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PCCW’s acquisition of CSL approved by regulator, with conditions

6 May 2014

Hong Kong’s Communications Authority (CA) has given its consent, with certain conditions, to the proposed USD2.43 billion acquisition of Hong Kong’s largest mobile operator by subscribers, CSL New World Mobility (CSL), by PCCW’s core domestic telecoms unit Hong Kong Telecommunications (HKT) Limited. While PCCW is smaller in the mobile segment than CSL, it is Hong Kong’s largest telecoms group in terms of fixed line, broadband and cellular operations, whilst also being the territory’s biggest pay-TV provider, and the CA conducted a public consultation (running 23 December 2013 to 4 February 2014) on the proposed merger in addition to commissioning external analysis from an economic consultant, via which it formed an opinion that the acquisition would significantly affect competition in retail mobile services and the market for wholesale mobile network access. Therefore the CA has decided that PCCW (HKT) and CSL must take the following remedial actions in order to complete the merger:

-HKT and CSL shall effectively divest a total of 29.6MHz of 2100MHz 3G (UMTS) spectrum, by abstaining from the upcoming process of reassigning the band 1920.3MHz–1935.1MHz paired with 2110.3MHz–2125.1MHz when the band expires on 21 October 2016;

-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 directive;

-HKT and CSL shall notify the Office of the Communications Authority (OFCA) and all other mobile network operators 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;

-HKT and CSL shall continue to provide wholesale network access to mobile virtual network operators (MVNOs) based on the existing agreements for three years;

-HKT shall continue its existing 3G network capacity sharing agreement with China Mobile Hong Kong (despite reduction of its 3G spectrum holding).

The press release from the CA continued with a clarification on the spectrum band to be divested by HKT, reading: ‘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 2×14.8MHz 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 2×14.8MHz it currently holds. This arrangement will make more efficient use of both the divested spectrum to be acquired by bidder(s) in the coming [Q4 2014] 3G spectrum auction and the 3G spectrum in the frequency range of 1935.1MHz–1949.9MHz paired with 2125.1MHz–2139.9MHz to be retained by the merged entity.’

In a related matter, HKT’s legal challenge to the government’s 3G spectrum reassignment plan has ceased: a HKT spokesman told the South China Morning Post at the weekend the company had withdrawn the case for judicial review that it filed in February because other operators had apparently chosen not to join the petition.

CLS was sold by PCCW (HKT) to Telstra in 2002, but in December 2013 the Australian group agreed to sell its 76.4% stake back to HKT, saying that ‘there are a number of dynamics in the Hong Kong mobile market that mean this is the right opportunity for Telstra to maximise the return on this successful asset.’ Simultaneously, HKT agreed to acquire the other 23.6% in CSL held by Hong Kong’s New World Development (owner of New World Telecom).

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