From Universal Service to Universal Choice - Local Fixed Network Competition in Hong Kong

Transcription

1 2010/SOM1/EC/SEM/003 Agenda Item: 1a From Universal Service to Universal Choice - Local Fixed Network Competition in Hong Kong Submitted by: Hong Kong University of Science and Technology Seminar on Impacts of Structural Reform and Leaders' Agenda to Implement Structural Reform Stocktake Hiroshima, Japan 25 February 2010

2 From Universal Service to Universal Choice Local Fixed Network Competition in Hong Kong Why Universal Service? Economically: Causality between economy and teledensity Accelerating the transition to a knowledge economy Socially: life line Narrowing the wealth gap: social and human capital

3 Model of Digital Inequality Family SES Education Income Gender Occupation Race Region Industry Rural/Urban Hardware & Software Skill Social Support Extent of Use Quality of Use Social & Human Capital Source: DiMaggio and Hargittai (2001) Government s Role Policy support Technical support Universality Financial support Source: Group 8 of EESM520

4 Hong Kong s Local Fixed Networks Monopoly Operation by former Hong Kong Telecom until 1995 under exclusive franchise In 1995, in addition to Hong Kong Telecom, three new licenses were issued to Hutchison, New T&T and New World In 1999, Hong Kong Telecom surrendered its exclusive IDD franchise Hong Kong s Local Fixed Networks In 1999, Hutchison, New T&T and New World get a moratorium with investment commitment In 1999, five wireless local fixed network licenses were issued. Hong Kong Cable also obtained license for telecom service In 2003, local fixed network market was fully liberalized

5 Market share of New Entrants in Hong Kong, UK and US 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% HK UK US 5.00% 0.00% Regulator s Efforts in Facilitating Competition Operator Number Portability statutory right of access into buildings sharing of facilities (cable ducts, etc) Type I Type II

6 Type I - between Network Gateways Gateway Network 1 Network 2 POI Problems Regarding Type I The new entrants always request the incumbent for over capacity and the incumbent has to undertake the financial burden for the surplus; OFTA proposed a model for the most reasonable capacity. The new entrants can ask for more but have to undertake the financial burden if there are surplus; In the meantime, the incumbent shall undertake the burden if the utilized capacity is below the calculated capacity

7 Problems Regarding Type I Requested Requested Reasonable Utilized Utilized Utilized (Scenario I) (Scenario II) (Scenario III) Type II Network - the Local Loop Unbundling Network 2 Network 1 MDF TBE Room Local Exchange of Network 1 Distribution Point Street Block-wiring Building

8 Block-wiring: Vertical vs. Horizontal Vertical Wiring Local Box CPE Horizontal Wiring MDF TBE room Equipment Collocation in TBE Room

9 Deployment of Type II : The Cut-over of Jumper Line Incumbent s Exchange Incumbent s Switching Equipment 2N Collocation Room LAL Tie Circuits Main Distribution Frame (MDF) Equipment Side (4) Line Side Cable Lead-in Customer Building Blockwiring in TBE Room MDF (3) (5) Incumbent s External Cable 2N s Fiber Cable To 2N s Host Exchange (Backhaul process) Universal Service Contribution and HKTI s IDD Franchise: Subsidies from IDD HKTC HKTI International Destination Mobile Service New FTNS

10 Price Squeezing Retail Price Intercon nection Payment Real Monthly Rental Price of HKTC Residential Telephone Lines Source: P.-L. Lam, T. Lam / Telecommunications Policy 29 (2005) 53 68

11 1999: Bargain Opportunity of the Government Price Rebalancing Starting from 1/8/1996 1/8/1997 1/9/ /1/2001 1/1/2002 Business $104.6 $108.8 $108.8 $128 No price control Residential $67 $68.9 $90 $110 No price control More Exchange Opened for Type II 50% residents have choice among operators, new entrants are committed for more investment for moratorium Source:

12 Accelerated Market Share of New Entrants 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Backbone Network of Hutchison Global Communication in Hong Kong

13 Benefits of Competition is no Longer Just Limited to Corporate Users Market Share (%) Business Residential Market Share Annual Growth Rate Business Residential % % % % 10 50% % Type II Consultation: Towards Type III? Network 2 Network 1 MDF A TBE Room B Distribution Point Block-wiring C Local Exchange of Network 1 Street Building

14 Reasons for Change Regulation at different points are different A: collocation, cut-over B: Rights of way C: building access Different points represent different development strategies A: Indirect access C: Direct access Bottleneck at point C may no longer be controlled by the incumbent Property developers holding class license New entrants affiliated with the property developers Experience of success: the case of Korea Advantages of Change Explicitly structured regulatory framework Type I: any-to-any communication; Type II: deployment of cut-over; Type III: subscribers access in buildings. Flexibility in regulation: Direct access vs. Indirect access Respond to market change From overall asymmetric regulation to site-specific asymmetric regulation

15 Layered Regulatory Model for Local Fixed Network Competition Point Function Regulatory Measures Type I Point of (POI) between two networks Achieve any-to-any communication Asymmetric regulation on the incumbent; Mainly on pricing Type II Incumbent s exchange (Point A) Access subscriber via incumbents local loop Asymetrix regulation on the incumbent; Mainly on co-location and Local Access Link cut-over Type III Street distribution point (Point B), and the blockwiring in buildings (Point C) Access individual subscriber via any other operator s in-building network Site-specific asymmetric regulation; Mainly on inbuilding network access Xu Yan & Patrick Xavier (2010) Access to in-building wiring as a barrier to local network competition: The case of Hong Kong, Telecommunications Policy, Forthcoming Layered Regulatory Model for NGA Point Function Regulatory Measures Type I National Access Point; Gateway for peering and transit Achieve any-to-any communication Pricing and Routing for Public Peering, Private Peering, Transit Type II Servers of network operator Enable ISP to access subscriber via network operator s local loop Shared access; Bitstreaming Type III In-building wiring Access individual subscriber via any other operator s inbuilding wiring Site-specific asymmetric regulation; mainly on in-building wiring access Xu Yan & Patrick Xavier (2010) Access to in-building wiring as a barrier to local network competition: The case of Hong Kong, Telecommunications Policy, Forthcoming

16 Conclusions Competition is difficult but workable Bottleneck lies in Type-II No distortion should exist in the market The problematic guy is not necessarily the incumbent The whole community will be the winner at the end Universal choice can guarantee the universal service Asymmetric regulation may be changed to symmetric regulation: Type III interconnection Q&A