Hong Kong Authority Approves IMS Purchase of Star Internet

In a public statement on Wednesday, Hong Kong’s director general of telecommunications, Anthony Wong Sik-kei, gave his consent to Hong Kong Telecom IMS Ltd.’s US$32 million buyout of Hong Kong Star Internet Limited.

The director general, also called “the Telecommunications Authority” (TA), heads the Office of the Telecommunications Authority (OFTA) and by government ordinance is the main decision maker in charge of government regulation of Hong Kong’s telecommunications and Internet industries.

“I have considered all the submissions made to me, including the views expressed at the meeting of the Panel on Information Technology and Broadcasting of the Legislative Council held on 4 December 1998,” said Wong. “My conclusion is that the proposed transaction will not have a serious affect on competition.”

Wong admitted that the telecom’s share of the dial-up access market after the acquisition will be nearly 51 percent and that this is substantially higher than the next largest player in the market.

However, Wong believes that, with over 130 access providers in Hong Kong and with certain conditions on the license of IMS, the competitiveness of Hong Kong’s Internet industry will be safeguarded.

“We will incorporate two new conditions [to the license] including one that prevents the abuse of a dominant position and anti-competitive agreements and a second one that expressly prohibits the receipt of unfair cross-subsidies from parent or related companies,” declared Wong.

The prohibited anti-competitive tactics include predatory pricing, cross-bundling, and exclusive arrangements with suppliers.

The TA further stipulated that the combined IMS-Star market share has actually decreased from 58.7 percent in early June to 50.8 percent in early December.

According to him, the market share reduction has occurred because of the effective campaigns of other major players in the market and because of the market’s 40 percent increase to nearly 600,000 subscribers since June.

“The top five players–excluding HKTIMS and Star–have increased their subscribers by approximately 95 percent compared to June 1998,” stated the Authority.

“Some of the market players have been even more successful in attracting new customers,” continued the TA.”One has reported an increased subscriber base from 8,600 to 63,000 (635 percent), another from 35,000 to 65,000 (86 percent).”

The Hong Kong Internet Service Provider’s Association (HKISPA), an organization the represents 51 providers, re-emphasized its objection to the IMS acquisition of Star Internet.

“Our stand towards the Star-IMS merger remains that the association is against the merger and against the merger with conditions attached,” said Lee Kheng Jo, vice chairman of HKISPA and COO of Hong Kong SuperNet Ltd.

Other critics of the government wonder how it can punish IMS if it engages in anti-competitive policies.

Currently, the TA can only impose a HK$20,000 (US$2,600) fine which it slapped on Hong Kong Telecom, the parent of IMS, in June for unfair trade practices.

Wong stated that a bill has been introduced to the Hong Kong Legislative Council that, if passed, would raise the ceiling on the penalty for such anti-competitive practices to as high as 10 percent of the violator’s market turnover.

The imposition of such a fine, once again, would be up to the discretion of the Telecommunications Authority.

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