It gives me great pleasure to present the first annual report of the Office of the Communications Authority (OFCA). The publication of this report is a testament to OFCA's successful first year as the executive arm of the Communications Authority (CA), the new unified regulator for the broadcasting and telecommunications sectors, which was established on 1 April 2012, the same date that OFCA itself came into operation. Created by merging the former Office of the Telecommunications Authority (OFTA) and relevant divisions of the Television and Entertainment Licensing Authority (TELA), OFCA is a government department that operates on a trading fund basis. Our mission is to support and assist the CA to perform its regulatory functions and meet the challenges that arise from today's information age and era of convergence, ensuring that Hong Kong maintains its leading position as the communications hub of the Asia-Pacific region.

Before reviewing our work in this inaugural year, I would like to take a moment to guide you through the overall development of the communications market in the past year.

A Vibrant Communications Market

Hong Kong enjoys a vibrant and versatile communications market. I am pleased to report that in the past year the market has remained prosperous and continued to develop in a number of key sectors.

Broadcasting Sector

On the broadcasting front, 2012 saw the official launch of digital audio broadcasting (DAB) services by three licensees, heralding a new era for broadcasting services in Hong Kong. In addition to the programmes broadcast on the seven FM and six AM channels, members of the public can now choose from a wide variety of programmes, all of which are available with superb sound quality via the 16 DAB channels being provided by the DAB licensees and Radio Television Hong Kong (RTHK). For television services, too, 2012 saw continuous new developments. Hong Kong's two domestic free television programme service licensees continued to roll out their Digital Terrestrial Television (DTT) networks. By the end of 2012, DTT coverage has been extended to around 98% of the population. OFCA has assisted the CA to review and revise the Generic Code of Practice on Television Technical Standards to enable these two free domestic television programme service licensees to switch their coding standard from MPEG-2 to H.264 for the digital simulcast channels, thus further enhancing their picture quality and creating the potential to provide even more programme choices and enhanced services in the future.

OFCA likewise assists the CA in processing broadcast complaints and taking the necessary follow-up actions in accordance with established procedures. During the year under review, the CA processed more than 49 000 complaints (1 625 cases involved) about broadcast materials, the largest number of complaints we have ever processed. Around 3 400 (1 584 cases involved) of these were handled directly by OFCA, using powers delegated by the CA to deal with complaints which are related to breaches of a minor nature, or those that do not involve any breach of legislation, licence conditions or codes of practice, or which otherwise fall outside the CA's remit.

Telecommunications Sector

On the telecommunications front, mobile data services continue to be the principal engine of market growth. The provision of 4G LTE (Long Term Evolution) services has greatly enhanced the user experience and enabled a variety of innovative and high-speed mobile data services for selection by consumers. Let me share with you some key figures to help you understand the scale of this dynamic and fast-growing market. There are now more than 11 million 3G and 4G subscribers in Hong Kong. The volume of monthly data usage by July 2013 was 10 629 terabytes, which was 1.7 times the amount recorded over the same period in 2012. In the general mobile market, Hong Kong has a total of 16.8 million mobile subscribers. This represents a penetration rate of 233%, which puts us in the leading position globally. With mobile network operators dedicating significant resources to the roll out of their 4G networks, we can expect to see the local mobile data service market continues to prosper.

Following the successful auction of 90 MHz of radio spectrum in the 2.5/2.6 GHz band in January 2009 and another 90 MHz of radio spectrum in the 2.3 GHz band in February 2012, OFCA auctioned off an additional 50 MHz of radio spectrum in the 2.5/2.6 GHz band in March 2013 for the further development of 4G data services in Hong Kong. The auction fetched for the benefit of the general community a total of HK$1.54 billion in Spectrum Utilisation Fees (SUF), with the spectrum going to four incumbent mobile network operators.

In the fixed broadband service market, I am similarly proud to report that consumers in Hong Kong can now enjoy broadband services of up to 1 Gbps, thanks to technology advancements and the continuous roll out of new optical fibre networks by various operators. As at July 2013, Hong Kong had around 2.24 million residential and commercial fixed broadband service subscribers, with a household penetration rate of 84%. I am especially pleased to report that according to the "State of the Internet 1st Quarter, 2013 Report" published by Internet content delivery provider Akamai in July 2013, Hong Kong has the fastest broadband in the world, with an average peak connection speed of 63.6 Mbps. This further underscores our status as a global leader in communications technology.

In addition to this thriving broadband market, Hong Kong has also established itself as an attractive location for operators in the Asia-Pacific Region to land their submarine cable systems. To support this important market, OFCA continues to provide a single-point-of-contact service to help operators meet all the necessary statutory requirements. To date, OFCA's coordination has successfully helped two cable systems to land in Hong Kong, namely Asia Submarine-Cable Express (ASE) and Southeast Asia Japan Cable (SJC). Another new system is expected to land in 2014. These new submarine cable systems will further strengthen Hong Kong's position as a regional telecommunications hub.

Enhancing Consumer Protection

It brings me great satisfaction to see that the people of Hong Kong enjoy an extensive range of world-class communications services at very competitive prices. To build on this success, one of OFCA's key responsibilities is to enhance consumer protection, thus ensuring that consumers also enjoy the high quality service. This has been achieved through the introduction of various mandatory and self-regulatory measures dating back to 2010, when mobile data services first began to flourish.

Through the coordination of the former OFTA, all mobile network operators implemented preventive measures against "mobile bill shock". These measures help consumers avoid exorbitantly high mobile service charges, which are usually caused by unintentional or inadvertent usage of local and roaming data services. Following a series of publicity programmes to educate the public on how to properly use mobile data services, we are glad to report that there has been a continuous decline in the number of "mobile bill shock" consumer complaints in the past two years.

In 2012 the CA also issued a set of mandatory guidelines for the implementation by service providers of Fair Usage Policy (FUP). These guidelines, which took effect in February 2012 for all fixed and mobile broadband service providers to follow on a mandatory basis, ensure that FUP is implemented by service providers in a transparent manner so that customers can enjoy fair use of network resources and reasonable access to their providers' services.

OFCA has also been encouraging the industry to adopt self-regulatory measures to further protect consumers. A notable achievement in this respect was the promulgation of the Code of Practice for Telecommunications Service Contracts (Industry Code) by the Communications Association of Hong Kong (CAHK) in 2011. Through close collaboration between the CAHK and OFCA, the Industry Code sets out clear guiding principles for operators to draw up their service contracts, and affords consumers better protection when they enter into new contracts or renew existing contracts with their service providers. We are now liaising with the CAHK for inclusion of additional measures in the Industry Code to further enhance consumer protection.

Other self-regulatory measures, namely the publication of a voluntary Code for the Provision of Chargeable Mobile Content Services (MCS) in 2010 and a code of practice in 2011 for the billing and payment collection of telecommunications services, have likewise addressed other consumer concerns. For the code on MCS, an Administrative Agency was also established under the CAHK to govern the practices of third-party Content Service Providers in their provision of MCS. I am very pleased to report that this self-regulatory scheme has effectively reduced the number of consumer complaints.

From time to time, OFCA receives complaints about billing disputes between telecommunications service providers and their residential/personal customers and some of them are left unresolved after a period of time and remain in deadlock. To provide a channel for the resolution of these disputes through mediation, OFCA has collaborated with the industry to launch a voluntary Customer Complaint Settlement Scheme (CCSS) for a two-year trial period since November 2012. CCSS is operated by the CAHK and sponsored by OFCA through the contribution of necessary funding and the provision of administrative support. OFCA will closely monitor the operation of the scheme and consider the best way forward when the trial period is completed.

The Trade Descriptions (Unfair Trade Practices) (Amendment) Ordinance 2012 came into effect on 19 July 2013. It has extended the coverage of the Trade Descriptions Ordinance (Cap. 362) (TDO) from goods to services and it prohibits specified unfair trade practices of traders. The CA has been conferred concurrent jurisdiction with the Customs and Excise Department (C&ED) for enforcing the fair trading sections of the TDO in relation to the commercial practices of licensees that are directly connected with the provision of a telecommunications service or broadcasting service under the Telecommunications Ordinance (Cap. 106) (TO) and the Broadcasting Ordinance (Cap. 562) (BO). The two enforcement agencies have jointly issued a set of enforcement guidelines, and various publicity activities have been launched to help both traders and consumers understand the new statutory requirements and better prepare themselves for compliance with the law.

Conducting Consultations and Reviews to Ensure an Up-to-date Regulatory Regime

Broadcasting Sector

The CA conducts regular reviews of codes of practice to ensure that proper guidance is given to licensees, and also to ensure that the standards keep track with community expectations and the ongoing development of the broadcasting industry. During the last year, in addition to revising the technical code on DTT, OFCA also assisted the CA in revising the codes of practice for television regarding the placement of commercial references within programmes that have been acquired for direct re-transmission on domestic free television programme services, as well as the provision of clear identifications in television advertisements presented in a programme style. The codes of practice for television and radio have also been revised to make clear the applicability of advertising time limits to promos for television and radio advertisements.

In the context of the 2010 mid-term review of the licences of the two domestic free television programme service licensees, viz Asia Television Limited (ATV) and the Television Broadcasts Limited (TVB), the CA decided to conduct public engagement exercises to regularly collect public views on both the quality and variety of programmes provided by the licensees.  The first engagement exercise took place in late 2010/early 2011, and the second was conducted earlier this year. OFCA assisted the CA in compiling a report on the views received, as well as licensees' responses and follow-up actions. The report was published in August 2013.

We also assisted the CA in processing the licence renewal application of TVB Network Vision Limited (formerly known as TVB Pay Vision Limited) for its domestic pay television programme service licence, and the applications from Health TV Company Limited and One TV Media Global Limited for non-domestic television programme service licences. During the year, we also assisted the CA in handling one application for renewal of an other licensable television programme service licence.

Telecommunications Sector

In the telecommunications sector, although all incumbent mobile network operators have now launched 4G services, the 3G spectrum still plays an important role in the provision of mobile data services. In light of the fact that all current 3G licences will expire in October 2016, we assisted the Secretary for Commerce and Economic Development and the CA in conducting two rounds of public consultation in March and December 2012 respectively, with the aim of collecting views from the industry and other stakeholders regarding re-assignment arrangements of the 3G spectrum and related issues. After the first consultation, a hybrid option, which offers incumbent 3G operators the right of first refusal for two-thirds of the 3G spectrum and re-auctioning the remaining one-third, was proposed for further consultation in the second consultation. While the SUF of the re-auctioned spectrum would be determined by the auction outcome, two market-based methods have been proposed in the second consultation for setting the SUF of the right-of-first-refusal spectrum. A total of 43 submissions were received in response to the second consultation paper. In addition, on behalf of the Government, we commissioned an independent consultant to conduct a study in relation to the impacts on both service quality and customers of adopting the proposed hybrid option when re-assigning the 3G spectrum.

In April 2013, we have also assisted the CA to complete a review and to take the decision to withdraw the regulatory guidance on the charging principles of narrowband interconnection between fixed carriers subject to a transitional period of 18 months. After the withdrawal of such regulatory guidance, all types of carrier-to-carrier local interconnection charges, namely fixed-fixed narrowband and broadband interconnection charges, mobile-mobile interconnection charges and fixed-mobile interconnection charges, are not subject to any regulatory guidance and are solely determined through commercial negotiations between the telecommunications operators.

In response to public demands, and following a public consultation, the licence fees for the Unified Carrier Licences (UCLs) and Public Radiocommunications Service (PRS) Licences (Paging) and Services-based Operator (SBO) Licences (Class 3) have been reduced. Both the customer connection fee of UCLs for each 100 customer connections and the mobile station fee of PRS/SBO Licences for each 100 mobile stations have been reduced from HK$800 to HK$700 with effect from 1 March 2013.

Major Challenges Ahead

Our communications service market is highly competitive. To maintain this success—particularly in view of increasing public aspirations, the prevalence of innovative communications services, and the continuous emergence of advanced new technologies—OFCA will remain vigilant to all these developments. We will continue to implement timely measures that ensure Hong Kong's regulatory regime is up-to-date.

In the coming year, OFCA will continue to assist the CA in the renewal of various broadcasting licences, including those of ATV, TVB and PCCW Media Limited. An extensive public consultation exercise, including public hearings and broadcasting service surveys, will be conducted to collect the public's views on the performances of these licensees.

OFCA will also assist the CA in reviewing the relevant provisions of the television and radio codes of practice in response to public concerns about licensees expressing one-sided views or safeguarding their own interests in broadcasts identified as "personal view programmes".

Assisting the CA in the decision making on the re-assignment arrangements of the 3G spectrum will be another challenging milestone for OFCA in the coming year. The CA and the Government are studying the views and comments received in the submissions in response to the second consultation paper. The aim is to announce the way forward on the 3G spectrum re-assignment arrangements by October 2013, so that the incumbent 3G operators will have three years to prepare for possible changes to their 3G spectrum assignment.

On the fair trading sections of the TDO, OFCA will continue to work closely with the C&ED on the law enforcement aspects and to collaborate with the Consumer Council in conducting publicity and education programmes that equip both members of the public and traders with an understanding of the law.

Hong Kong's cross-sector competition law, the Competition Ordinance (Cap. 619) (CO), was enacted in June 2012. The Competition Commission has since been established to enforce the CO, and concurrent jurisdiction has been conferred on the CA to enforce the CO in respect of the conduct of telecommunications and broadcasting licensees. In the coming months, OFCA will assist the CA and work closely with the Competition Commission regarding the preparatory work required for the implementation of the CO, including drafting the relevant guidelines on enforcement, as well as a memorandum of understanding to coordinate the performance of the functions of the Competition Commission and the CA under the CO.

Closing Remarks

I would like to thank all my colleagues for their hard work in the past year, which has made it possible for us to transition so smoothly from the former OFTA to OFCA. I offer you my assurance that OFCA remains committed to fully supporting the CA in the performance of its regulatory functions. With the expertise and professionalism of OFCA's team, I am confident that we will successfully face whatever regulatory challenges that may come our way in the future, always working tirelessly and diligently to maintain Hong Kong's leading position as a centre of global communications excellence.