Hong Kong Regulator Reveals Startling Plan

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Hong Kong -- The government here revealed a surprising
regulatory proposal last week that would make the territory one of the most liberal TV
markets in the Asia-Pacific region.

Information Technology and Broadcasting Bureau secretary
Kwong Ki-chi's consultation paper allows for an unrestricted number of pay TV
providers and unfettered reception of pay-channel services via satellite. The blueprint
would also allow telephony providers to carry TV channels and cable-TV services to provide
telephony.

What's more, the paper calls for a government and
industry task force to conduct trials on the most effective digital-terrestrial-television
technology for the Special Administrative Region of China, and for the replacement of TV
licenses that stipulate specific means of transmission with technology-neutral licenses.

The paper suggests four classes of licenses: residential
free-to-air; residential pay TV; commercial, for hotels and other public venues; and other
licensable services.

Kwong, who stepped into his current position only four
months ago, also outlined plans to construct a new teleport by tendering the project to a
private enterprise. Uplink-license holders will be allowed to offer this commercially when
Hongkong Telecom International's monopoly ends Jan. 1, 2000.

Industry executives welcomed the proposals. Asia Satellite
Telecommunications Co. Ltd. CEO Peter Jackson, Star TV deputy CEO Bruce Churchill and
Cable and Satellite Broadcasting Association of Asia president S.K. Fung each said they
were encouraged by the tenor of the paper, but they added that they needed to study it
fully.

Officials at Wharf Holdings-owned Cable TV, Hong
Kong's monopoly cable operator, refused to comment. Buffeted by the Asian crisis, the
system is currently facing stagnant subscriber numbers, and it has halted construction of
its hardwire-cable network to cut costs.

Under Kwong's proposed plan, the system could face
competition by early next year, and it will be forced to allow competitors to use its
network.

The government also informed Cable TV that it wants most of
its microwave frequencies returned. Currently, 240,000 of Cable TV's 400,000
customers receive the service by microwave.

On the plus side, Cable TV and its sister company, telco
New T&T, may soon be allowed to carry TV and telephony over each other's
networks.

Salomon Smith Barney analyst Kaushik Shridharani said that
on balance, the proposals and the philosophic thrust behind them are good. But while the
government must be congratulated for removing the dead hand of overregulation, there could
be danger in unrestricted competition.

Shridharani said proposals to allow a multiplicity of
services and providers to enter consumers' homes through a single network did not
address in any detail the problem of each company insisting that consumers buy or lease
its proprietary equipment in order to access its product.

"You can end up with expensively duplicated equipment,
like set-top decoder boxes, that will actually discourage consumers from taking up a
service. It can only be addressed by overarching authority. This is where network
economics clash with free-market ones," Shridharani warned.

Interested parties and the public will be allowed to offer
comments on the paper until Oct. 3. Officials will then draw up draft proposals for a
broadcasting bill that will bring together sections of three separate laws dealing with
television. Kwong said he hoped to put this before the SAR's legislature in early
1999.

Proposals that do not require legislative changes, like
issuing more pay TV licenses, could be implemented early next year if they are agreed to
by Hong Kong's highest political authority, the Executive Council.

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