By David Ellis (partner) and Stephen Bureaux (solicitor)

Originally published in May 2002


The Telecommunications (Amendments) Bill 2002 was gazetted on 3rd May, 2002 and aims to amend the Telecommunications Ordinance to provide a legislative framework for the regulation of merger and acquisition activities in the telecommunications sector where such activities may reduce competition in the market. Its second reading is due on 15th May 2002.

The Bill, when passed will fundamentally affect the procedure of acquiring telecom carriers in Hong Kong.

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The Hong Kong government's policy is not to have an overall competition law or authority in Hong Kong, but rather, to make sector specific provisions where it considers necessary. The telecommunications carrier market, because of its perceived high concentration levels, high barriers to entry through large sunk costs, the scarcity of radio spectrum, and high level of vertical integration, has been identified by the government as an industry of particular concern as regards the possible anti-competitive effect of mergers and acquisitions.

The Bill will apply only to carrier licensees (i.e. local fixed telecommunications network services operators, external fixed telecommunications network services operators, mobile operators and satellite operators) because the government does not consider that any market factors exist which may cause completion concerns in respect of non-carrier licensees. The proposed changes are intended to:

(i) promote fair and effective competition and protect consumers' interests by providing specific powers for the Hong Kong Telecommunications Authority ("TA") to intervene where he has a regulatory concern, i.e. where the TA feels that a particular merger or acquisition may substantially lessen competition; and

(ii) provide a comprehensive and clear regulatory framework on mergers and acquisitions for the telecommunications business sector which will assist the industry in making informed decisions concerning such transactions, and speed up the processes for regulatory approval.

Under the new proposals, the TA will have the power, where he considers that a change in ownership or control over a carrier licensee has, or is likely to have, the effect of substantially lessening competition in a telecommunications market, to require the carrier licensee to take such action as the directs to eliminate any such anti-competitive effect. Such action may include the carrier licensee procuring modifications to its ownership or control. The failure to take any required action will constitute a breach of the Telecommunications Ordinance, the sanctions for which may include, financial penalties, and suspension or cancellation of licences.

Alternatively, prior to any change in ownership a carrier licensee may voluntarily seek the consent of the TA to the proposed change, thereby avoiding the possibility of subsequent conditions or sanctions. The TA may in response, give or refuse consent, or specify any conditions for such consent which may include modification to the proposed ownership structure.

The proposed anti-competition regulation will therefore be primarily ex post (i.e. regulatory review takes place after the merger or acquisition is completed), rather than the ex ante (licensees must seek approval prior to proceeding with the merger or acquisition) regime favoured by some jurisdictions such as the European Union or Singapore. However, there will be a voluntary system for prior approval in place.

The Bill does not contain any specific guidelines or criteria that will be taken into account in determining which mergers will be considered as having anti-competitive effect, however, following commencement of the Bill but prior to taking any regulatory steps under the new regime, the TA is required to formulate a set of criteria on the matters he will consider in this regard and to issue guidelines in this respect. Those criteria and guidelines will be subjected to public consultation prior to coming into force.

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