Spectrum Strife in Hong Kong

A plan by the Hong Kong regulator to snatch back and re-auction one third of the territory's 3G spectrum could reduce capacity by more than a quarter and cost up to HK$6.3 billion (US$806 million), a consultant's report has warned.

A study by UK-based Plum Consultancy said removal of spectrum in 2016, when the license period ends, could cause major service disruption and, in particular, cause networks in Hong Kong's heavily-used mass transit rail (MTR) system to collapse.

The study, commissioned by Hong Kong's four 3G operators -- Hong Kong CSL Ltd. , Hong Kong Telecommunications (HKT) Ltd., Hutchison Telecommunications (Hong Kong) Ltd. , and SmarTone Telecommunications Holdings Ltd. (Hong Kong: 0315) -- analyzes a proposal from the regulator, Ofca, to take back a third of the deployed spectrum in the 1.9-2.2GHz band and re-auction it.

Ofca has argued that, under a 2007 government policy decision, operators do not have the right to retain spectrum or first right of refusal. It has estimated that the spectrum take-back would reduce capacity by just 9 percent.

But according to Plum consultant Ken Pearson, that figure was based on averaging the impacts across 3G and 4G networks, rather than just the 3G network that bears the burden of the change.

The Plum analysis found that the number of 3G subscribers in Hong Kong would remain roughly the same during the next three years, but traffic would double.

Pearson said the networks were already highly congested, with "hotspots all over Hong Kong," but the biggest impact would be felt in the MTR, which carries more than 4 million passengers daily.

"Under deprival [of spectrum] there could be a complete loss of 3G communications at the busiest time of day," he noted.

SmarTone CTO Steven Chau said the only way to add capacity would be to build 4G networks in a fresh frequency band.

Plum has estimated operators would have to invest HK$708 million (US$91 million) in upgrading their 3G networks to compensate for the loss in capacity, and another HK$145 million (US$18.7 million) on building out their 4G networks to accommodate the accelerated migration of new users.

Pearson said these costs would inevitably be passed onto the consumer, while customers would also have to bear the cost of upgrading their handsets to 4G models, which would cost as much as HK$5.4 billion (US$696 million).

Pearson said Plum had not found "any identifiable benefits" from the plan.

However, one clear beneficiary would be China Mobile Ltd. (NYSE: CHL), whose Hong Kong subsidiary runs a 3G service as an MVNO, and which has expressed support for the take-back plan.

The widely held industry view is that the government is doing a favor for the Beijing-controlled operator.

In Hong Kong's current toxic political environment, where the community and the Beijing-backed local leadership are at odds over democratization, the view is shared by much of the local community as well.

Ofca is due to make its final decision on the plan in October.

— Robert Clark, contributing editor, special to Light Reading

R Clark 9/10/2013 | 4:47:06 AM
Re: Consider the source I'm sure the Hong Kong operators wouldn't mind making room for China Mobile if the mainland operators made room for them.

But there is no reciprocity, nor is there a market failure or any precedent to speak of. So why try to ram this through? Ofca can't explain, and it's not willing to lay out its assumptions and costs.

That'as why it's seen as just another political exercise.
mendyk 9/9/2013 | 11:56:10 AM
Re: Consider the source According to our colleagues at Pyramid Research, the mobile services sector in Hong Kong will generate more than US$3.2 billion in revenue this year. And the clear growth driver is in advanced services. Given that, the burden of upgrading doesn't seem all that onerous for the operators. And given the lifecycle of handsets, it's not relevant to include consumer spending on 4G devices as part of the burden. Yes, it's fairly clear Ofca is carving out a spot in the low end of the market for China Mobile. But I'm guessing the other operators would be moving toward 4G anyway.
R Clark 9/7/2013 | 2:30:01 AM
Re: Consider the source The operators commissioned this report because they could see the Ofca analysis was flawed, ie, by estimating the impact on loss of 3G spectrum the 4G network. That's not a meaningful figure given the costs the operators would have to bear in provisioning their 3G networks.

So it's not an independent study but it lays out its findings and assumptions. Ofca has refused to do that with its own study, which has fed the suspicion people have about the whole plan.

While I'm not sure if this is anything more than a poorly thought-out idea, it's hard not to notice that three of the four operators are owned by HK's  two wealthiest families, who supported the losing establishment candidate in last year's leadership election. 
mendyk 9/6/2013 | 10:18:24 AM
Consider the source Not to downplay the potential disruption that a license takeback would cause, but the fact that this "research" was funded by operators that would be directly affected by a takeback gives this a grain-of-salt feel, no?
R Clark 9/6/2013 | 9:40:00 AM
Re: Is this going to be an issue in other markets? The lack of international precedent on 3G end-times is one reason why the issue is awkward. But you'd think incumbency would count for a lot, ie, in markets where spectrum is sold. In markets like Korea, Japan and China it counts for everything.

The operator execs I spoke to said they aren't aware of any cellco anywhere losing spectrum except where it's not being efficiently used, or in some giant cockup like India's 3G auction.  I can't think of any, either.  Can anyone else?
[email protected] 9/6/2013 | 8:03:59 AM
Is this going to be an issue in other markets? Hong Kong now, but could this be an issue in other markets as initial 3G license terms come to an end in the coming few years?
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