Communications Authority Decides to Give Consent to the Proposed Acquisition of CSL New World Mobility Limited ("CSLNWM") by HKT Limited with Conditions Imposed


The Communications Authority (“CA”) today (2 May 2014) announced its decision to give consent, with conditions imposed, to HKT Limited’s proposed acquisition of CSLNWM (the “proposed acquisition”) pursuant to section 7P(7)(b)(ii) of the Telecommunications Ordinance (Cap 106) (“TO”).

HKT Limited fully owns Hong Kong Telecommunications (HKT) Limited (“HKT”), holder of a number of carrier licences issued under the TO to provide fixed and mobile telecommunications network services in Hong Kong. CSLNWM fully owns CSL Limited (“CSL”), holder of a carrier licence issued under the TO to provide mobile telecommunications network services in Hong Kong. As the proposed acquisition involves “a change in relation to a carrier licensee” under section 7P(16) of the TO, HKT Limited finalised its application for the CA’s prior consent to the proposed acquisition under section 7P in December 2013.

By way of background, where the CA receives an application for prior consent under section 7P(6) of the TO, under section 7P(7), it has to consider whether the proposed change would have, or be likely to have, the effect of substantially lessening competition (“SLC”) in a telecommunications market and, if there would be such an effect, whether the proposed change would have, or be likely to have, a benefit to the public that would outweigh any detriment to the public that would be, or would likely to be, constituted by any such effect of SLC. Where the CA forms an opinion that the proposed change would have the effect of SLC, it may give consent subject to the direction that the carrier licensee concerned takes such action as the CA considers necessary to eliminate or avoid the effect of SLC in connection with the proposed change. The CA may give consent without issuing such a direction if it is satisfied that the proposed change would have, or be likely to have, a benefit to the public that would outweigh any detriment to the public that would be, or would likely to be, constituted by any effect of SLC in a telecommunications market.

“On the proposed acquisition, as per the requirement stipulated under the TO, the CA has conducted a public consultation during 23 December 2013 to 4 February 2014. Having considered the representations received from carrier licensees and interested persons and the economic analysis conducted by its appointed economic consultant, the CA has formed an opinion under section 7P (7) of the TO that the proposed acquisition would have, or be likely to have, an effect of SLC in two relevant telecommunications markets, namely the downstream retail mobile telecommunications services market and the upstream market for wholesale mobile network access,” a spokesman of the CA said.

“Having further formed the opinion that HKT Limited has not made out a case that the proposed acquisition would result in a benefit to the public, the CA has turned to consider whether remedies are available to eliminate or avoid the effect of SLC found in the relevant telecommunications markets. Following careful examination, the CA has come to a view that such remedies are available.

“Having regard to the representations received and the evidence and analysis available to it, the CA has decided to give consent to the proposed acquisition pursuant to section 7P(7)(b)(ii) of the TO, subject to the direction that HKT and CSL, as carrier licensees concerned, shall take the following actions that the CA considers necessary to eliminate or avoid any effect of SLC that is identified. Under the CA’s Direction,

  1. HKT and CSL shall divest a total of 29.6 MHz of the 3G Spectrum (namely the paired spectrum in the 1.9 – 2.2 GHz band), by not seeking to renew the assignment of and not acquiring 1920.3 – 1935.1 MHz paired with 2110.3 – 2125.1 MHz, when the assignment of these ranges of 3G Spectrum expires on 21 October 2016 (the “Divestment Direction”);
  2. HKT and CSL shall not participate in any 3G Spectrum auction in Hong Kong for a period of five years from the effective date of the Direction (the “Auction Direction”);
  3. HKT and CSL shall notify the Office of the Communications Authority (“OFCA”) and all other mobile network operators (“MNO”) of any plan for the closure of any base transceiver station (“BTS”) sites at least 90 days prior to the scheduled closures of the relevant sites, for a period of five years from the effective date of the Direction (the “BTS Direction”);
  4. HKT and CSL shall continue to provide wholesale network access to mobile virtual network operators (“MVNO”) based on the existing agreements for a period of three years from the effective date of the Direction (the “MVNO Direction”); and
  5. HKT shall continue to give effect to its existing 3G network capacity sharing agreement with China Mobile Hong Kong Company Limited (“CMHK”) despite reduction of its 3G Spectrum holding for compliance with the Divestment Direction (the “CMHK Direction”),”

the spokesman continued.

“By the Divestment Direction and the Auction Direction, HKT and CSL are required to divest altogether 29.6 MHz of their 3G spectrum holding, to be made available for assignment to other MNOs and/or new entrants through a competitive bidding process that is planned for the fourth quarter of 2014. This will reduce the spectrum concentration on the part of HKT and CSL combined (the “Merged Entity”) following expiry of the 3G Spectrum assignment in October 2016. The acquisition of the divested spectrum by competitors of the Merged Entity will equip them with sufficient network capacity to enable them to compete effectively with the Merged Entity.

“On the exact frequency ranges of spectrum to be divested, the original commitment of HKT involves the giving up of a non-contiguous block of 2 x 14.8 MHz of 3G Spectrum. Given that the CA has a statutory role of promoting the efficient allocation and use of the radio spectrum as a scarce public resource and in performing this statutory role, the CA has decided to require HKT to divest instead the contiguous spectrum block of 2 x 14.8 MHz it currently holds i.e. 1920.3 – 1935.1 MHz paired with 2110.3 – 2125.1 MHz. This arrangement will make more efficient use of both the divested spectrum to be acquired by bidder(s) in the coming 3G Spectrum auction and the 3G Spectrum in the frequency range of 1935.1 – 1949.9 MHz paired with 2125.1 – 2139.9 MHz to be retained by the Merged Entity,” the spokesman elaborated.

“As to the BTS Direction, it helps facilitate other MNOs or potential new entrants to enter into negotiations with site owners for taking up respective sites relinquished by the Merged Entity more effectively and thus enable these operators to expand or build up their network capacity more expeditiously,” the spokesman added.

“Last but not the least, the MVNO Direction and CMHK Direction seek to ensure the continued access of the MVNOs and CMHK to the network capacity of HKT and CSL on which they currently rely, in supplying their own retail mobile services. This continued access in turn serves to maintain effective competitive constraints on the Merged Entity post-merger,” the spokesman concluded.

Further details may be found in the CA Decision published today and the Consultancy Report prepared by the CA’s economic consultant to be published on 5 May 2014 (Monday).

Full text of the CA Decision (public version)

The Consultancy Report (public version)

Representations received on the Application

Communications Authority

2 May 2014

 

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