Hong Kong: Contemplated Unified Licensing Framework Ushers In New Opportunities In The Era Of Fixed Mobile Convergence

Technological barriers segregating fixed and mobile telecommunications services are fast disappearing. Emerging technologies such as Broadband Wireless Access (BWA) will soon enable users to enjoy high-speed voice/data connectivity using a single handset anyplace anytime.

BWA is a technology aimed at providing wireless access to data networks, with high data rates and broad coverage. The word "broadband" means that the technology supports data transfer rates of at least 1.5 Mb/s and has instantaneous bandwidth greater than 1 MHz. "Wireless" refers to connection with a network access point by means of a standardized air interface protocol without the use of a hardwired connection, such as DSL or cable modems.

Typically, BWA is deployed to serve a wider area than the more common Wi-Fi Hotspots (which support wireless local area networks at home, in cafés, offices, etc.). The development of BWA technologies has attracted substantial interest lately. BWA technologies are currently being deployed primarily for fixed services, i.e. as a wireless extension of the conventional wireline based fixed network service. Nevertheless, it is anticipated that BWA technologies will soon support full mobility and will be used inside fast-moving vehicles in a few years time.

Recognizing this recent technological trend, the Telecommunication Authority (TA) has proposed a new type of licence - the Unified Carrier Licence – for BWA service providers, rather than grouping the technology under one of the fixed or mobile licensing framework (see discussion below). The deployment of BWA technologies may be the final link between fixed and mobile services and will certainly accelerate the convergence of fixed and mobile regulatory frameworks.

The TA issued a consultation paper on 20 December 2004 inviting views on the licensing framework for deployment of BWA technologies (the "First Consultation Paper"). Having duly considered the 30 submissions received, the TA issued a second consultation paper on 31 August 2005 and set out the revised proposals for the regulatory framework for deployment of BWA technologies (the "Second Consultation Paper"). The Second Consultation Period ended in November 2005.

The TA originally planned to introduce BWA technologies to the market in late 2006. However, most telecommunications and satellite operators asked OFTA to withhold the issuance of BWA licenses until the completion of the review on fixed-mobile convergence of the regulatory systems (the consultation for which closed in November 2005 and the review is still on-going). The concern is that BWA technologies such as WiMAX would interfere with their satellite operations and affect two million households using Star TV, TVB, ATV, Hong Kong Cable TV, Now Broadband TV etc.

After considering the operators' submissions, the TA agreed to withhold the issuance of BWA licenses until it becomes clearer how the fixed-mobile convergence would affect the regulatory regime. The TA, however, did not indicate clearly whether the sale of the relevant spectrum would be pushed back until after the review of fixed-mobile convergence. Operators have lobbied the TA to postpone the issuance of BWA licences and claimed that they could not bid for the spectrum without knowing how the spectrum would be traded and how much the relevant interconnection would cost.

In the Second Consultation Paper, the TA proposed the issuance of up to 6 territory-wide BWA licences for public communications services. The TA proposed that the 3.4-3.6 GHz frequency band would be divided into six frequency block-pairs (i.e. each block with 15 MHz x 2) and would be allocated to BWA licencees on a primary basis.

In the First Consultation Paper, the TA had proposed that only fixed carrier licencees could bid for BWA spectrum. The BWA services offered would only be allowed to have "limited mobility", which meant no cell handoff capability. A number of mobile phone companies expressed disagreement with the proposal arguing that the proposal would have given fixed-line carriers an unfair advantage. BWA technologies for mobile services at this stage may not be mature, at some point during the duration of the licensing period they surely will be.

As a result, in the Second Consultation Paper, the TA changed its stance and proposed a new Unified Carrier Licence with duration of 15 years covering both fixed and mobile services. However, the TA proposed that initially the permitted service would be restricted to fixed telecommunication services with limited mobility initially and be expanded to include full mobility services after 1 January 2008.

In the Second Consultation Paper, the TA proposed that BWA licences would be awarded using a two-step selection process, comprising of a pre-qualification step followed by an open bidding stage.

The pre-qualification step aims to screen out applicants failing to meet certain objective criteria, which include technical and financial viability of the bidders and rules on connected applications. The applicants are also required to commit to offering the service within 2 years of the grant of the BWA licence.

The next step of the selection process will be a simultaneous multiple round ascending auction. Unlike the 3G auction in Hong Kong where licence fees were paid as a percentage of sales, the bidding for the BWA spectrum will be for upfront lump sum payment of Spectrum Utilization Fee for a specific block of frequency spectrum. The government will set a reserve price for each of the six frequency blocks. The reserve price will be announced when the TA invites applications for the BWA licences.

The proposed unified licensing framework will ultimately bring together fixed and mobile carriers in the same ring and further intensify competition amongst them. With a total of 6 major fixed carriers and 4 major mobile carriers currently competing for a share of the Hong Kong telecommunications market, a consolidation of players inevitably looms on the horizon.

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