New 3G Standard Replacing CDMA,TDMA Spectrum

22nd March , 2004

ASIA : The Hong Kong Government proposes to issue a new licence from the vacated spectrum of the two existing mobile services licences offering CDMA and TDMA services, when the licences expire in November 2005 and July 2005 respectively.

This was recommended in the second consultation paper issued by the Office of the Telecommunications Authority (OFTA) today (March 19) on the licensing of mobile services on expiry of the existing second generation (2G) licences.

The Deputy Secretary for Commerce, Industry and Technology (Communications and Technology), Mrs Marion Lai, said that in deciding on the future licensing arrangements, the relevant considerations were the need to ensure efficient use of spectrum, choice of services and continuity to customer services, as well as the need to provide a stable investment environment and maintain technology neutrality.

The consultation paper pointed out that the number of subscribers for the CDMA network fell from 280,000 in 2000 to around 40,000 in 2003, whereas for the TDMA network, the figure fell from 140,000 to around 30,000 during the same period.

"We are of the view that the spectrum under the two licences should be vacated upon their expiry for better utilization, which will in turn benefit the consumers at large. We therefore propose that the CDMA and the TDMA licensees should not be entitled to the "right of first refusal"," Mrs Lai said.

The consultation paper proposes that part of the vacated spectrum should be made available for the issue of a new licence while the rest be reserved for future use.

"We see opportunity to issue a new licence in the vacated spectrum to facilitate the introduction of innovative mobile data services supported by cdma 2000 standard, which is currently not adopted in Hong Kong. This will allow consumers to enjoy services and mobile phones or devices that have become successful and popular in places like Japan and South Korea. It will also enhance consumers' demand for mobile data services and hence increase revenue potential of the market to the benefit of all players.

"The objectives of issuing a new licence from the vacated spectrum are to facilitate the introduction of advanced and innovative mobile services. The proposal will therefore benefit consumers, spawn new industries and enhance Hong Kong's status as a mobile services hub in Asia.

"To this end, we will impose more stringent conditions on the new licence particularly in terms of quality and variety of services. Examples are requirements for data transmission rate higher than existing 3G licences and dedicated network capacity for mobile data services," Mrs Lai emphasised.

For the issue of this new licence, the consultation paper proposes to adopt an approach similar to the one adopted in 2001 for the 3G licensing exercise, i.e. a hybrid licensing method consisting of pre-qualification followed by a royalty auction subject to minimum guaranteed payment. The auction will be conducted by using a single round sealed bid method.

Apart from the two licences offering CDMA and TDMA services, there are also nine licences offering GSM and PCS services expiring during the period between November 2005 and September 2006. The Government proposes to offer the "right of first refusal" to the incumbent mobile service operators providing such services.

"The GSM and PCS services have become a general commodity penetrating all walks of our society and affecting every aspect of our daily life. The existing GSM and PCS licensees have been providing a satisfactory service with continuous investments and improvements. They have also been making efficient use of the scarce frequency spectrum assigned to them. We therefore propose to offer the "right of first refusal" to these licensees", Mrs Lai said.

"If the existing licensees accept the right and take up new licences, we propose that they should be required to pay spectrum utilization fee under their new licences. This is because like 3G licensees, 2G licensees also make use for business of spectrum which is a scarce public resource," Mrs Lai said.

The consultation paper however notes that in the short term, the existing licensees will likely to continue to offer 2G services (including 2.5G and 2.75G services) after the issue of the new licences. As such, any requirement to immediately levy a spectrum utilization fee, which is a new cost element, with a fee level and structure similar to the existing 3G licensees would increase the cost of business quite abruptly.

"We therefore believe that initially there is a case for setting the spectrum utilization fee for 2G licensees according to a structure different from that for 3G licensees. However in the longer term there should be convergence of the two structures on principle and parity grounds," Mrs Lai explained.

The consultation paper proposes that the right time to remove the different treatment should be 1 January 2010 to allow sufficient time for the 2G licensees to factor the spectrum utilization fee fully in their cost structures.

The consultation will last for six weeks. All submissions should be sent to OFTA on or before Friday, April 30, 2004.

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