Is it possible that a day could arrive when no government regulation is needed for the telecommunications industry in Hong Kong?

Although that is a theoretical possibility, Mr Au Man Ho, the Director-General of the Office of the Telecommunications Authority (OFTA) says he has yet to see a developed economy anticipating a date to dispense with sector-specific regulation for the telecommunications industry. It is however inevitable for the role of the sector-specific regulator to evolve following the development of more effective competition in the telecommunications market. Since the liberalisation of the local telecommunications market in 1995, the level of regulation imposed on the industry have already been much scaled back, and the emphasis has changed, as compared to 10 years ago when the market monopoly was first terminated.

“We classify regulations into two types,” he said. “Firstly, we have something that is essentially prescriptive. We set the rules which tell the industry what can and cannot be done. These rules constitute an ‘ex ante’ regulatory approach. As the market develops with all sectors of the telecommunications market opened up to competition, we see it is time to adjust our policies to progressively adopt an ‘ex post’ model instead of the ‘ex ante’ model. Under the ex post model, the Government will only intervene on a need basis when the market competition is found substantially restricted,” he explained.

”We are of the view that it is the best approach to set up a level playing field to allow all technologies to compete with each other and let the market decides The market-driven policy is not only a policy which has been adopted in the past but will continue to be our future policy direction. The consumers collectively in their hundreds and thousands, after all, will be in a better position to make a judicious choice than a single regulator,” Mr Au said.

When moving from a monopoly, however, it is necessary to exercise more stringent control on the incumbent operator for the first few years, which has indeed happened in Hong Kong, to ensure new entrants to have rooms to establish a foothold in the market. This is why OFTA established the “Type-II Interconnection” policy since 1995 to facilitate market competition by allowing new entrants to provide service as soon as possible through connection to the customer access networks operated by the incumbent operator. As the market competition has become more mature, OFTA has decided to terminate the policy by June 2008 by phases.

”When OFTA was set up, Hong Kong telecommunications market was dominated by a monopoly. At that time, we had to use a lot of prescriptive measures. For example, prices of the dominant operator had to be approved by the regulator. Progressively the market has become more competitive, so we’ve been able to scale back our regulation of the prices. Earlier this year, we ended the requirement of PCCW to obtain prior approval of prices before launching them in the market,” he said.

Over the next few years, Mr Au sees three major developments; wireless, broadband and convergence. On the wireless front, new wireless technology will almost certainly expand. Broadband will become even more pervasive and will gain in speed. Convergence means the combination of telecommunications, media and information technology. In fact convergence could bring various applications together. We now get about 10 Mb/sec over broadband and we shall soon have 100Mb/sec. This will bring a vast array of possibilities into the home and office.

“With higher access speeds, the network will have the capability of transmitting all types of information: voice, video and data. Unlike older technologies where one network is dedicated to one thing --for example, there is one connection for television, one for telephone, one for internet -- this new world will have a single connection in the home: broadband. It will be able to handle all sorts of applications,” he said.

“There will be all sorts of advantages to converged systems,” he said. “For example, the simplification of the network architecture will mean lower costs. In addition to that, all the network intelligence will be moved to the edge of the network instead of being in the core, which means that there will be a separation of service transmission and service provision, creating more opportunities and possibilities for service developments. Take VoIP for example. Instead of being provided by the telephone companies, voice will be an application provided outside the network either by the network operator or an independent service provider,” he said.

The regulators talk a great deal about wireless and broadband because these are the “access technologies” upon which all else depends, he said.

“If you have a network you need to bring the customer to the network. The access usually involves a bottleneck and the ‘last mile’ often requires regulatory attention,” he said.

Above all, however, Mr Au said regulation must be technology neutral.

“The philosophy of regulation is neutrality in regard to any technology. I think as a regulator we should not even try to pick the technology winners or losers. It is very difficult for a government or any regulator to identify or select a particular technology and then promote it, hoping that it will be accepted by the market and by the consumer,” he said.

This “neutrality” was crucial, Mr Au said, if the market was to determine success.

“We have always felt in Hong Kong that we should let the market drive future developments. OFTA, as the regulator, must create an environment in which the market is the main driver. That’s our role. We can lower the entry barriers, set up a level playing field, and then investors will come into the market if they believe there is a particular demand for a particular technology,” he said. “I think it is clear that the collective wisdom of the market can predict the future much better than administrative officials.” To show that OFTA has been successful, Mr Au pointed to a recent study they conducted to determine how many households were able to have service choices other than PCCW.

“In March we conducted a survey and found that 69 per cent of households in Hong Kong are connected to at least one alternative access method constructed by PCCW’s competitors. And that is not counting the cable television network. Cable TV reaches over 90 percent of households,” he said. This was proof, if any were needed, that other operators are already able to compete with PCCW on the basis of their “self-built infrastructure”. This attitude will guide OFTA as long as Mr Au is there, and probably long after. “In creating this environment for the telecommunications industry, we shall continue this philosophy. When the market is not responding, we will apply regulation. There will still be some need for regulation, of course, and interconnection issues will still be part of our proscriptive regulations,” he said.

A great deal of fuss has been made about VoIP and Mr Au felt that this was possibly bigger in other countries than in Hong Kong because local calls here are free. The demand for VoIP is therefore quite different.

VoIP services are catching on in the United Kingdom because there are local call charges there. The customer can avoid the expense by using fixed-mobile convergent services. In Hong Kong, however, we do not have call charges and coverage is good. Mobile service subscribers are also offered large volume of free call minutes. Thus the purpose of using fixed-mobile convergent services may more for saving traditional telephone lines instead of avoiding calling charges.

Ultimately, however, he said a dedicated traditional telephone line may be outdated. The technology as it is today is driving everything to IP and broadband, and one day a combination of broadband and wireless will be the backbone for all kinds of communications and services. We may not even know which one we are using at any given time.

As we begin to move from Wi-Fi to WiMAX, we get a glimpse of what the future will bring. In order for WiMAX to succeed, however, it will take a little more time and some commitment from vendors and others.

“And in order for WiMAX to become more wide-spread, a few things must happen: the standard needs to be settled, the equipment must be designed and a good network coverage must be in place before the service could be brought onto the market. The main commercial aspects -- exactly how it’s going to work so that businesses can make their money -- will take a while to get sorted out. I think the whole thing will take a few years yet. By that time the 3G services may well have an advantage. In any case, we should allow the consumer to exercise his choice. The government should not make any decision on this,” he said.

But even 3G has not quite delivered on its promise -- although that could change in the near future.

“I think some of the killer apps for 3G have not materialised. People are still using 3G for voice and messaging. The advantage of 3G will ultimately be the economics of the system and its capacity. Operators with a 3G license will have a commanding advantage because of the lower operating costs,” he said.

Whatever the vendors and others may want to promote over the next few years, one thing is quite clear in Mr Au’s mind: government will simply observe. If it feels there is a need to intervene, it will. The trend, however, is towards self-regulation through market forces. Much of the work of OFTA has already been done. It may not disappear tomorrow, but in many ways its success will spell its own demise.