management companies whether they were being advantaged in a procurement procedure. In future, however, the TA considers that a telecommunications licensee should notify persons associated with them of the legal obligations that apply to telecommunications businesses under section 7K(3)(c). Active or passive coordination between an operator and an associated developer or management company leading to an advantage being conferred on the operator in the supply of telecommunications services to an estate could be a breach of section 7K(3)(c)," the spokesperson added.

"Bundling of telecommunications services with management services has to be compliant with section 19B of the Telecommunications Ordinance which voids any contractual terms that unreasonably restricts the right of residents to have access to the telecommunications services of their own choice. Whether the bundling would unreasonably restrict the choice depends on a number of factors, for example, whether the purchaser of the property knew or ought reasonably to have known of the bundling arrangement prior to contracting for the purchase. The TA has concluded that he has no legal standing to pursue these issues under section 19B of the Telecommunications Ordinance. Legal action could only be sought by those affected residents under this provision," the spokesperson said.

"During the course of investigation, OFTA held extensive discussions with HGCL and Citybase. A number of measures were proposed by Citybase to rectify the situation, including practical actions to encourage the prospects of greater competition and freedom of choice in relation to the provision of telecommunications services. While it does not have the legal power to give refunds directly to those residents who choose to "opt out" of the services in question, Citybase has agreed to contribute funds into the Banyan Garden management fund on a goodwill basis. The Estate Owners Committee or Incorporate Owners of Banyan Garden, when formed, can decide on the manner of utilising this contribution," the spokesperson supplemented.

The full investigation report can be downloaded from OFTA's web site at www.ofta.gov.hk.

Background

Sections 7K, 7L and 7N of the Telecommunications Ordinance prohibit various forms of anti-competitive conduct by telecommunications licensees. These prohibitions do not extend to the conduct of non-licensees.

Under section 7K(3)(c), licensees are prohibited from giving undue preference to, or receiving an unfair advantage from, an associated person if, in the opinion of the TA, a competitor could be placed at a significant disadvantage, or competition would be prevented or substantially restricted. The precise terms of this prohibition, as far as relevant to the present investigation, are as follows:

By virtue of section 19B of the Ordinance, any lease agreement, deed of mutual covenant or commercial contract that, in all the circumstances of the case, unreasonably restricts the right of a resident or occupier, or deprives a resident or occupier of the right, to have access to the public telecommunications services of his choice could be void on and after the day on which this section comes into operation. This provision is enforceable by persons affected by the relevant restriction, but not by the Telecommunications Authority.

Section 19B states:

11 August 2004
Office of the Telecommunications Authority