Hong Kong Mobile Industry Unfair

1st April , 2004

ASIA : Canning Fok ( Inset ), Hutchison Whampoa Limited Group Managing Director, met with press today and expressed the Company's concerns on OFTA's second consultation paper on 2G licence renewal. The following is a summary of the Company's views:

Unfair withdrawal of CDMA licence

Nowhere else in the world has a government withdrawn a licence from a 2G operator with a fully built operational network.

Hutchison has invested substantially in its CDMA network in accordance with the CDMA licence terms. Hutchison has also fully complied with its licence conditions. OFTA has never notified us that a certain minimum number of subscribers and spectrum utilization rate need to be met for licence renewal.

With the recent development of roaming for CDMA in China, Hutchison in fact has plans and has incurred expenditure to further promote CDMA services. With the uncertainty resulting from OFTA's proposals, these plans are now severely affected and there is immediate loss of revenue. Hutchison will take whatever action it can to safeguard its investments and customers' interests.

Hutchison rolled out the world's first CDMA network and has received numerous awards as a CDMA operator. From the above chart, you can see the deterioration in CDMA subscriber number is a direct result of strong GSM development versus CDMA .

With growth in total number of traveling mobile users, roaming abilities have become important. Until recent CDMA development in China, roaming on CDMA was only possible in Japan, Korea, and North America. In addition, CDMA handsets were not SIM-card based and are lacking in variety. It is therefore clear that the drop of CDMA subscriber numbers was a result of market force, through no fault of Hutchison.

Process of consultation is fundamentally flawed

OFTA failed to give any concrete factual, economic or technical basis for its arbitrary proposals to take back Hutchison's licence.

OFTA failed to carry out a dialogue with existing operators. No consideration was given to the adverse financial impact to existing licencees following withdrawal of licence, not to mention the immediate impact to business and customers upon OFTA's announcement of its intention to withdraw the licence. It is unthinkable that our Government can publicly state such intentions without a prior dialogue with existing operators who have demonstrated their commitment to the Hong Kong market through very substantial investments.

From our own experience in Israel and India, where Hutchison operates telecom services, dialogue with the regulators have resulted in extensions of the term of the licences well before their expiry dates.

Indeed, the regulator in France has as recently as last week announced its policy to renew all existing 2G licences expiring in 2006 for further terms of 15 years.

OFTA's approach regarding telecom projects obviously deviates from international practices and is discriminatory to the CDMA operator. Hutchison reserves the right to pursue all possible recourses to safeguard its investments.

3G investors misled

It is totally unthinkable for OFTA to withdraw an existing licence in order to make spectrum available for a new 3G licence. This is even more so when Hutchison is the only 3G operator to have fully rolled out its 3G service in Hong Kong.

When government invited bidding for 3G licences in 2001, no indication was given by OFTA of its intention to issue a 5th 3G licence based on CDMA technology.

At that time, our decision to bid and take up the 3G licence was based on the then assessment that there would be no further spectrum available for a 5th licence.

OFTA destroying mobile industry

Hong Kong, a small city economy with a population of 6.8 m has ridiculously more mobile operators than any larger national economies in the world.

Examples
Japan - 127.5M pop - 3 operators
South Korea - 47.9M pop - 3 operators
China - 1.3B pop - 2 operators
US - 280M pop - 5 operators

The mobile industry is already overcrowded and operators are struggling for survival.

Such a competitive environment together with the government's ad-hoc, non-transparent and arbitrary decision-making process for the industry will only exacerbate the deterioration of the industry.

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