There is no denying mobile services are an indispensable mode of communication for us in Hong Kong. Our mobile penetration rate of 120% speaks for itself.

And indeed, some of us, particularly the younger generation, are relying entirely on mobile services to satisfy their voice telephony needs.

And I suspect many corporate users would not leave behind their Crackberries even during weekends, and even at their spouses' objection!

Fixed telecommunications services do not stand still either. They are continuing to increase transmission speed to maintain their advantage over mobile services, and find new applications and new revenue sources.

We must not forget mobile services will continue to rely on fixed services for their backbone transmissions.

Other fixed operators have decided to enter, and in the case of our major telecommunication operator, re-enter the mobile market by buying a stake in an existing mobile operator and offering bundled fixed and mobile services to customers.

Fixed-mobile convergence

Today, the notion of "fixed-mobile substitution" has given way to an evolved concept of "fixed-mobile convergence".

This involves more than just bundling fixed and mobile services to customers. 

Telecommunications operators nowadays can no longer choose whether they are in the fixed or mobile telecommunications business, and design their suite of services accordingly.

They must be far more customer-centric in meeting their customers' communication needs, whether they are corporate clients or individual consumers.

And they must plan ahead to take advantage of the continued development in convergence technologies and standards for both core networks and customer terminals to offer innovative, seamless communication services to customers.

The demarcation between fixed and mobile telecommunications markets will blur.  The structure of the telecommunications industry in the near future will be quite different from what it is today.

Boundary dissolved by 2010

According to some industry predictions, the boundary between fixed and mobile technologies will largely be dissolved by 2010 or so as incumbent operators migrate to all-Internet Protocol core networks, enabling them to share the same subsystems for supporting both fixed and mobile accesses.

The introduction of IP Multimedia Subsystem architecture to both mobile and next generation fixed networks will bring their capability to similar fronts.

If the forecast is anything to go by, we are only several years away from a fundamental transition to seamless communications.

It is our business in Government to ensure that the migration towards fixed-mobile convergence will not be hampered by outdated policies or regulations better suited to the old paradigm of telecommunications services.

From a policy perspective, our challenge is to remove policy and regulatory uncertainties so that existing players or potential entrants could make informed investment decisions in the midst of potentially significant changes in the era of fixed-mobile convergence.

Allow market forces to decide

We cannot influence technological development in this fast moving industry, and it only makes sense for us to maintain our technology neutral approach and allow market forces to decide on the most suitable technologies and standards to meet customer needs.

Availability of radio spectrum for these new wireless technologies is another important policy issue. And we will cover this aspect in our spectrum policy review.

On the regulatory front, the Office of the Telecommunications Authority will shortly engage experts to assist in a review of the issues pertinent to fixed-mobile convergence. I wish to share with you three issues that will be covered in this review.

The first issue is licensing arrangements for carriers.

Our current licensing regime is based on a clear demarcation between fixed and mobile carriers, with corresponding rights and obligations.

For example, the fixed carriers have the right to lay cables and access buildings to reach customers, while mobile carriers are assigned radio spectrum and are allowed to provide services which are not limited to specific locations.

Definition of BWA unclear

Under fixed-mobile convergence, some services may fall somewhere between fixed and mobile services. Our earlier proposal for licensing Broadband Wireless Access (BWA) services is a case in point. 

There are mobility standards being developed under the WiMAX family, commercialisation of which could be made possible in a couple of years' time.

Some industry players are already arguing that BWA is not a fixed service, perhaps not now but definitely so a few years down the road.

On the other hand, unlike current mobile services, some of the better known BWA standards do not, as yet, provide for seamless hand-off from hub to hub. Therefore, BWA service is not as "mobile" to users as second or third generation mobile services are today.

We need to consider whether we should create a new type of carrier licence such as a "unified" carrier licence. We need to consider what specific rights and obligations should be attached to this "unified" carrier licence.

We also need to consider whether existing fixed or mobile carrier licensees should be allowed to migrate to this new "unified" carrier licence, and if so, what are the appropriate transition arrangements.

Study on charging arrangements

The second issue to be studied is interconnection charging arrangement between fixed and mobile carriers.

Consumers are not well aware of the complexity of the charging arrangements, but this is an issue raised repeatedly by mobile operators. 

Under the circuit-switching networks, there is a need to make an interconnection between networks so that a call from a caller on a network could be delivered to a recipient on another network.

With a network using the other network's resources to complete the connection, the calling network, or the originating network, may need to provide some compensation to the receiving network, or the terminating network. 

Hong Kong adopts the so-called "mobile-party-pays" customer charging arrangement. This arrangement has been in place since the early 1980s when cellular service was introduced.

Another customer charging arrangement is the so-called "calling-party-pays". 

Level playing field

Other economies adopt this approach for fixed-to-mobile interconnection. In Hong Kong, only fixed-to-fixed network interconnection adopts this arrangement.

There is a third arrangement, called "sender-keeps-all", where the interconnecting networks do not pay any compensation to each other for the use of the recipient operators' networks and could keep all the revenue they receive from the sending customers.

Mobile operators in Hong Kong adopt this arrangement when interconnecting to each other.

While this interconnection charging arrangement may seem esoteric, it is high on the agenda of the industry, because quite a substantial amount of money is involved.

There are no "right" or "wrong" interconnection charging arrangements, because players in the same market are subject to the same arrangement. The important thing is that they are competing on a level playing field. 

It is clear that the current interconnection charging arrangement needs to be reviewed to prepare for fixed-mobile convergence and we are looking into this particular aspect further in the context of our basket of measures to combat spamming.

Portability of numbers

The third issue to be studied is the portability of telephone numbers between fixed and mobile networks.

Putting aside special access numbers, telephone numbers for fixed services in Hong Kong currently start with "2" or "3", while telephone numbers for mobile services start with "6" or "9".

With blurred boundaries between fixed and mobile services in the era of fixed-mobile convergence, it would no longer be possible to simply use a telephone number to identify whether it is connected to a fixed or a mobile network.

However, allowing the telephone numbers to be ported between fixed and mobile networks could create problems for current arrangements which are dependent on the telephone numbers to identify the characteristics of a caller.

The interconnection charging arrangement is a prime example. We need to deal with this issue of portability. 

We are standing at a fascinating juncture in telecommunications.

Welcoming new development

After seeing the successful liberalisation of the telecommunications market in Hong Kong in the past decade with the entry of new players and substantially lowered prices for end-users, we are close to witnessing another major development in the telecommunications industry.

We need to do our part in preparing our policy and regulatory framework to welcome such a development.

OFTA will shortly commission a consultancy study for the detailed economic efficiency and cost-benefit analysis for the issues related to the regulatory framework. 

The study will benchmark our regulatory framework against others, assess the market situation in Hong Kong, collect and analyse views from stakeholders, and recommend the appropriate changes with support from cost-benefit analyses.

We hope that the consultancy study will be able to provide us with a solid foundation for public consultation on fixed-mobile convergence later on in the year.

This is an excerpt of a speech by Secretary for Commerce, Industry & Technology John Tsang at the luncheon meeting of the American Chamber of Commerce in Hong Kong.