Introduction

I am pleased to present the second annual report of the Office of the Communications Authority (“OFCA”). In 2013/2014, OFCA continued to provide the Communications Authority (“CA”) with full support in discharging its statutory responsibilities as the regulator of the communications sector in Hong Kong.

The communications market in Hong Kong continued to be vibrant and dynamic in 2013/14. The mobile telecommunications market remained very competitive and continued to expand, with a penetration rate exceeding 236% as at March 2014. This vibrancy has driven network operators to continually upgrade their networks. I am pleased to report that the World Economic Forum’s Global Information Technology Report 2014 ranked Hong Kong the first among 148 economies in mobile network coverage and the second in international Internet bandwidth per user.

The fixed telecommunications market also fared very well internationally, with the Fibre to the Home (“FTTH”) Council Europe in February 2014 ranking Hong Kong the third in the world with a fibre to the home/building household penetration of 56.6%, and Internet content delivery provider Akamai ranking Hong Kong the second in the world with an average peak connection speed of 66 megabits per second (“Mbps”) in its State of the Internet 1st Quarter, 2014 report. Facilities-based competition further encouraged network rollout by the fixed network operators, enabling 87% of residential households to have a choice of at least two self-built fixed networks.

Similarly, the broadcasting market continued to develop in 2013/14 with the progressive expansion in the coverage of digital broadcasting networks for both radio and terrestrial television. Specifically, the coverage of the Digital Terrestrial Television (“DTT”) services of Asia Television Limited (“ATV”) and Television Broadcasts Limited (“TVB”) reached at least 99% of the population, essentially on a par with that of analogue television services.

Broadcasting Services

There are continuous new developments for television services. Following the approval in principle of the Chief Executive in Council (“CE in C”) to two applicants for domestic free TV licences, OFCA has been assisting the CA to take follow-up actions on the licence applications. In parallel, ATV and TVB, the two incumbent domestic free TV licensees, and PCCW Media Limited (“PCCW Media”), a domestic pay TV licensee, submitted applications for the renewal of their licences to the CA. We have been assisting the CA in conducting comprehensive assessments of their performance, with a view to submitting the recommendations to the CE in C on their applications by the fourth quarter of 2014. We also assisted the CA in processing a total of eight applications for new and renewal of non-domestic television programme service licences and other licensable television programme service licences.

The CA conducts regular reviews of codes of practice to provide proper guidance to licensees, and to ensure that the standards stipulated therein are in line with community expectations and the ongoing development of the broadcasting industry. In 2013/14, OFCA assisted the CA in conducting a review of the regulation of editorial programmes and personal view programmes on television and radio services, and in amending the related codes of practice, to require that a suitable announcement be made at the start of such programmes to identify clearly that the views expressed in the programmes were or included those of the person providing the service and that a suitable opportunity for response should be provided. The revisions aimed to strike a proper balance between licensees’ right to freedom of expression on the one hand, and a more responsible use of their broadcast rights on the other.

In 2013/14, OFCA assisted the CA in completing two major investigations. One involved the exercise of control of an incumbent free TV licensee by a person who did not meet the fit and proper person requirement and the other concerned the violation of the competition provisions of the Broadcasting Ordinance (Cap. 562) (“BO”) by the other incumbent free TV licensee. Contraventions were established in both cases. Apart from the imposition of financial penalties as sanction, the two licensees were required by the CA to take rectification actions to respectively improve its corporate governance standards and to end the anti-competitive practices.

Meanwhile, OFCA continued to receive a large number of complaints about broadcast materials. In 2013/14, OFCA handled nearly 13 000 complaints relating to some 3 000 cases. Using powers delegated by the CA, OFCA handled most of those cases which involved breaches of a minor nature, or allegations which do not constitute any breach or fall outside the remit of the ordinances. The CA dealt with 43 cases in accordance with the established practices.

Telecommunications Services

Fixed broadband networks continued to develop in 2013/14. During the year, the household penetration rate for fixed broadband services stood at 83%, with over 92% of subscribers choosing services with a speed of at least 10 Mbps. We also actively facilitated new submarine cable systems to land in Hong Kong, so as to increase our external connection capacity. One new system came into operation in 2013, taking the number of submarine cable systems to 9. Two more are scheduled to land in Hong Kong in the coming two years.

We assisted the CA in reviewing whether some of the telecommunications regulatory measures were still necessary taking into account market and technology developments. After public consultation, the CA decided that the regulatory guidance for narrowband interconnection between fixed carriers, first promulgated in 1995, should be phased out after an 18-month transitional period. Starting from 16 October 2014, all types of carrier-to-carrier local interconnection charges are no longer subject to any regulatory guidance, and are solely determined through commercial negotiations between the carriers.

In terms of mobile telecommunications services, with the 3G spectrum assignments in the 1.9 – 2.2 GHz band due to expire in October 2016, we assisted the CA in mapping out the way forward following the conduct of two rounds of public consultation. The CA decided in November 2013 to adopt a hybrid administratively-assigned cum market-based approach to re-assign the spectrum upon expiry of their existing term of assignments on 21 October 2016, under which the incumbents would be offered a right of first refusal for two-thirds of their current spectrum holdings, while the remaining one-third would be re-assigned through an auction. We are working towards conducting the auction towards end-2014.

Competition and Consumer Protection

Ensuring effective competition in the communications market is an important means to facilitate consumers’ access to advanced services at reasonable prices. To this end, OFCA continued to assist the CA to enforce the competition provisions in the Telecommunications Ordinance (Cap. 106) (“TO”) and the BO. From April 2013 to March 2014, we considered altogether 61 complaints cases. One case was found to be in breach of the BO and the CA imposed inter alia a financial penalty on the broadcasting licensee concerned.

During the same period, OFCA considered two merger and acquisition cases involving telecommunications carrier licensees. One was an application for the CA’s prior consent to a proposed transaction involving the acquisition of a carrier licensee by another carrier licensee. Having considered OFCA’s assessment and the findings of its economic consultant, the CA decided to give consent in April 2014 to the proposed transaction, subject to the carrier licensees taking actions directed by the CA as necessary to eliminate or avoid the substantially lessening competition effects of the transaction on the market.

The newly enacted Competition Ordinance (Cap. 619) (“CO”) will come into operation shortly. With the CA conferred concurrent jurisdiction with the Competition Commission to enforce the CO, OFCA has been supporting the CA in working closely with the Competition Commission to prepare the guidelines on the enforcement of the CO. A memorandum of understanding between the CA and the Competition Commission will also be prepared to coordinate the performance of their respective functions under the CO.

The amended Trade Descriptions Ordinance (Cap. 362) (“TDO”) came into effect on 19 July 2013, under which the CA is conferred concurrent jurisdiction with the Customs & Excise Department (“C&ED”) to enforce the new fair trading provisions in the broadcasting and telecommunications sectors. OFCA received 359 complaints under the jurisdiction of the criminal regime of the amended TDO from July 2013 to March 2014. 160 were closed for insufficient evidence to suspect / establish a contravention or for falling outside the scope of the TDO, five complaints were closed after advisory letters were issued to the concerned licensees to draw their attention to the need to observe more closely the requirements in the TDO, and 194 complaints were under process at various stages. Meanwhile, misleading and deceptive conduct by telecommunications licensees prior to the implementation of the amended TDO are still regulated under the TO. In this regard, OFCA handled 92 complaint cases from April 2013 to March 2014, with the CA confirming six of them as infringements of the TO and imposing financial penalties on the licensees as sanction.

Service contract disputes are a major area of consumer complaints.   While the CA has no statutory power to investigate such disputes, after active discussions between OFCA and the Communications Association of Hong Kong (“CAHK”, an industry association), the CAHK drew up a self-regulatory Code of Practice for Telecommunications Service Contracts (“Industry Code”) in December 2010.  The industry started implementing the Industry Code in July 2011.  Drawing reference to the implementation experience of the Industry Code and consumers’ feedback, OFCA has recommended a number of improvement proposals in May 2013 for CAHK to consider taking forward with its members through revision of the Industry Code.

OFCA also continued to sponsor during the year the operation of the trial Consumer Complaint Settlement Scheme (“CCSS”), which was set up in November 2012 to help resolve, through mediation, billing disputes in deadlock between telecommunications service providers and their customers. So far, the trial outcome has been encouraging with all cases referred to the CCSS mediation service centre satisfactorily settled.

UEMO Enforcement

OFCA has been assisting the CA in the enforcement of the Unsolicited Electronic Messages Ordinance (Cap. 593) (“UEMO”). The number of reports in relation to suspected contraventions of UEMO has shown a downward trend in recent years. In 2013/14, there were 1 998 reports, representing a decrease of 17% over the figure in the previous year. During the period, OFCA assisted the CA in revising the Code of Practice to provide practical and update-to-date guidance on the sending of commercial electronic messages. OFCA also issued a total of 155 advisory letters, 83 warning letters and six enforcement notices to the senders of UEM after investigation. We will continue to monitor the compliance situation and streamline the procedures for more effective enforcement.

Consumer Education

In 2013/14, OFCA launched an annual consumer education campaign under the theme “Smart Use of Communications Services”, with a view to providing useful consumer tips on how to use smartphones wisely and protect personal data stored on the phones. The response to the various activities under the campaign was encouraging, and we will continue with our consumer education efforts in 2014/15.

OFCA also gave ten talks to students and participants in a community project on radio programme production in 2013/14, specifically on how the viewing public can make informed viewing choices regarding television programme services, how television and sound broadcasting services are regulated, and the programme standards governing radio services.

External Relations

OFCA participated actively in the conferences organised by international and regional organisations to keep track of the latest global regulatory developments and to share our regulatory experience. During the year, OFCA also met with its counterparts from different regions, including the United Kingdom, Singapore and Guangdong, to exchange views and share its experience.

Major Challenges Ahead

2014/15 will be a busy year for OFCA. We will continue to assist the CA in processing the licence renewal applications from free and pay TV licensees as well as analogue sound broadcasting licensees, following up with two free TV applicants with approval-in-principle from CE in C for the formal grant of their licences, and in handling a new free TV licence application. We will conduct an auction for the re-assignment of the 3G spectrum towards end 2014 so that inter alia new entrants, if any, will have sufficient time to roll out their networks for the service launch in October 2016. We will also work closely with the Competition Commission to prepare for the full implementation of the CO.

I am most thankful to a very professional and dedicated team of colleagues in OFCA who have been working professionally and tirelessly on numerous challenging tasks in 2013/14. With their unreserved support, I am confident that OFCA will continue to overcome various regulatory challenges in 2014/15 and provide full support to the CA in discharging its statutory regulatory responsibilities.