OFCA releases official statement on 3G reallocation

9 Dec 2013

Hong Kong’s Office of the Communications Authority (OFCA) released an official statement on 8 December to clarify and justify its position on the upcoming re-assignment of 3G mobile spectrum and the Spectrum Utilisation Fee (SUF) for allocating the 2100MHz UMTS band, following the regulator’s recent decision to auction one-third of the band currently held by four network operators (‘the hybrid approach’), allowing a fifth operator (most likely China Mobile Hong Kong) to claim a portion of the band in October 2016.

The release reads: ‘The Communications Authority (CA) decided to adopt the hybrid approach to re-assign the paired spectrum in the 1.9GHz-2.2GHz band (‘3G Spectrum’). On enquiries from the media about the implications of the hybrid option on service quality and tariffs, OFCA has the following responses. The existing term of assignment for the 3G spectrum totalling 120MHz will expire in October 2016. Under the hybrid option, the CA will re-assign one-third of the 3G Spectrum (‘Re-auctioned Spectrum’) through auction, which will be open for bidding by all interested parties including the incumbent 3G operators. This 40MHz of 3G Spectrum represents only 7%-10% of the total spectrum holdings of the individual incumbent 3G operators. The incumbent 3G operators are free to participate in the auction to acquire the Re-auctioned Spectrum. If any of the incumbent 3G operators are unable or choose not to acquire the Re-auctioned Spectrum, they will have two years after the auction in the second half of 2014 to adjust their network and business plans to address any changes to their holdings of 3G Spectrum, so that satisfactory customer services will be ensured.’

OFCA’s release continued: ‘[Regarding] the comments that the re-auction of one-third of the 3G Spectrum would lead to high SUF which would eventually be passed onto consumers … the spectrum utilisation fee paid by the incumbent 3G operators for the Re-auctioned Spectrum is estimated to account for only about 0.5% of their total annual operating cost. A total of eight spectrum auctions have been conducted since the assignment of the 3G Spectrum through auction in 2001, and so far we have not found any correlation between the spectrum prices as determined by auction and service charges. Mobile service charges are determined primarily by demand and supply in the market as a result of competition, not the fee paid for the spectrum by the mobile network operators. As a matter of fact, the mobile market in Hong Kong is keenly competitive. Mobile service charges in Hong Kong remain highly affordable and competitive by international standards.’

OFCA’s release added: ’On service quality, we would like to point out that there is currently ample capacity available in the 4G networks of the incumbent 3G operators. If the incumbent 3G operators which are unable or choose not to acquire the Re-auctioned Spectrum could use their 4G network capacity efficiently, they would be able to ensure that customer service quality would not be affected in any manner when the 10MHz of 3G Spectrum is handed over in October 2016. According to the finding of the consultancy study commissioned by the government, the 3G service quality in busy locations such as the Mass Transit Railway (MTR) is less than satisfactory during busy hours, and this point was acknowledged by some of the incumbent 3G operators in their submissions to the second consultation on 3G Spectrum re-assignment. There is an imminent and continuous need now for mobile network operators to upgrade their networks and improve their service quality at the congested hotspots as soon as possible. The CA notes that the 200MHz of 4G spectrum released to the market since 2009 have yet to be deployed in busy locations such as the MTR. Mobile network operators should make efficient use of their 4G spectrum and deploy them in these locations in order to provide satisfactory service to their customers. We are confident that the hybrid option adopted for re-assignment of the 3G Spectrum is best to achieve the multiple objectives of spectrum re-assignment, viz. ensuring customer service continuity, efficient spectrum utilisation, promotion of effective competition, and encouragement of investment and promotion of innovative services.’