A new licence is being proposed from the vacated spectrum of the two mobile services licences offering TDMA and CDMA services, which expire in July and November next year respectively.

This has been recommended in the second consultation paper issued by the Office of the Telecommunication Authority on the licensing of mobile services when the existing second generation (2G) licences expire.

In deciding on the future licensing arrangements, key considerations are needed 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, Deputy Secretary for Commerce, Industry & Technology Marion Lai said.

The consultation paper says 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.

"The spectrum under the two licences should be vacated on expiry for better utilisation, which will in turn benefit consumers. We propose the CDMA and the TDMA licensees should not be entitled to the 'right of first refusal'," Mrs Lai said.

An opportunity for a new licence

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, she said. It will also enhance consumer demand for mobile data services and increase market revenue potential to the benefit of all players.

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

More stringent conditions on the new licence will be imposed particularly in terms of quality and variety of service. Examples are requirements for data transmission rate higher than existing 3G licences and dedicated network capacity for mobile data services.

Hybrid licence proposed

For the issue of this new licence, the consultation paper proposes to take an approach similar to the one adopted in 2001 for the 3G licensing exercise - 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 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.

Noting GSM and PCS services have become a general commodity penetrating all walks of society and affecting every aspect of our daily life, Mrs Lai said 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. The Government therefore proposes to offer them 'right of first refusal'.

"If the existing licensees accept the right and take up new licences, we propose they be required to pay spectrum utilisation fees 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.

2G services to continue

The consultation paper however notes that in the short term, the existing licensees will likely 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 utilisation fee, which is a new cost element, with a fee level and structure similar to the existing 3G licensees, will increase the cost of business quite abruptly.

So initially there is a case for setting the spectrum utilisation fee for 2G licensees according to a structure different from that for 3G licensees, she said. However, in the longer term there should be convergence of the two structures on principle and parity grounds.

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

The consultation will last six weeks.