Eye on the Future

Facilitating the Development of Future Service Platforms

Next Generation Networks (NGNs) will integrate conventional fixed, mobile and data networks into an intelligent and unified IP-based backbone network infrastructure to deliver universal access and act as host to a range of new technologies, applications and service opportunities.

The realisation of NGNs will hinge on the migration to new networks and services. More and more operators, including local network operators, are formulating plans to introduce new network technology for the provision of enhanced services to their customers. Further work will however be necessary to ensure that both the regulator and the industry will better understand the new technologies, learn how they will interrelate and interconnect. With NGNs, services currently provided by networks under distinctly different regulatory frameworks will share the same service platform. The possible shift of competition from the present lower layers of transport and networks to the higher layers of services and applications will lead to intensified competition between independent service providers and NGN operators. As such, broader regulatory issues will need to be addressed.

In 2006/07, OFTA continued to put considerable effort into consulting and working with the industry to ensure that the appropriate regulatory frameworks will be put into place to pave the way for the introduction of Fixed-Mobile Convergence and the Broadband Wireless Access technologies. Progress and results were promising.

Multimedia Services over Internet Protocol

In June 2005, TA promulgated the regulatory framework for IP Telephony services. Under the two-class licensing regime, Class 1 services are required to meet relevant licensing conditions applicable to fixed network operators providing conventional telephone services under Fixed Telecommunications Networks Services (FTNS) or Fixed Carrier Licences. Class 2 services are required to meet only minimal licensing conditions to ensure that innovative development will not be inhibited while at the same time protecting consumer interests. Existing FTNS or fixed carrier licensees are allowed to provide IP Telephony services under their existing licences. To pave the way for a wider choice of innovative telecommunications services, a Services-Based Operator (SBO) Licence was introduced in January 2006 for the provision of IP Telephony services. At the end of March 2007, six SBO licences had been issued.

Fixed-Mobile Convergence

The demarcation between fixed and mobile services will become less and less distinct in the NGN era. With convergence, service providers will be able to provide services on a fixed network, a mobile network or a combination of the two to the same customer. At the same time, end-users will be able to enjoy access to mobile and fixed services without the need to switch between service providers.

In Hong Kong, different regulatory systems apply to the fixed and mobile networks. To ensure that we will stay fully abreast with developments in these converged services, we initiated a consultation on the necessary review of the situation in September 2005. A consultancy study was commissioned to identify the changes necessary to the existing regulatory framework and the ensuing costs and benefits to stakeholders. Taking the recommendations of the consultant and the views of the industry into account, we launched a further round of consultation in July 2006 with regard to the new regulatory regime and the implementation arrangements required for the necessary changes. The responses received at the second consultation were further taken into account when the TA issued a statement in April 2007 setting out his conclusions.

One of the TA's conclusions is that the current regulatory guidance on the interconnection charges between a fixed and a mobile network, the Fixed-Mobile Interconnection Charge (FMIC), should be withdrawn. The current guidance adopts a "Mobile Party's Network Pays" approach. In other words, regardless of whether a call is made by a mobile user to a fixed user or vice versa, the interconnection charge is always borne by the mobile operator. A two-year transitional period, from April 2007, was promulgated to enable operators concerned to adapt to the change in FMIC. This new deregulation means that the interconnection charge and payment arrangements will be a matter of commercial negotiations among the operators. However, the TA will retain his statutory power to make a determination on interconnection terms under section 36A of the Telecommunications Ordinance if an agreement between operators cannot be reached.

The current Local Access Charge (LAC) arrangement for interconnection between external service providers and fixed/mobile network operators will be maintained. We will be monitoring the situation to see if the removal of regulatory guidance on FMIC is likely to make the origination or termination of external calls more competitive, before proposing any further deregulatory measures in relation to LAC.

With regard to Fixed-Mobile Number Portability, OFTA will conduct a market survey to assess consumer demand for this facility, before making any proposals on its introduction in Hong Kong.

Broadband Wireless Access

Broadband Wireless Access (BWA) is a technology that supports high-speed wireless access to mobile user devices for voice, video, Internet access and other applications. It also provides an alternative to wireline technologies for access to buildings and individual customers at fixed locations. User devices employing BWA technologies meeting open standards are expected to be commonly available in the market in the next couple of years. These technologies have the potential to support innovative services and offer more customer choices.

In Hong Kong, some local fixed network operators have expressed interest in deploying BWA technologies in their customer access networks. We conducted two rounds of public consultation in 2004 and 2005 on the regulatory framework, spectrum planning and licensing arrangements to facilitate the introduction of BWA in Hong Kong. The proposal then was to allocate spectrum in the 3.4 GHz band for these services.

In response, the industry raised concerns that BWA deployment in the 3.4 GHz band would cause harmful interference to downlinking satellite transmissions operating in the 3.5 GHz band and adjacent bands. To address these concerns, the Radio Spectrum Advisory Committee, under OFTA's auspices, established a working group in February 2006 to assess the impact of the proposed frequency plan. The group conducted a series of technical assessments and concluded that the deployment of BWA services in the 3.4 GHz band would indeed cause interference to existing satellite transmissions. Furthermore, the measures required to protect the earth stations would make it difficult for widespread and cost-effective deployment of the service in the 3.4 GHz band in Hong Kong. As a result, the proposed allocation of the 3.4 GHz band for BWA was held in abeyance.

In May 2007, we launched a third consultation on BWA putting forward specific proposals for the allocation of the 2.3 GHz band for the deployment of this technology. In line with the Government's guiding principles under its new Spectrum Policy Framework announced in April 2007, the proposal was to assign the BWA spectrum using a market-based auction approach. The auction is expected to take place in 2008.

The Local Fixed Telecommunications Network Services Market

Full liberalisation of the local Fixed Telecommunications Network Services (FTNS) market since 2003 and the policy to withdraw mandatory Type II interconnection at telephone exchanges have hastened the rollout of competitive fixed networks using advanced technologies. In this regard, we have taken an active role in facilitating operators' network rollout, helping them to gain access to buildings, coordinating road-openings and facilitating access to in-building wiring systems. This has resulted in an increase in the choice of services for consumers as well as the emergence of a variety of innovative telecommunications and multimedia services supported by high-speed and high-capacity telecommunications networks. As at October 2006, 76% of Hong Kong's households were connected to at least two self-built customer access networks.

The Broadband Services Market

Market liberalisation and vigorous facilities-based competition have brought about significant growth in the local broadband service market. At the end of March 2007, there were over 1.79 million broadband customers in Hong Kong, representing a growth of 8.3% year-on-year, while the household penetration rate rose to 73.3%.

Rapid advances in the broadband technologies and the increasing convergence between telecommunications and broadcasting have created opportunities for telecommunications operators to offer IP Television (IPTV) services. In fact, a number of fixed operators have been offering "triple-play" services – telephony, broadband access and TV – for a couple of years, with "quadruple-play" – telephony, broadband access, TV and mobile, emerging in 2007. By the end of 2006, there were more than 800,000 IPTV subscribers in Hong Kong, placing us well ahead of all developed economies around the world, in terms of IPTV household penetration.

The Mobile Market

By 2005 all four 3G operators had launched their services. At the end of 2006, they had also fulfilled all coverage and data transmission requirements under their 3G carrier licences. This means that each 3G operator is now providing network coverage and services over an area where at least 50% of the population of Hong Kong live. All base stations have been configured to be capable of supporting services operating at a minimum of 144 kbits per second for an individual customer. Additionally, during the year under review, three operators upgraded their networks with 'High Speed Downlink Packet Access' (HSDPA) technology, allowing data transmission speeds of up to 3.6 Mbps. Consumers can thus enjoy innovative and high-speed multimedia services with their 3G devices.

Competition in the mobile market continues to be intense, with five operators operating ten 2G networks and four 3G networks. The number of mobile customers exceeded 9.35 million at the end of March 2007, out of which around 1.5 million were 3G customers. The penetration rate was 136%, one of the highest in the world.

Renewals of 2G licences, expiring between July 2005 and September 2006, were successfully completed, in line with the relevant licensing framework set out in November 2004. Holders of the nine incumbent GSM and PCS licences providing 2G mobile services were offered the right of first refusal, entitling them to new mobile carrier licences for a further period of 15 years and allowing them to continue providing mobile telecommunications services. No new licences were granted to licensees operating CDMA and TDMA networks as the assigned spectrum had not been used efficiently. However, the CDMA licensee was allowed to continue operating CDMA services until November 2008, using a third of the originally assigned spectrum to facilitate smooth customer migration.

To ensure the continued availability of CDMA mobile services after 2008 to local consumers as well as roaming service users from Mainland China and other parts of the world, OFTA launched a consultation in October 2006 to solicit the views of interested parties on the proposal to release frequency spectrum in the 850 MHz band through a public auction exercise for the provision of mobile services using the latest CDMA technology.

In April 2007, having considered all the views received, the TA announced his plan to release spectrum in the 850 MHz band to enable the provision of CDMA2000 services. The auction of this spectrum is expected to be held in the last quarter of 2007.