OFTA, Office of the Telecommunications Authority, Hong Kong

THE INTERPRETATION OF THE EXCLUSIVITIES OF HONG KONG TELECOM INTERNATIONAL LIMITED

Statement by Telecommunications Authority (TA), Hong Kong

INTRODUCTION
On 1 October 1981, the Governor in Council granted a licence to Cable and Wireless (Hong Kong) Limited (now renamed Hong Kong Telecom International Limited ("HKTI")) under the Telecommunication Ordinance to provide certain external¹ circuits and to carry on certain external services. That licence is valid until 30 September 2006. Under that licence, HKTI has the exclusive right to provide the circuits and to carry on the services specified in the First Schedule to the licence (a copy of the First Schedule is given in Annex 1). Additionally, HKTI may carry on the services specified in the Second Schedule of its licence. Services in the Second Schedule are open to competitive supply. Those services include public telecommunications services approved by the Authority which are not included in the First Schedule and not covered by any other exclusive licence, right or franchise. Within that category, services such as International Value Added Network Services ("IVANS") have been approved by the Authority. A copy of the Second Schedule is given in Annex 2.
2. From time to time, the Telecommunications Authority ("TA") receives applications for licences, or expression of interest, to operate certain external circuits or services in Hong Kong. The TA has to take a decision on whether he is able to license such circuits or services without infringing the exclusivities of HKTI. This will involve the interpretation of the scope of HKTI's exclusivities. As the exclusivities of HKTI have not been specified in the most precise language possible and considerable technological change has taken place in the industry, the process of interpretation has been time-consuming and has created considerable uncertainties in the development of Hong Kong's international services sector. Where the TA considers services are open to competitive supply he may approve the competitive supply of these services, as has been done recently with managed data network services and voice value added services. On occasion the TA may issue specific Statements, for example, on call-back services.²
3. The purpose of this Statement is to provide a more complete and definitive interpretation of HKTI's exclusivities. It will form a point of reference for the TA's future decisions on whether the provision of external circuits or services proposed to him by parties other than HKTI may be licensed, or recommended for exemption from licensing, without infringement of HKTI's exclusivities.
4. Despite its ability by virtue of section 34(4) of the Telecommunication Ordinance to terminate the HKTI licence if "the public interest so requires", the Hong Kong Government has on numerous occasions re-affirmed its commitment to honouring the HKTI licence until its expiry in 2006. However, this does not mean that the HKTI licence will be automatically expanded in concert with technological and market developments. On the contrary, as a matter of policy the Hong Kong Government has decided that the HKTI licence will not be expanded but is to be interpreted as it stands and in accordance with the present terms of the First Schedule. This dual policy position of honouring the licence but within its existing terms puts added importance on a clear delineation of the true extent of HKTI's exclusivities. Inescapably, setting the boundaries of HKTI's exclusivities ultimately comes down to a matter of law.

NATURE OF THE HKTI LICENCE
5. The grant of the HKTI licence by the Governor in Council was made pursuant to sections 7 and 34 of the Telecommunication Ordinance (Chapter 106). The licence is a grant of permission to establish and maintain means of telecommunication without which any such undertaking would be illegal. The Hong Kong Government, having reviewed the terms of the Ordinance and the terms of the licence, is of the view that the licence is no more than the grant of a permission to trade in the exercise of statutory powers conferred in the public interest. Furthermore, since the primary purpose was to grant a permission, it would be wrong to infer that it was intended to create a flexible monopoly to be enlarged in the light of developing technology which was unforeseen at the time the permission was granted.

THE TA's ROLE
6. In the interpretation of the exclusivities of HKTI, the TA must remain in a neutral position, taking an independent view of the extent of that monopoly. The TA's regulatory responsibilities impose the duty of standing above the contest between HKTI and those circuit or service providers who wish to engage in licensable activities in Hong Kong. If a telecommunications activity is licensable under the laws of Hong Kong, in particular the Telecommunication Ordinance, the TA must decide if it infringes the HKTI monopoly prior to issuing a licence.
7. But in taking that decision, the TA must be fair to both sides. It is no part of his duties to extend HKTI's exclusivities or reinforce such exclusivities by amendment. There is no presumption in favour of exclusive rights. On the contrary, the prima facie position is that anyone may participate in the telecommunications industry, if licensed to do so. But the TA will not issue licences where he forms an opinion such a licence would infringe HKTI's licence once properly construed.

CONSTRUCTION OF THE LICENCE
8. In order properly to construe the HKTI licence, it is important to focus upon two features:

the nature of HKTI's function as a provider of certain external circuits and services (external carrier); and

the history of the development of HKTI's exclusivities.

HKTI's Role
9. An analysis of HKTI's role as an external carrier requires a consideration of its functions in relation to the local network (the Public Switched Telephone Network ("PSTN") in Hong Kong). HKTI is an intermediate carrier, taking part in a long chain of telecommunications which starts at a customer's premises in Hong Kong and ends at another destination outside Hong Kong. Many operators participate in the processes necessary to pass messages and signals down that chain of telecommunications, wherever the process starts, whether overseas or locally. Their participation does not alter the part played by HKTI in the process. To define HKTI's role it is important to emphasize the nature of the local network and the functions of those who participate in that local network.
10. There are many methods of access to the chain of communication. The chain involves a complex series of interconnections. HKTI's obligation is to ensure connection with the local network, specifically that of the Hong Kong Telephone Company Limited ("HKTC") which had separate telephonic exclusive rights until 30 June 1995 by virtue of the Telephone Ordinance and the mobile carriers separately licensed under the Telecommunication Ordinance. Upon issue of licences under the Telecommunication Ordinance to new Fixed Telecommunication Network Services (FTNS) operators, they too form part of the local network. By virtue of its licence, HKTI is required to provide connection with the local network in accordance with conditions specified in the licence.
11. HKTI has no functions and no rights on the local side of the points of interconnection for telephony. HKTI's functions and rights as an external carrier only start at the point of interconnection between the local network and the international gateway. HKTI does not participate in and has no exclusive rights over any part of the local telephone network. A similar situation exists on the other side of the circuit where HKTI must hand-off a call to other carriers which provide the relevant telecommunications services in that regime. Therefore, for telephony, HKTI's domain lies between the interconnection point with the local network in Hong Kong and the interconnection points (notionally half-way along the international circuits) with its correspondent international carriers. This contrasts with the provision of internal public telegram service and the internal public telex service as specifically listed in the First Schedule (items (c) and (d)) of the HKTI licence.
12. It is also important to note that HKTI has no right to dictate which direction it carries the signals and messages beyond the international gateway; it must carry them as presented - either to the Hong Kong gateway or from that gateway.

History of HKTI's Exclusivities
13. HKTI and its predecessor (Cable and Wireless) have been issued a series of licences over a period stretching back before the Second World War. More recently a licence was issued in 1963 and the current licence was issued in 1981.
14. The development of the First Schedule to HKTI's licence shows a deliberate policy of successive Hong Kong Government administrations that only particular circuits and services be exclusive to HKTI. It is undeniable that the list of circuits and services has grown over time in concert with development of technologies and the increased breadth of services enabled by new technologies. But HKTI's exclusivities as an external carrier were never all embracing. While the First Schedule extended exclusivities over a period of time, attempts to achieve a complete monopoly were resisted and did not succeed. Moreover nothing granted to HKTI trenched upon the local public switched telephone network (the local PSTN) in Hong Kong.
15. As a matter of policy, the Hong Kong Government has maintained its position that HKTI does not have an all-encompassing monopoly. This point was made by the Secretary for Economic Services in a speech to the Legislative Council on 3 June 1992 where it was reaffirmed in the following terms:

"Further liberalization in international services is of course constrained by the terms of Hong Kong Telecom International's licence which does not expire until 2006. There is, however, in our view, still some room for further liberalization in international services without infringing the exclusive rights granted under that licence."

16. The Government's Position Paper on Hong Kong's Telecommunication Policy of January 1994 also recognized the scope for liberalization of services outside HKTI's exclusivities and the TA's responsibilities to "balance his obligation to protect HKTI's exclusivity with his responsibility to promote competition in services which lie outside that exclusivity".

Strict Construction of the Licence
17. The TA in exercising his duties must take a view on how strictly he construes the HKTI licence. In some cases the courts have been prepared to construe words in accordance with their up-to-date meaning. However, the wording of the licence ought to be construed in the light of technology at the time and that which was foreseen at the time. The reason for incorporating new inventions into a statute is because the courts have taken the view that the legislature must have intended new technology to be covered in order to achieve the objectives of the statute. No such intention can be inferred in the 1981 licence. By 1981 the Hong Kong Government wished to confine HKTI's exclusive permission and to put the extent of HKTI's monopoly beyond dispute. The particular formulation and structure of the First and Second Schedules of the HKTI licence confirms this intention. The TA, therefore, considers that the licence ought to be construed strictly. After all its primary purpose is not to grant monopoly or to protect it, but rather to grant permission to permit provision of circuits and services which would otherwise be forbidden under the Telecommunication Ordinance.

GENERAL INTERPRETATION OF
THE EXCLUSIVITIES UNDER
THE FIRST SCHEDULE OF HKTI's LICENCE
18. An analysis of the First Schedule needs to commence with the consideration of its overall structure. A distinction must be drawn between circuits and services. Items (a), (b), (f), (g), (l) and (m) refer to the provision of circuits. Items (c), (d), (e), (j) and (k) refer merely to the provision of services by means of circuits. The TA takes the view that items (c) to (m) listed in the First Schedule of the HKTI licence do have independent meaning. They are not illustrative of services which can be provided under items (a) and (b). Matters referred to in items (c) to (m) are distinguishable from each other and distinguishable from that which is referred to in items (a) and (b).
19. The Telecommunication Ordinance and the licence do not sufficiently distinguish between "circuits" and "services". Section 34 of the Telecommunication Ordinance refers to "an exclusive right to maintain any service". The main body of the licence distinguishes between "circuits" and "services", but Clause 7 refers only to "services" as do Clauses 9 and 10. Clause 4 refers to "services", although part of the Schedule refers to "circuits". The First Schedule is headed "Exclusive Services". Not much can be deduced from such loose use of language. In one sense, the operation and maintenance of a "circuit" is a "service" and it is in that sense the word "service" is used in those provisions where it is not distinguished from "services" such as in item (f).

Items (a) and (b)

20. (a) Circuits by radio for the provision of external public telecommunications services.

(b) The operation of circuits by submarine cable for the provision of external public telecommunications services.

These two items cover the provision of circuits for the provision of external public telecommunications services.
21. Circuit for the Provision of External Public Telecommunications Services. There are two concepts which are key to the interpretation of items (a) and (b). First an external public telecommunications service must be involved and second the circuit must be for the provision of such an external public telecommunications service.
22. The Telecommunication Ordinance defines a "telecommunication service" as follows:

"the provision of facilities for use by members of the public or by any person for the transmission or reception of messages or the provision on loan, lease or hire to members of the public or to any person of apparatus for telecommunication either within Hong Kong or with any place outside Hong Kong."

This definition is intended to cover all forms of "telecommunication service", including services which are "public telecommunication services" and services which are not. There is no definition of "public telecommunications service" or "external public telecommunications service" in either the Telecommunication Ordinance or the HKTI licence.
23. For the purposes of interpreting the HKTI licence it is not possible to define "public" in the abstract. The word "public" must be defined in its context having regard to the purpose of the statutory or licensing schemes. Attention has been drawn to HKTI's historical functions as an international carrier in contrast to the functions of the running of the local network, and to the development of HKTI's monopoly. Analysis of these two features reveals that the determination of the extent of monopoly should not be centred upon isolated examination of the meaning of the word "public" but rather upon its meaning in the context of HKTI's historical function and the development of its monopoly.
24. Furthermore it is not possible to interpret "public" by drawing a contrast to a concept of "private" circuits which were defined for the purposes of the item (l) amendment of 16 July 1985. This is demonstrated by reference to a "dedicated" circuit. In the case of a dedicated circuit it is important to stress that a contrast between public and private services leaves no room for the concept of a dedicated circuit which is a circuit not used for the provision of external public telecommunications services and equally which is a circuit which does not fall within the definition set out in the amendment of 16 July 1985. Thus this type of dedicated circuit must be a circuit which is not public nor would it be operated by an organization or company for the specific purposes of providing communication solely within the organisation or company.
25. At the time of the origin of the expressions used in the First Schedule, that Schedule did not envisage the sort of problems which now arise from use of non-public circuits which fell outside the definition in item (l). The fact that this was not envisaged at the time is no warrant for extending the monopoly now. If a circuit is provided for a particular organisation or company it is not provided for the public. If there is break-out at the overseas end, this will still be for the purposes of the organisation or company and not for the purposes of external public telecommunications services. This conclusion turns not so much on the meaning of the word "public" but rather upon the fact that the First Schedule of the licence contains no prohibition on the provision of a dedicated circuit or circuit service other than for the provision of external public telecommunications services.
26. Turning to the second issue, that is, the provision of external public telecommunications services, under the Telecommunication (Cable and Wireless (Hong Kong) Limited)(Exemption from Licensing) Order a customer of HKTI is exempted from licensing so long as the customer's apparatus (not being a radiocommunication apparatus) is not used by him for the purpose of providing a service to the public by means of telecommunication. A telex terminal connected to HKTI's external public telex service may be used to communicate with unrelated parties, but that customer has never been regarded as providing a public telecommunication service, otherwise that customer would never have been exempted from licensing.
27. Similarly under the Telecommunication (Public Radiocommunication Service Customers)(Exemption from Licensing) Order 1990, a customer to a public radiocommunication service licensed under the Telecommunication Ordinance is exempted from licensing so long as the customer's apparatus is not used by him for the purpose of providing a service to the public by means of radiocommunication. A customer using a portable cellular phone may use that phone to communicate with unrelated parties, but that customer has never been regarded as providing a public telecommunication service, otherwise that customer would never have been exempted from licensing.
28. Under the Telephone Ordinance, until 30 June 1995, Hong Kong Telephone Company Limited ("HKTC") had the sole right to supply and operate public telephonic communication within Hong Kong. The operator of a private automatic branch exchange (PABX) has never been regarded as the provider of public telephonic communication even though the PABX may be originating calls to, or terminating calls from, other customers of the local PSTN. Staff of banks, credit card companies, Jockey Club, etc. regularly use the PABX to communicate with members of the general public. It would be absurd to say that they had infringed the previous exclusive franchise of HKTC in the provision of public telephonic communication. This demonstrates that the mere fact of provision of equipment for the purpose of enabling the equipment provider to communicate with unrelated parties is not the provision of a public telecommunication service. The provider is simply providing the equipment for its own use.
29. As stated in the paragraphs 48 - 50 on items (h) and (i), the operation of ship stations, ship earth stations, aircraft stations and aircraft earth stations is never within the exclusivities of HKTI. These stations establish external circuits by radio which may be connected to unrelated parties at the other end. If such circuits were for the provision of external public telecommunication services, the use of such radio stations on ships and aircraft would not be permitted within Hong Kong territory.
30. The four examples based on actual and accepted practice in the industry given in paragraphs 26 to 29 put it beyond doubt that not every external circuit carrying communications between unrelated parties is a circuit for the provision of external public telecommunication services.
31. To determine whether or not a proposed service involves a breach of item (a) or (b), it is necessary to consider whether the provider of the circuit is offering that circuit to transmit or receive the messages of others.
32. The TA therefore concludes that an external circuit provided by a party to transmit or receive only its own messages is not an external circuit for the provision of public telecommunication services even though the circuit is used to communicate with unrelated parties at the far end.
33. Distinction between Circuits and the Services Provided over the Circuits. It is clear that the provision of a service with sufficient attributes which distinguish it from the mere provision of a circuit is not the same as the provision of a circuit and does not breach item (a) or item (b). Had it not been so, it would not have been possible for the TA to license the International Value Added Network Services ("IVANS") over the past years. An IVANS provider leases international private leased circuits ("IPLCs") (circuits supplied by HKTI under items (a), (b), (f), (g) and (m)) and operates services by providing additional functions (or "added value") on top of the mere provision of circuits. The functions that are sufficient for a service to be classified as an IVANS are detailed in Annexes 4 and 5 of the "Guidelines for the Application for Telecommunication Licences to Operate Public Telecommunication Services in Hong Kong", Issue No. 9 , March 1995. The functions specified in these two Annexes convert the circuits supplied by HKTI into a service which is sufficiently different from and outside the scope of the items in the First Schedule concerning the mere provision of circuits. HKTI has also accepted this by supplying the IPLCs to the IVANS service providers licensed by the TA.
34. It is also important to note that the provision of an IVANS is not an aspect of the provision the external public circuits within the meaning of items (a), (b), (f), (g) or (m). It is simply not within these items.

Items (c) and (d)

35. (c) External and internal Public Telegram Service.

(d) External and internal Public Telex Service.

These two items cover the external and internal public telegram and telex services. There have been no uncertainties over the scope of these two items and it is therefore not necessary to deal with the interpretation of these two items in this Statement. In any case telegram and telex services are on the wane. They are being supplanted by other services, for example, facsimile and e-mail, and the TA does not receive inquiries for competitive supply of telex and telegram services.
36. However it is instructive to note that items (c) and (d) allow HKTI to provide telegram and telex services within Hong Kong. This is in stark contrast to the other items, particularly telephony, where HKTI does not, and cannot have, rights within Hong Kong.

Item (e)

37. (e) External public telephone services to subscribers to the Public Switched Telephone Network by radio, submarine cable and such overland cables as are authorised.

The construction of item (e) is significant in understanding the scope of HKTI's monopoly. It is item (e) which, among other things, reserves to HKTI the carriage of international direct dial ("IDD") traffic between its gateway and destinations overseas. Item (e), therefore, represents the core of the HKTI licence and its most valuable exclusivity.
38. Telephone Service Only. This item covers telephone services only. Recommendations of the International Telecommunication Union define "telephony" as follows:

"The "telephony service" provides users with the ability for real-time two way speech conversation via the network."³

Thus item (e) does not cover any data service. In particular it does not cover any "data on voice" service where data is carried by an audible tone modulated by data. Even though the tone is audible, the use of that tone is just a technology to carry data. That tone is not for telephony. Under the First Schedule to the HKTI licence, the carriage of non-speech signals, for example data, text and images, do not fall under item (e).
39. Service to Subscribers to Public Switched Telephone Network. The exclusivity only covers services to subscribers to the Public Switched Telephone Network. Thus an external public telephone service not to subscribers of the public switched telephone network is not within the scope of item (e).
40. The inclusion of the reference to subscribers to the PSTN emphasises that the PSTN is outside the external network and is, as it always has been, part of the local network and until 30 June 1995, the exclusive province of HKTC for fixed telephony. HKTI has never had rights over the PSTN. The telephony services which HKTI has the exclusivity to provide are to those consumers using the PSTN. Item (e) does not in any way alter rights over the operation of the PSTN. This proposition is reinforced by Clause 9 and Clause 6(4) of the licence. Clause 9 requires HKTI to connect the external telephone service and other telecommunications switched services to the Hong Kong public switched telephone system. The distinction between HKTI's domain as an international carrier and the local network is also demonstrated by Clause 6(4) which recognises HKTC as the local carrier.
41. Public Switched Telephone Network. The licence does not contain a definition for "public switched telephone network", but it does contain a definition for the "public switched telephone system" which means

"the system for providing public switched telephone facilities and other switched non-telephonic services as may be authorized within Hong Kong"

42. The scope of the "public switched telephone system" under the HKTI licence is potentially wider than "public switched telephone network" and would have included public switched networks for non-telephonic services such as facsimile and data had such networks been licensed. Clause 9 of the HKTI licence requires interconnection between HKTI's services and the "public switched telephone system". Therefore there is no doubt that the "public switched telephone network" is part of the "public switched telephone system" in the licence, otherwise the intention of allowing subscribers to the public switched telephone network to have access to the external services of HKTI would not be realized.
43. In the absence of a definition within the HKTI licence, the ordinary and natural meaning of "public switched telephone network" may also be relied on. The term "public switched telephone network" is a well understood term in the telecommunication industry. The network must be for "public" use, and this means that communication within a corporate group or an organization is not a public network. Additionally the network must be "switched". A network consisting of non-switched dedicated connections is not a switched network. The network must be for "telephony". A network for facsimile or data transmission is not a telephone network. The medium of transmission, by radio or by wire, is immaterial in the context of the "public switched telephone network" in item (e). Based on these attributes, the TA is of the view that the public switched telephone network in Hong Kong is now comprised of the existing public switched telephone network of HKTC, the new public switched telephone networks of the new fixed telecommunication network services ("FTNS") licensees and the public mobile radiotelephone systems of the cellular telephone operators. In future the networks of the personal communications service ("PCS") will also form part of the PSTN in Hong Kong.
44. "Public Switched Telephone Network" Outside Hong Kong. The TA is of the opinion that the PSTN referred to in item (e) is the PSTN in Hong Kong. It could be argued that the PSTN in item (e) may include the network outside Hong Kong at the other end of an external circuit and the "subscriber to the public switched telephone network" would then include the party located at the distant end. On this construction it could be claimed that item (e) would include a wider range of external public telephone services as it would capture private networks in Hong Kong connected by IPLCs to places outside Hong Kong and interconnected to the PSTN outside Hong Kong. The TA cannot accept this construction. It leads to a nonsensical conclusion. Since "external" means communication with places outside Hong Kong, if such an interpretation were applied, the service under item (e) would cover a public telephone service for communication with places outside Hong Kong provided to subscribers of the PSTN outside Hong Kong. Clearly this interpretation does not make sense because if the service were provided to someone outside Hong Kong, it must be for communication with Hong Kong, rather than communication with places outside Hong Kong. Therefore an external public telephone service under item (e) can only be provided to subscribers to the PSTN within Hong Kong. In addition there is always a presumption against extra-territorial application of legislation in the absence of a clear indication to the contrary. The TA concludes the "public switched telephone network" under item (e) can only be the network in Hong Kong.

Items (f) and (g)

45. (f) External dedicated and leased telephone circuit services by radio, submarine cable and such overland cables as are authorised.

(g) External dedicated and leased circuits for -

telegraph
data
facsimile

These items cover "dedicated" circuits that are leased to customers. "Dedicated" circuits are circuits dedicated to communication between designated points. The word "dedicated" is used in contrast with the word "switched". "Dedicated" circuits and "switched" circuits constitute an exhaustive list of two possible categories of circuits for telecommunications.
46. Although "dedicated" and "leased" are distinct concepts, in order to give effect to the exception in item (l), they must be used conjunctively. If it were not so, then private circuits which are dedicated in the sense that they are non-switched could never be permitted because of items (f) and (g), and the possibility of the Governor in Council making exceptions under item (l) would conflict with the absolute exclusivity for "dedicated" circuits under items (f) and (g).
47. Therefore items (f) and (g) only capture circuits that are both dedicated and leased. Self-provided circuits are not leased circuits therefore they fall outside of items (f) and (g).

Item (h)

48. (h) Hong Kong coast stations and coast earth stations of the Maritime Mobile Service and Maritime Mobile-Satellite Service.

The exclusivities of HKTI covers the "coast stations" and "coast earth stations" of the "maritime mobile service" and the "maritime mobile-satellite service". These four terms are defined in the Radio Regulations (annexed to the Convention and Constitution of the International Telecommunication Union). "Coast stations" and "coast earth stations" clearly do not include the "ship station" and "ship earth station" on ships. The operation of "ship station" or "ship earth station" on a ship within Hong Kong waters is always permitted without infringement of HKTI's exclusivities.
49. This item also does not cover a "land mobile-satellite service" (a term also defined in the Radio Regulations) even though it may be operated by the International Maritime Satellite Organization.

Item (i)

50. (i) Hong Kong Aeronautical Stations of the Aeronautical Mobile Service and Aeronautical Mobile-Satellite Service for radiocommunications services between aircraft operating agencies and their aircraft in flight.

The exclusivities cover "aeronautical stations" of the "aeronautical mobile service" and the "aeronautical mobile-satellite service" for radiocommunications services between aircraft operating agencies and their aircraft in flight. The reference to "aeronautical stations" of an "aeronautical mobile-satellite service" was probably loose drafting, because under the Radio Regulations, the proper term should be an "aeronautical earth station". Item (i) should have referred to Hong Kong aeronautical stations and aeronautical earth stations of the Aeronautical Mobile Service and Aeronautical Mobile-Satellite Service respectively. The operation of these stations on ground in Hong Kong are within HKTI's exclusivities. However, HKTI's exclusivities clearly do not cover the operation, within the territory of Hong Kong, of aircraft stations and aircraft earth stations which are equipment fitted on aircraft.

Item (j)
51. (j) International telecommunications services routed in transit via Hong Kong.
"Transit" is an arrangement agreed between administrations or private operating agencies of countries with no direct interconnecting circuits for the exchange of traffic through a third country (or third countries) in accordance with the International Telecommunication Regulations (ITR) and recommendations of the Standardization Sector of the International Telecommunication Union (ITU-T). Routing through Hong Kong of international telecommunication services for which no "transit" arrangement has been provided for under the ITR or ITU-T recommendations is not within the exclusivities of HKTI. For example, over the past years, the TA has licensed, and HKTI has accepted the operation of, international value added network services (IVANS) many of which have nodes operated in Hong Kong. The nodes may relay traffic between countries or territories outside Hong Kong which is not originating from or destined for Hong Kong. The handling of the traffic through the nodes is not the "transit" referred to in item (j) otherwise such IVANS would not have been permitted.

Item (k)

52. (k) Except to the extent that the Governor in Council may from time to time otherwise in writing direct, external television and voice programme transmission services to and from Hong Kong.

The services under item (k) are limited to programme transmissions, and not simple voice and television transmissions. Although a definition for "programme" is not available in Hong Kong law⁴ , it should be given its ordinary and natural meaning. It should include only materials which are normally expected to be transmitted over radio or television broadcasts. For example, a telephone conversation or video-conferencing, being communications not for broadcast (unless incorporated into a programme), will be outside the scope of item (k).
53. Item (k) contains a mechanism which allows the Governor-in-Council to take these services outside the HKTI monopoly. In fact this exception mechanism has been exercised regularly to allow uplinking and downlinking of satellite television programme transmissions by parties other than HKTI.

Item (l)

54. (l) Except to the extent that the Governor-in-Council may from time to time otherwise in writing direct, external private circuits between fixed points, to and from Hong Kong.

Under item (l), HKTI has the exclusivity to provide external private circuits between fixed points to and from Hong Kong. This item, together with item (m), was added in 1985. Again this demonstrates the Hong Kong Government's policy of deliberately prescribing the HKTI monopoly rather than granting an all-encompassing generic monopoly. In the licence, a "private circuit" definition was added in 1985 to effect the item (l) amendment and it means "a circuit operated by an organization or company for the specific purpose of providing communication (voice or data) solely within the organization or company." Thus a circuit used by a company or an organization for communication with an unrelated company or organization is outside the scope of item (l). It is also outside of items (a) and (b) if not used to provide external public telecommunications services.
55. Item (l) also includes an exception mechanism by allowing the Governor in Council to direct certain private circuits to be outside item (l). Such a direction has been issued as part of the Hong Kong Government's self-provision policy⁵ .

Item (m)
56. (m) External public data circuits for -

circuit-switched data
facsimile and/or document transfer service
packet-switched data

This item covers switched circuits for data as well as switched or dedicated circuits for facsimile and/or document transfer service. There is an implication that the circuits are leased, not circuits established by companies or organizations. This item complements item (g) in that item (g) covers dedicated and leased circuits for data while item (m) covers switched and leased circuits for data.

SPECIFIC SERVICES
57. The foregoing analysis of the items of the First Schedule provides a framework for the TA's consideration of a number of services for which the TA has been asked to express a view whether they fall inside or outside HKTI's exclusivities. The rest of this Statement provides the TA's analysis of a variety of these services.

Call-back Services
58. The TA has already stated in his Statement issued on 30 March 1995 that "call-back" services do not infringe HKTI's exclusivities. His detailed reasoning has also been presented in that Statement. Essentially his reasoning is that "call-back" services merely provide a method of access to the external public telephone services carried on by HKTI under item (e) of the First Schedule to its licence. HKTI's exclusivities have never extended to the access to an external public telephone service. Accordingly, the mere provision of access to an external public telephone service does not infringe HKTI's exclusivities.

Mobile-Satellite Services
59. There are three types of mobile-satellite services, namely, land mobile-satellite service, maritime mobile-satellite service and aeronautical mobile-satellite service.
60. For each of these three types of mobile-satellite services, there is no doubt that the mobile terminals used by customers establish an external circuit by radio to the remote gateway station, coast earth station, or aeronautical earth station, as the case may be, via the satellite(s). However, the user of the mobile terminal is not providing a circuit for the purpose identified in item (a), namely, for the provision of an external public telecommunication service. For the reasons stated in paragraphs 21 - 32 above, if the mobile terminal is used to transmit and receive the messages of the user, and not those of its customers, then the circuit is not a circuit for the provision of external public telecommunication services. Item (a) concerns only the establishment, maintenance and operation of a circuit for public services. The user of a mobile terminal is not providing a circuit for the purpose identified in item (a). On the contrary, he is using that circuit for his own external communications in reliance on the service which is provided to him. The mobile terminal is also not connected to the Public Switched Telephone Network in Hong Kong. Accordingly, the operation of a mobile terminal within Hong Kong will not infringe the exclusivities of HKTI under item (e).
61. A gateway station of a land mobile-satellite service, similar to a coast earth station and an aeronautical earth station for a maritime mobile-satellite service and aeronautical mobile-satellite service respectively, establishes circuits by radio to trunk calls from the satellite back to earth where they are switched into public switched networks. The circuits also allow traffic in the reverse direction, i.e. call originating on public switched networks destined for a mobile-satellite terminal. The circuits carry the traffic of the public rather than that of the operator of the gateway station. Accordingly, the operation of such a gateway station by parties other than HKTI would breach item (a) of the First Schedule and may not be licensed until the expiry of HKTI's exclusivity. However, HKTI's exclusivity does not preclude the collaboration with HKTI in the establishment of the gateway stations in Hong Kong. It also does not necessarily preclude the conduct of marketing or billing activities for land mobile-satellite services in Hong Kong. The TA will be prepared to examine specific proposals on such activities before making specific rulings.
62. A Tracking, Telemetry and Control ("TT&C") earth station establishes circuits by radio to the satellites for the monitoring and control of the satellite. It is a "private circuit" within the scope of item (l). Such a circuit may be excluded from item (l) by a written direction of the Governor in Council on a case-by-case basis, or licensed under the "self-provision" licence for which a general direction under item (l) has been made.
63. To summarise :

use of customer mobile terminals (handsets) does not breach HKTI's exclusivities;

a gateway station, if sited in Hong Kong, does fall under HKTI's exclusivities; and

a TT&C earth station may be established in Hong Kong and falls outside HKTI's exclusivities.

Self-Provision
64. The TA can issue licences which allow a company or an organization to "self-provide" its own external circuits on the condition that the system licensed in Hong Kong is used to transmit and receive the traffic of the licensee only.⁶
65. If the self-provided circuit is used to transmit intra-company or intra-organizational traffic, then the circuit is clearly a "private circuit" under item (l) and to prevent a breach of the HKTI licence, the Governor in Council has made a direction under item (l) to specifically exclude such self-provided "private circuits" from the scope of HKTI's exclusivities.
66. If the self-provided circuit is used to communicate with unrelated parties at the far end, it is not within item (l). For the reasons stated in paragraphs 21 -32 above, the circuit is also not within the scope of items (a) or (b). Accordingly, there will be no breach of HKTI's exclusivities for such a self-provided circuit to be separately licensed.

Resale
67. There are many forms of resale possible in the telecommunications industry. For the purposes of this Statement the following five types of resale will be considered:

re-billing/re-branding
international value added network services ('IVANS")
sub-lease of capacity
simple resale
virtual private network ("VPN") services

68. Re-billing/Re-branding. HKTI's IDD service provided under item (e) may be resold by a number of parties, for example, hotels. In this case the hotel merely uses its switching equipment to connect hotel customers to the PSTN which then connects to the HKTI international gateway. The hotel is not allowed to connect directly to the gateway and must utilize the services of an FTNS operator providing part of the PSTN. The hotel charges the guests for the IDD services and settles the relevant bills from the FTNS operator. This practice is commonplace in Hong Kong now and no breach of the HKTI licence is involved as the hotel would merely be providing a form of access through the PSTN to the services of HKTI provided under item (e).
69. IVANS. IVANS are competitively supplied in Hong Kong and are approved under the Second Schedule of HKTI's licence (specifically, item (a) of the Second Schedule - "public telecommunications services not included in the First Schedule".). IVANS service providers are issued public non-exclusive telecommunications service ("PNETS") licences. IVANS service providers are required to obtain external circuits from HKTI and, thereby, do not breach items (a) and (b) of HKTI's exclusivities.
70. The key criterion for listing an external public telecommunications service on the Second Schedule has been the concept of added value. From time to time the TA adds services to the list of allowable services under the Second Schedule - more recent additions have included managed data network services and voice value added services. The essential proposition is that the provision of a service is not the same as the provision of a circuit. The IVANS provider uses the circuit acquired from HKTI to provide additional service - this does not constitute the provision of a circuit in breach of item (a) nor does it constitute the operation of a submarine cable in breach of item (b). Were it not so it is difficult to see that there would be any room for the operation of item (a) in the Second Schedule. Consequently the TA will continue to make a clear distinction between services and item (a) or (b) circuits when he considers whether to add further IVANS services to the list of services open to competition under item (a) of the Second Schedule.
71. Sub-lease of Capacity. In some jurisdictions overseas, service providers are allowed to acquire circuit capacity from carriers and resell that capacity either in the same form as they acquired it or in different configurations, for example, sub-divided into smaller circuits or specific chunks of capacity. It may be argued that if a service provider acquired circuit capacity from HKTI then no breach of items (a) and (b) of the First Schedule is involved and therefore he may sub-lease that capacity. However the TA takes the view that the service provider would be in real danger of breaching items (f) or (g) if that sub-leased capacity was used for telephone, telegraph, data or facsimile. Furthermore if the circuit was resold for the provision of external public telecommunications services that would breach item (a). Therefore, as a general proposition, the TA will not license service providers that seek to sub-lease capacity.
72. However, sharing of leased circuit capacity should be distinguished from sub-leasing of capacity. In a sharing arrangement, a number of parties could jointly and severally assume responsibility as a customer for the lease of the circuit concerned. Such a sharing arrangement is permitted without breach of HKTI's exclusivities subject to the HKTI's normal terms and conditions for the lease and use of the external leased circuits.

73. Simple Resale. This term is often attached to the practice whereby a service provider acquires a circuit (e.g. under items (a) and (b)) or a leased circuit service (under items (f) and (g)) and then provides, over those circuits, real-time external public telephonic or non-telephonic services which can be accessed through the local switched networks. To date simple resale over external circuits has not been authorised in Hong Kong.
74. For public telephonic services, a service provider engaging in simple resale would be likely to infringe item (e) of the First Schedule if external public telephonic services were provided to "subscribers to the PSTN". Clearly the TA will not license service providers proposing to engage in this form of simple resale.
75. However, simple resale of data and facsimile services would be allowed, even to customers of the PSTN, as there is no item (e) equivalent for data and facsimile. In addition simple resale of video services would be allowed as, other than the limited television and voice programme transmission service mentioned in item (k), video falls outside the First Schedule altogether.
76. Virtual Private Network Services. Virtual private network service is a service to enable the customers (normally corporate customers or multinationals) to set up their private networks for communications between their offices in different countries. In the provision of such a service, the service provider acquires substantial circuit capacity from a carrier (for example, HKTI). The services provided over such circuits cover a wide range, for example, telephony, data, facsimile, video-conferencing. The service provider may also provide a range of non-telecommunication features, for example, customized billing, increased fault tolerance, service guarantees, single currency settlements, etc. The circuits acquired by the service provider are shared on a dynamic basis among the customers - the capacity on the circuits is made available to a particular customer as long as the customer actually uses it, and when the customer is not using it, the capacity is available for use by other customers. The service does not enable communications between customers. To each customer, there is an appearance of being on a physically discrete private network although, in fact, the customer shares the same underlying circuits with others and the service provider manages these circuits to realize economies of scale and scope.
77. Compatibility of the Virtual Private Network Services with the Items Concerning the Provision of Circuits. The provision of virtual private network services to corporate customers using dedicated and leased circuits acquired from HKTI falls outside the scope of items (a), (b), (f), (g) and (m) in the First Schedule. The underlying circuits are used and managed by the service provider, but it is not providing the circuit nor capacity within the circuit. The circuits and capacity are provided by HKTI.
78. Although the circuits may be shared and used among the customers, the service provider provides added value such as centrex functions, switching, network management. Such added value is sufficient to turn the simple provision of circuits into a service which is outside the scope of items (a), (b), (f), (g) or (m). In 1993, managed data network services ("MDNS") (as defined in Annex 5 of the "Guidelines for the Application for Telecommunication Licences to Operate Public Telecommunication Services in Hong Kong", Issue No. 9 , March 1995) were adjudged to be outside the exclusivities of HKTI under, in particular, items (g) and (m). The TA's view is that the functions specified for MDNS convert the circuits supplied by HKTI into a service which is different from and outside the scope of the items concerning the mere provision of circuits in the First Schedule. The provision of such services are distinct from the provision of a circuit.
79. Compatibility of VPN Services with item (e) - VPN Services with PSTN Connection. If the virtual private network is connected to the PSTN, provided that the PSTN customers using the VPN are restricted to the officers or employees of the customer for purposes connected with the business of the customer, the communications over the private virtual network are still private communications and the service provider has not provided a public telephone service. However, the TA recognises that this is very difficult to monitor and control by the regulator, the service provider or even the management of the customer. Thus the TA is of the view that permitting PSTN connection to the virtual private network would generally pose an unacceptable risk of infringement of HKTI's exclusivities. Therefore VPN services connected to the PSTN in Hong Kong will generally not be licensed. The TA may consider granting limited exceptions, for example, where he may be satisfied that conditions can be specified and policed so as to remove the risk of the provision of a public telephone service.
80. Compatibility of the VPN Services with Item (e) - VPN Services without PSTN Connection. If the virtual private network service is not connected to the PSTN, there is no conflict with item (e) of the First Schedule for two reasons.
81. First, the service provider of a virtual private network provides a public service, but this service is not an external public telephone service. The telephone service, if included as part of the virtual private network service, is to enable communications within the corporate group or organization of the customer. Such a service is not a public telephone service. The service provider provides a public service to set up private networks for the customers but this does not breach item (e).
82. Second, as users of the virtual private network are not connected to the PSTN when using the service, the service is not provided to subscribers of the PSTN.

Video-telephony and Video-conferencing
83. The definition adopted by the International Telecommunication Union for "video-telephony" service is as follows⁷ :

"an audiovisual conversational teleservice providing bidirectional symmetric real-time transfer of voice and moving colour pictures between two locations (person-to-person) via the network involved. The minimum requirement is that under normal conditions the picture information transmitted is sufficient for the adequate representation of fluid movements of a person displayed in head and shoulders view."

84. The definition adopted for "video-conferencing" is as follows⁸ :

"an audiovisual conversational teleconference service providing bidirectional real time transfer of voice and moving colour pictures between groups of users in two or more separate locations. The minimum requirement is that under normal conditions the picture information transmitted is sufficient for adequate representation of fluid movements of two or more persons in a typical meeting situation displayed in head and shoulders views. Although the moving picture information is the essential part of the service other types of information, such as high resolution still pictures, text or data may also be exchanged."

85. The essential difference between these two definitions is the number of locations involved and whether other types of information such as text and data is transmitted to supplement the speech and picture information. At present, using the current technology, "video-conferencing" involves more elaborate customer premises equipment and higher quality circuits that can transmit higher data speed, and more information is transmitted together with speech and the picture of the participants of the communications. In due course, "video-conferencing" may also be conducted using simple terminals and carried over ordinary telephone circuits and the distinction between "video-telephony" and "video-conferencing" would become more and more blurred.
86. The issue to be considered is whether the provision of video-telephony or video-conferencing services by service providers over IPLCs leased from HKTI is a breach of HKTI's exclusivities, particularly under item (e). The answer will turn upon whether the service should be described as a telephone service.
87. The TA considers that a judgement needs to be made whether the transmission of the images is ancillary to the transmission of voice or vice versa. At the current state of development of video-telephony technology and in its usual current form of use, the TA is inclined to think that it is the communication of voice messages which is essential. Therefore, if an IVANS includes video-telephony services which enable public communications, there is a real risk of the exclusivity under item (e) being breached because the IVANS provider may then be providing an "external public telephone service". The TA will not license video-telephony services in these circumstances. The TA accepts that it may be contended that the provision of image transmission is different to the transmission of speech and considerably enhances the service. Moreover the HKTI licence makes no specific mention of video-telephony. But the voice transmission is so much at the heart of the service it is difficult to conclude an external public telephone service is not involved.
88. However, in the case of video-conferencing, the TA considers that the voice component is not the predominant element of the communications. There is therefore scope for competitive supply of these services over IPLCs without breach of HKTI's exclusivities in external public telephone services. Examples of such permissible video-conferencing services are as follows:

services for which the role of the service provider is restricted to that of "facilities management" for video-conferencing - i.e. the provision of participants' terminals for video-conferencing and the setting up of the connections, over IPLCs provided by HKTI, between the parties involved in the video-conferencing communications;

services in which the participants are connected to the service providers through leased circuits.

89. If video-telephony or video-conferencing services are provided over private networks for communications within a corporate group or organization, the TA considers that there would be no breach of item (e). Thus the TA considers that video-telephony or video-conferencing services may be provided by a service provider as part of a permitted virtual private network service without breach of HKTI exclusivities.

Voice over Data Networks
90. Recently, software packages have become available which enable voice messages to be carried over data networks for communications between computers (e.g. Internet). Although the voice messages are transmitted in the store-and-forward mode, the delay in the transmission is small enough to enable two-way conversation to be carried on. An issue arises as to whether the conveyance of such voice messages by IVANS service providers (e.g. Internet service providers) over IPLCs is in breach of item (e) of the First Schedule.
91. Many of the customers of the service providers are connected to the IVANS node through a connection over the PSTN. These customers are therefore subscribers to the PSTN. Whether the service provided by the IVANS service provider is an external public telephone service to subscribers to the PSTN depends on the nature of the services offered to the customers. The TA will make a judgement on the nature of the services having regard to all the circumstances, for example, the description of the services and the price schedules. Where the service provider is merely offering a data communication service and is not in a position to screen the voice messages from the data messages to/from the customers, the TA considers that the service provider is not providing an external public telephone service. The TA would take a contrary view if the service provider openly acts as a PSTN gateway.

CONCLUSION
92. This Statement has given the TA's view of the correct interpretation of the exclusivities under HKTI's licence. The TA will use the stated principles and criteria as points of reference for the decisions on questions related to HKTI's exclusivities in considering applications submitted to him in the future for the licensing of competitive supply of external circuits and services.
93. The TA recognises that as technology develops, some of the boundary lines given in this Statement may become blurred. Further review and clarification of the boundary lines would be necessary in due course.

Office of the Telecommunications Authority
23 April 1996

Annex 1 - First Schedule of HKTI's Licence
Annex 2 - Second Schedule of HKTI's Licence

Annex 1

External Telecommunications Circuits and Services exclusive to Hong Kong Telecom International Ltd (HKTI) under a licence granted under Telecommunication Ordinance (Cap. 106)

"The First Schedule"

Circuits by radio for the provision of external public telecommunications services.

The operation of circuits by submarine cable for the provision of external public telecommunications services.

External and internal Public Telegram Service.

External and internal Public Telex Service.

External public telephone services to subscribers to the Public Switched Telephone Network by radio, submarine cable and such overland cables as are authorised.

External dedicated and leased telephone circuit services by radio, submarine cable and such overland cables as are authorised.

External dedicated and leased circuits for -

telegraph
data
facsimile

Hong Kong coast stations and coast earth stations of the Maritime Mobile Service and Maritime Mobile - Satellite Service.

Hong Kong Aeronautical Stations of the Aeronautical Mobile Service and Aeronautical Mobile - Satellite Service for radiocommunications services between aircraft operating agencies and their aircraft in flight.

International telecommunications services routed in transit via Hong Kong.

Except to the extent that the Governor-in-Council may from time to time otherwise in writing direct, external television and voice programme transmission services to and from Hong Kong.

Except to the extent that the Governor-in-Council may from time to time otherwise in writing direct, external private circuits between fixed points, to and from Hong Kong.

External public data circuits for -

circuit-switched data
facsimile and/or document transfer service
packet-switched data

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Annex 2

Non-exclusive Services under the Hong Kong Telecom International Ltd (HKTI) licence granted under Telecommunication Ordinance (Cap.106)

"The Second Schedule"

Public telecommunications services approved by the Authority which are not included in the First Schedule hereto and which are not covered by any other exclusive licence issued under the Ordinance and which are not covered by a right or franchise issued or granted under any other law.

Multidestination broadcast press radio reception service for press agencies.

Multidestination broadcast press radio transmission service for press agencies.

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Note :

Under the HKTI's licence, "external" means communication with places outside Hong Kong.

TA Statement - The Regulatory Status of Call-back of 30 March 1995

Recommendation I.240 (1988), ITU Standardization Sector.

Section 2(1) of the Television Ordinance contains an interpretation of "television programme" which only states what "television programme" is not - not inclusing any material which is predominantly text, data or computer graphics.

Guidance Notes on the Self-Provided External Telecommunications Systems ("SPETS") licence are available from the Office of the Telecommunications Authority (OFTA).

The Self-Provided External Telecommunications System ("SPETS") licence. Copies of the SPETS licence and associated Guidance Notes are available from OFTA.

Recommendation F.720 (August 1992), ITU Standardization Sector.

Recommendation F.730 (August 1992), ITU Standardization Sector.

20.	(a)	Circuits by radio for the provision of external public telecommunications services.

	(b)	The operation of circuits by submarine cable for the provision of external public telecommunications services.

35.	(c)	External and internal Public Telegram Service.

	(d)	External and internal Public Telex Service.