OFTA - Press Release issued by the Commerce, Industry and Technology Bureau

Press Release issued by the Commerce,
Industry and Technology Bureau (CITB) on 6 July 2004 -
Type II Interconnection to be Withdrawn

The Type II interconnection policy for local fixed-line telecommunications services will be withdrawn to promote investment and consumer choice in high bandwidth customer access networks in telecommunications, the Government announced today (July 6).

The withdrawal will be fully implemented across the territory by June 30, 2008. In the run-up to this date, the withdrawal will be implemented in an orderly manner on a building-by-building basis and will apply to buildings already connected to at least two self-built customer access networks.

These buildings will be subject to a two-year transitional period and a one-year "grandfather" period thereafter to protect the interests of consumers. During the transitional period, operators can continue to acquire new customers through Type II interconnection; while during the "grandfather" period, no more new customers can be acquired through the interconnection.

After the "grandfather" period, interconnection terms, including charges, will be subject to commercial negotiation between the operators concerned.

However, in order to protect consumer choice, after the full withdrawal of the policy in 2008, mandatory Type II interconnection will be maintained as a safety net in buildings in which it is technically not feasible or economically not viable for an operator to roll out its customer access network.

The Secretary for Commerce, Industry and Technology, Mr John Tsang, said the Government had very clear objectives in deciding to withdraw Type II interconnection. They were to encourage new investment in advanced telecommunications infrastructure and to enhance consumer choice.

"The Type II interconnection policy was introduced in 1995 when the local fixed telecommunications network market was first liberalised. Since 1995, competitors to PCCW-HKT have together built networks that cover some 53% of households in Hong Kong. It is now opportune to give new impetus to encourage further rollout of advanced telecommunications networks to take the development of telecommunications industry to new heights," Mr Tsang explained.

"Our decision to withdraw Type II interconnection will send a clear signal to the operators to invest in advanced networks, and it will allow them reasonable time to adjust their business strategies and carry out the rollout work should they so decide. On the other hand, prior to the full withdrawal on June 30, 2008, the orderly withdrawal arrangements, which apply only to buildings with at least two self-built customer access networks, will ensure that consumers continue to have a choice in operators.

"In the longer term, the withdrawal of the Type II interconnection policy will encourage investment in building new infrastructure and upgrading existing infrastructure. Ultimately, consumers will benefit from greater choice of telecommunications services delivered through advanced telecommunications infrastructure capable of supporting different forms of innovative services.

"The decision is a proactive, forward-looking and yet pragmatic one that balances the interests of all the stakeholders involved. It would further the objective for Hong Kong to be a leading digital city with more business opportunities," Mr Tsang said.

"We would like to emphasise that our decision is to withdraw Type II interconnection, and not to extend or expand Type II interconnection as some industry members have suggested. Indeed, Hong Kong is the first, and the only one, to withdraw Type II interconnection among the advanced economies," Mr Tsang said.

Type II interconnection is interconnection to a fixed telecommunications operator's network at the customer access network level, running from local telephone exchanges of the network to customers' premises.

The Government initiated a review of the Type II interconnection policy in 2003. Two public consultation exercises were conducted in May and December 2003 respectively. Eleven and 17 submissions were received respectively. The decision took into account views expressed during the consultation exercises to set a final sunset date for all mandatory Type II interconnections to reinforce the withdrawal arrangements with greater certainty and clarity, and shorten the period for transitional arrangements in the light of further assessment of the time needed for new network rollout.

Ends/Tuesday, July 6, 2004