Looks like WCOM is leading the charge to deregulate the Hong Kong market.
This from today's NYT ..
nytimes.com
Hong Kong Confronts Foreign Phone Giants
By MARK LANDLER
HONG KONG -- Anxiety has been running high in this former British colony, which has seen its
economy buckle, tourism dry up and free-market reputation tatter in the 15 months since it reverted
to Chinese rule.
Now, a U.S. telephone company is warning Hong Kong that it could miss out on the information age if it
does not quickly open its telecommunications market. "Hong Kong's Back Is Against the Wall," said a
Cassandra-like newspaper advertisement recently taken out here by the company, MCI Worldcom Inc.
"Hong Kong is teetering on the edge," asserted Steve Liddell, president of the MCI Worldcom Asia
Pacific unit. "It will either embrace the brave new age of telecommunications or return to an age of
protectionism."
Hong Kong officials, perhaps not surprisingly, do not share the American company's alarm. "It is not our
policy goal to be the most liberal telecommunications hub in Asia; that's a rather empty thing," said
Geoffrey Woodhead, a senior adviser to K.C. Kwong, the secretary for information technology and
broadcasting.
At issue is whether the Hong Kong government will allow new competitors to offer local telephone
service in this territory of 6.8 million people. For the last three years, Hong Kong has licensed three
local companies to provide service, in addition to the incumbent monopoly, Hong Kong Telecom. A
decision on whether to license further competitors is expected in the next few weeks.
MCI Worldcom, formed in the recent merger of the United States' second- and fourth-largest
long-distance companies, is eager to wire Hong Kong's teeming business district, so it can offer a
package of voice and data services to the many multinational corporations here. The company already
offers international service to about 100 customers on lines leased from Hong Kong Telecom. But it
wants to offer corporate customers a complete menu of local and long-distance offerings. And it is
dangling a bushel of carrots before the government here.
Among other blandishments, MCI Worldcom has promised to make Hong Kong the hub for an Asian
fiber optic network that would stretch in a vast crescent from Tokyo to Singapore.
Just last Thursday, the government announced plans to open its international long-distance market to
free-wheeling competition. But several analysts said they expected Hong Kong not to issue any more
local phone licenses.
MCI Worldcom contends that by refusing to let more competitors provide the actual direct network
connections to local customers, the territory would cut off its nose to spite its face. Without
sophisticated global players, Liddell said, Hong Kong risks losing its status as a global financial center.
"If the competitors are limited to three local firms," he said, "it's our view that these services simply won't
be available."
With its lofty talk and populist appeals to economic growth, MCI Worldcom's lobbying campaign is no
different from campaigns waged by long-distance and local phone companies in the United States. But
in recession-ravaged Asia, the company's message carries an edge: For those countries that pursue it,
a competitive telecommunications market can be the road to recovery; for those that do not,
protectionism can lead to economic obscurity.
MCI Worldcom notes pointedly that Japan and Australia both have fully liberalized local phone markets.
The company is investing $350 million over 10 years to build a fiber optic network in Tokyo and $200
million to build one in Sydney. Though Liddell refused to discuss MCI Worldcom's potential investment
in Hong Kong, it could easily run into hundred of millions of dollars.
Some analysts say Liddell makes a good case. "Hong Kong needs to jump on opportunities when they
present themselves," said Lloyd Fischer, a telecommunications analyst at Salomon Smith Barney in
Hong Kong. "They've got a good location geographically, but that's only worth so much."
Indeed, these days, analysts noted, Asia can look more terrifying than tempting to potential investors.
Bell Atlantic Corp. recently took charges of $545 million to write down the value of its investments in
Thailand and Indonesia.
Yet, though Hong Kong has suffered along with its neighbors, it is not about to play the needy
supplicant. Regulators here, who contend that Hong Kong already has one of the more open markets in
Asia, say they can preserve the territory's status as a financial center without handing out local phone
licenses to any and all comers.
"We see liberalization of telecommunications as a means to an end, rather than an end in itself,"
Woodhead said. "We hope our telecoms policy will attract people to set up their regional headquarters
in Hong Kong."
Certainly, Hong Kong has taken some steps to open its markets that go further than other Asian
countries. It has four local phone providers, compared with Singapore's two. And unlike Japan, Hong
Kong has no restrictions on the foreign ownership of local telephone companies -- a much-contested
provision in last year's landmark World Trade Organization agreement.
In the accord, most countries agreed to let foreign companies acquire major stakes in domestic phone
companies. Only Japan insisted on limiting foreigners to no more than 20 percent ownership of NTT
and KDD, its main local and long-distance providers, respectively.
In its announcement on Thursday, Hong Kong said it would grant licenses to all companies that want to
provide international direct-dial service in the territory. After Jan. 1, 2000, the licensees can build their
own international networks here.
"It's not a free-for-all, but there is no question that Hong Kong's market is liberalizing," said Victor
Shvets, head of telecommunications research at Deutsche Securities in Hong Kong.
Having opened its local telephone market ahead of its long-distance market, Hong Kong presents
something of an anomaly in regulatory circles -- a quirk that is a result of the government's having
granted Hong Kong Telecom a long-term monopoly on international service. Last February, it paid the
company $864 million to terminate that franchise this year rather than letting the monopoly extend
through the original date of 2006.
In contrast, Hong Kong broke open the local telephone monopoly in 1995, when it granted licenses to
three start-up companies: New T&T, New World Telephone and Hutchison Telecom. All three
companies are owned by powerful property developers, a circumstance that has been no small help in
stringing wires into buildings.
But though the gaggle of local providers has made for a clamorous market, it has barely dented Hong
Kong Telecom's monopoly. Collectively, the three rivals have less than 2 percent of the market. That is
largely because they have been slow to build networks in Hong Kong's densely populated
neighborhoods and hilly terrain.
Predictably, the upstarts are lobbying Hong Kong not to add to their struggles by granting additional
local licenses. Given that these companies are owned by some of Hong Kong's most politically
connected tycoons, their arguments carry plenty of influence.
Hong Kong's government has not hesitated to make decisions that benefited the developers, even
when those moves seemed at odds with the territory's free-market credentials. In June, it suspended
sales of public land; in August, it intervened heavily to prop up the stock market.
Several analysts said the developers might have an ulterior motive in opposing additional local licenses.
If Worldcom cannot build its own network, it might feel pressed to buy out one of the tycoons.
But Liddell, who said Worldcom was not interested in such an acquisition, took an unsubtle swipe at the
tycoons by suggesting that companies that put up apartment towers and ran supermarkets were not as
able to offer up-to-date communications services as a company that focuses on building networks.
Hong Kong Telecom has taken a generally low profile in this debate, perhaps because it has its own
economic and political problems. To ready itself for the deregulation of the market, the company
recently announced plans to slash the wages of its 13,800 workers by 10 percent. But it was forced to
back down after Hong Kong's chief executive, Tung Cheehwa, excoriated the move.
Hong Kong Telecom is controlled by Cable and Wireless PLC of Britain; the Chinese
government-controlled China Telecom bought 5.5 percent of the company last year.
Worldcom is not the only foreign carrier active in Hong Kong. British Telecommunications has an
alliance with Hutchison. And Global One, the joint venture owned by Sprint, France Telecom and
Deutsche Telekom, offers international service on leased lines.
But only MCI Worldcom has ambitions to build a soup-to-nuts local network. Perhaps that is why the
company has chosen to make its case so fervently and publicly. Besides, Hong Kong may represent the
company's best remaining chance to make its local-telecommunications mark in Asia.
Certainly, MCI Worldcom has hit its share of snags breaking into the local phone business elsewhere in
the region. Last year, before teaming up with MCI, the company bid aggressively for a license to offer
local phone service in Singapore. But it lost out to a consortium that includes BT and NTT. Before that
setback, Woodhead said Worldcom had suggested that it might move its Asian headquarters from Hong
Kong to Singapore.
Today, though, there is no talk of moving. It may be that MCI Worldcom needs Hong Kong as much as
Hong Kong needs MCI Worldcom. |
