Investigation into Alleged Anti-Competitive and or Misleading or

CDN:0215 Investigation into Alleged Anti-Competitive and / or Misleading or Deceptive Conduct by Pacnet Internet (HK) Limited, Hutchison Global Communications Limited, and PCCW-HKT Telephone Limited Complaint against: Pacnet Internet (HK) Limited Hutchison Global Communications Limited PCCW-HKT Telephone Limited Issue: The Complainant is a prominent property and facilities management services company which maintains a presence at over 130 separate locations throughout Hong Kong. It relies on outside telecommunications services to connect its operations at these locations with its company headquarters. In November 2007, when the company switched service provider, problems in the changeover surfaced, resulting in a large number of the remote locations not having broadband connection to central office on the due date. The company complained that this was the result of various transgressions by the telecommunications service providers involved. Sections 7K, L and M of the Telecommunications Ordinance (Cap. 106) February 2008 November 2008 No breach Case closed T23/08 Relevant Instruments: Case Opened: Case Closed: Decision: Outcome: Case Reference: Glossary “Authority” or “TA” means the Telecommunications Authority; “OFTA” means the Office of the Telecommunications Authority; 1 “Complainant” means Synergis Management Services Limited; “HGC” means Hutchison Global Communications Limited; “Ordinance” means the Telecommunications Ordinance (Cap 106); “Pacnet” means Pacnet Internet (HK) Limited, formerly called Pacific Internet (Hong Kong) Limited; “PCCW” means PCCW-HKT Telephone Limited. Introduction and Summary 01. The Complainant is a prominent property and facilities management services company. It relies on telecommunications to link over 130 separate locations in Hong Kong with its company headquarters. In March 2007 the Complainant decided to change the licensed telecommunications operator it had been using for the provision of private broadband network connectivity to these locations. Problems in the changeover surfaced, and on the 1 November 2007 start date for the new service, a large number of the locations were without access to central office. This resulted in the Complainant lodging urgent complaints about the situation to OFTA. 02. In accordance with usual practice, OFTA first informally facilitated cooperation amongst the three operators concerned so as to resolve the service interruption as soon as practicable. The new service provider was able to avoid continuing total service disruption by deploying temporary wireless internet access facilities at all the affected sites by the next day. The Complainant nevertheless stated that the situation “…result[ed] in a huge financial loss to our company.” and that the incident interrupted “…50,000 customers using our service…”, who were making increasing complaints to the Complainant. 03. By 21 December 2007 all the problems to do with accessing fixed line links had been substantially solved. Subsequently OFTA commenced a preliminary investigation into the particular allegations that operators may have acted unlawfully. This report sets out OFTA’s conclusions concerning possible transgressions of the Ordinance. 04. In summary OFTA does not consider that any of the licensed operators involved was in breach of any of their legal duties or obligations arising pursuant to the Ordinance and that nothing in the complaints warrants the Authority taking any kind of action against any operator. In particular OFTA has concluded that there has been no unlawful collusion between any of the parties involved; that no party has misused a dominant market position; and 2 that no party has engaged in conduct which is misleading or deceptive or which does not meet prevailing quality of service standards. Accordingly no further official action is being taken by OFTA in respect of any of the matters raised by the Complainant. 05. OFTA nevertheless considers it worthwhile to draw wider attention to the events which gave rise to OFTA having to facilitate cooperation amongst the parties. This is because the events provide some useful risk management lessons for broadband providers and customers alike, concerning the need for the customer to become fully conversant with the particulars of changing a pre-existing service arrangement, and for each party involved to take steps to ensure that the responsibilities, expectations and assumptions of every other party are adequately identified and addressed when a new service provider is engaged. Background 1. The Complainant is a prominent Hong Kong based property and facilities management services company with building management offices at over 130 separate locations throughout Hong Kong. Prior to 1 November 2007, the Complainant was using Pacnet’s Asymmetric Private Network Basic service, a broadband Internet Protocol connectivity service, to provide broadband Internet connections between the Complainant’s central office and its offices at the estates and buildings under its management. 2. Because Pacnet does not have its own local telecommunications network within Hong Kong, Pacnet leased physical access links from PCCW for the specific purpose of providing the Complainant with a broadband private network. 3. Until November 2007, the contractual relationships between the parties were as follows: PCCW was contracted by Pacnet, to provide physical access links to Pacnet; Pacnet was contracted by the Complainant, to provide a broadband private network for the Complainant in respect of over 130 locations; There was no contractual relationship of any kind between PCCW and the Complainant. 4. In March 2007, the Complainant decided to replace Pacnet as its broadband private network provider and to take up a contract with HGC for the same sort of service. HGC has its own physical telecommunication network but, at the time, its network coverage did not include the majority (120) of the 3 Complainant’s locations. Accordingly HGC proposed to lease physical access links from PCCW to provide service to the Complainant in respect of those locations. 5. On 31 August 2007, the Complainant gave notice to Pacnet that it was terminating Pacnet’s service with effect from 1 November 2007. This followed the Complainant having contracted with HGC to commence providing service from 1 November 2007. 6. In relation to the notice of termination, the contractual relationships predicated by the Complainant’s actions were as follows: PCCW was contracted by HGC, to provide some 120 physical access links to HGC; HGC was contracted by the Complainant to provide a broadband private network for the Complainant in respect of some 131 locations; Pacnet ceased to be contracted to the Complainant for any purpose; There was no contractual relationship between PCCW and the Complainant; Pacnet remained contracted to PCCW for the lease of the access links which it had been using to provide service to the Complainant. 7. When the date of 1 November 2007 arrived, the service provided by Pacnet to the Complainant duly ceased. However, replacement service from HGC to some 80 of the Complainant’s locations could not commence on that day because the necessary access links which HGC had ordered from PCCW were still being processed. HGC had therefore been forced to advise the Complainant that it would not be able to provide service to those locations on the agreed start date. 8. HGC responded to the situation by deploying mobile broadband internet access devices, at no additional cost to the Complainant, at the locations still without fixed line access so that internet connection was available at all remote locations from 2 November 2007 onwards. By 21 December 2007 PCCW had substantially completed the provisioning of HGC’s order for access links so that by that date, HGC was supplying a fixed line based private network to the Complainant in accordance with its contract. 9. The Complainant responded to the situation in early November 2007 by launching a series of telephone complaints to OFTA followed by letters of complaint to OFTA and other parties. As it often does, OFTA sought to facilitate practical resolution of the problem, ahead of any enquiry into non compliance with regulatory obligations. For that purpose OFTA was in contact 4 with all three operators involved during the period up to the completion of the HGC leasing arrangements with PCCW. Subsequently, and in response to the allegations made by the Complainant, OFTA began enquiries into the events to establish if any operator had engaged in anti-competitive collusion, or had misused its dominance, or if any of them had engaged in misleading or deceptive conduct, in contravention of the Ordinance. The Complainant’s Allegations against Pacnet, HGC and PCCW Against Pacnet 10. The Complainant’s initial complaint to OFTA was made against Pacnet. The gist of the Complainant’s complaint was that in order for HGC to provide service to the Complainant, Pacnet needed to release the physical links Pacnet was leasing from PCCW so that the same links could be deployed by HGC1. The Complainant said its termination request to Pacnet had included a request to Pacnet to terminate service with PCCW so that those resources would be available to HGC 2 . The Complainant further claimed that in mid-September 2007, Pacnet had confirmed to the Complainant that it had “passed the termination” to PCCW. However Pacnet had in fact only given a suspension order to PCCW, and thus was still holding the links. As a result, the links could not be migrated to Hutchison and therefore the Complainant was deprived of the freedom to choose and switch operators. 11. The Complainant was apparently also not happy with the fact that when it contacted Pacnet on the issue of migration, Pacnet counter-proposed to the Complainant that the option was not to switch to HGC, but to stay with Pacnet. 12. The Complainant sent a letter to Pacnet through its solicitors on 2 November 2007 demanding Pacnet to “… immediately take all necessary steps to remedy the situation so as to allow [the Complainant]’s new service provider to perform the switch over…”, and holding Pacnet liable for all the Complainant’s loss. 13. Pacnet replied to the Complainant’s solicitors on the same day, claiming that its responsibility was only to terminate service to the Complainant on 1 November 2007, which it had done. Pacnet did not accept that it should be held responsible for the switching of service to the new service 1 This is called “migration”, which is undertaken by the provider of the physical access links, PCCW, with the cooperation of the donor ISP (ie the ISP that is holding the links) and the receiving ISP (ie the ISP that will take over the links), by giving the necessary notification and information to enable PCCW to perform that migration. 2 In the notice of termination served by the Complainant on Pacnet dated 31 August 2007, the Complainant left blank the part in the form which required the customer to advise whether it would be switching to another ISP, and if so, to which ISP. 5 provider. Pacnet claimed that “our staff could not and did not make any commitment as to whether and when the new supplier would be taking over our circuits.” Nonetheless, Pacnet said that it had served an urgent termination notice to its supplier [i.e. PCCW] as the Complainant had requested, “disregarding our committed contractual period with our supplier, if any.” Against HGC 14. In respect of HGC, the Complainant claimed that HGC had failed to take any action to press PCCW to speed up the recovery process (this refers to the migration of the physical access links to HGC). The Complainant believed that “HGC and PCCW [had] been conspiring in delaying the process of recovering the broadband service to our company”. No other information was provided by the Complainant to support its allegation that collusion had taken place between HGC and PCCW. Against PCCW 15. Other than the complaint that PCCW had conspired with HGC, the Complainant also asked OFTA to review “the anti-competition aspects” of the case. In that respect PCCW’s conduct should be the focus, because the Complainant claimed that as Pacnet had already terminated the lease of the physical access links, PCCW should be able to release these resources to HGC. 16. More particularly the Complainant claimed that “PCCW should deal with our service provider Hutchison Telecommunications immediately because there is available resource after Pacific Internet terminated the service with PCCW on 2.11.2007” and that “[t]he government should not allow one service provider to hold resources for business competition”. Information Provided by Pacnet, HGC and PCCW 17. In response to OFTA’s facilitation, and in response to its formal enquiries and requests for information, all three operators offered full cooperation with OFTA. Information from Pacnet 18. Pacnet advises OFTA that it had received a notice from the Complainant on 31 August 2007 terminating Pacnet’s provision of broadband private network service with effect on 1 November 2007. On 1 November 2007 Pacnet duly made a verbal request to PCCW to suspend service on a number of the physical access links Pacnet was leasing from PCCW. Pacnet explains that it was the established convention that such suspension requests be made and accepted by phone. On 2 November 2007, Pacnet submitted a 6 written termination notice to PCCW in response to a letter from the Complainant’s solicitors of 1 November 2007 threatening legal action. 19. Contrary to the Complainant’s allegation, Pacnet says that at no time did its staff represent to the Complainant that Pacnet’s leases of PCCW’s upstream services would be terminated on or by 1 November 2007. Rather, Pacnet staff told the Complainant that Pacnet’s upstream arrangements were quite separate from its downstream arrangements; that upstream arrangements were Pacnet’s concern, not the end customer’s; and that the downstream supply to the Complainant would terminate on 1 November as requested. 20. Pacnet also notes that during the communications between Pacnet and the Complainant in September and October 2007, the Complainant expressed concern that HGC might fail to provision service to all the Complainant’s sites by the due date of 1 November 2007. The Complainant specifically enquired about how quickly Pacnet could restore service to the Complainant if HGC failed to deliver service to all its sites on the due date. 21. As for Pacnet’s upstream arrangements with its supplier, Pacnet says that it is not the company’s practice to discuss with (downstream) customers aspects of Pacnet’s upstream arrangements, including whether or not it is likely that Pacnet will terminate such upstream arrangements. Whilst Pacnet often does terminate the upstream service arrangements when a downstream customer terminates, it is not invariably the case. In some cases, Pacnet is liable for early termination charges to the upstream supplier if it does that. In this particular situation, Pacnet’s decision not to terminate the arrangements upstream of the Complainant was affected by the fact that the customer had indicated it might require the service to be restored at short notice. 22. Pacnet says that the Complainant’s enquiry about the lead-time for restoration of service was interpreted by Pacnet staff as indicating that the Complainant was not completely confident that HGC would provision its service on time. This led to Pacnet’s decision to suspend, rather than terminate the (upstream) leases, because they saw an opportunity to win back the customer if HGC failed to deliver. In addition, occasionally a customer may experience problems with lead-times for a switch-over and in those circumstances Pacnet is often prepared to extend the service period for the departing customer for a short time. 23. On the other hand, Pacnet says that it owed no duty to HGC to terminate the leases of the PCCW access links and did not represent to either the Complainant or HGC that Pacnet would terminate those leases. Pacnet notes that in late October 2007, HGC had contacted them to check whether Pacnet had terminated the (upstream) leases with PCCW and whether Pacnet would help HGC to switch the Complainant’s service over to HGC. To those enquiries, Pacnet replied that the downstream service to the Complainant would 7 be terminated by 1 November (without divulging information on the termination of the upstream arrangements), that it was not Pacnet’s responsibility to help HGC to switch services, and that HGC should speak with PCCW directly. Pacnet considers that it is each carrier’s clear and sole responsibility to secure the network elements it requires from suppliers upstream so as to deliver a downstream service. Pacnet does not know why HGC had difficulty securing service coverage from PCCW. Pacnet’s experience is PCCW has multiple ADSL lines available to most buildings in Hong Kong. Information from HGC 24. HGC informs OFTA that it was awarded the broadband private network contract by the Complainant on 30 March 2007. Thereafter, HGC and the Complainant had regular discussions about service implementation. On 8 August 2007, the Complainant confirmed by email to HGC the exact addresses of 131 sites that were to be covered by HGC’s broadband service. Because HGC’s own network only reached 11 of the sites, HGC proposed to rely on PCCW access links to provide service to the remaining sites. It was agreed between HGC and the Complainant that the implementation process should start in late August 2007 to cater for the risks of delay and to ensure that all 131 sites would be completed by 31 October 2007. 25. HGC explains that according to PCCW’s gazetted terms and conditions, the service delivery lead-time for PCCW’s access service is 14 days, but that it is aware that PCCW’s internal target service level is 7 days. 26. HGC despatched the 120 access service orders to PCCW in batches between 15 August and 12 October 2007. HGC claims that most of the target dates for completion were at least three weeks ahead of 31 October, the scheduled hand-over date. 27. Out of the 120 orders, PCCW rejected two, confirmed 74 and gave no reply to the remaining 44. Even for the 74 confirmed orders, there was delay in completion by PCCW despite phone and email follow ups by HGC. Throughout, the Complainant was kept updated by HGC on the project’s progress. 28. By 1 November 2007, the access link service orders of HGC for over 80 sites were still not completed by PCCW. HGC implemented an interim solution by setting up wireless internet access devices at its own cost at 84 of the sites so that the Complainant would have temporary connection. By that time the Complainant had requested assistance from OFTA. From 12 November 2007, PCCW’s response to the outstanding service orders was more effective. By late November 2007, a further 71 sites were completed. By 21 December 2007, all but one of the outstanding orders was completed. 8 29. With respect to the issue of migration, HGC says that it would not have information regarding PCCW’s network resources unless and until PCCW either accepted or rejected an individual service order. It is HGC’s normal practice, as a new service provider to a customer, to require new service links to be installed to operational status in parallel with the existing links of the outgoing service provider in advance of the termination of the existing service. HGC calls this the “Parallel Run Approach”3, which HGC considers is the only way to achieve an uninterrupted service changeover for the customer4. Unless HGC is informed by the upstream service provider that there is no more network resource in support of the Parallel Run Approach, HGC as the prudent new service provider would normally proceed with this approach. 30. In this case, save and except for two service orders (out of a total of 120), HGC had not been told by PCCW that there would be insufficient network resources. Accordingly HGC considered that there was no issue of migration in this case. 31. HGC advises that over the past four years it has issued over [confidential] access link service applications to PCCW by way of the Parallel Run Approach for similar projects. All these projects were completed smoothly. In HGC’s view the delays in this case were due to PCCW’s failure to properly deal with HGC’s service requests. 32. In brief, HGC’s claim is that no adequate reasons were given by PCCW as to why PCCW did not or was not able to confirm or complete the orders within the usual timeframe during which orders would normally be confirmed and completed. If there were “resources deficiency” problems in relation to any such service applications back in August-October, PCCW should have immediately provided feedback to HGC, which is important for the purpose of proper project co-ordination and management. HGC considers that PCCW unreasonably withheld relevant information about the potential problems. As a result, HGC had at the material time been deprived of the requisite information to form a proper assessment of the actual problem(s) and to promptly explore necessary solutions. 33. 3 HGC considers itself the victim of the unreasonable conduct of As opposed to what HGC calls the “Takeover Approach”, which is the migration process described in Footnote 1,involving the new service provider taking over the same physical resources being used by the outgoing service provider, 4 HGC says that the “Takeover Approach” would inevitably necessitate a service break for such length of time that would involve, inter alia, (a) the outgoing service provider disconnecting its CPE (customer premises equipment) from its existing links; (b) the new service provider installing and configuring its own CPE connecting to the new links; and (c) where applicable, the upstream service provider re-arranging the relevant logistic support. These steps can give rise to a multitude of failure and delay possibilities at the time of the takeover. In contrast, the Parallel Run Approach provides ample time for testing and trouble-shooting before the service termination by the outgoing service provider. 9 PCCW as the providing operator, and that it was all along misled by PCCW’s failure to provide relevant information regarding the availability of network resources. Equally pertinent from HGC’s point of view, things did progress immediately after OFTA’s involvement. 34. Responding to the Complainant’s allegation of conspiracy, HGC claims that the allegation defies logic, and that it is wholly improbable for HGC, who has successfully solicited new business from the Complainant, to conspire with a third party with a view to delaying HGC providing service to its new customer. HGC considers that it has done its best to fulfil its contractual obligations to the Complainant. Information from PCCW 35. PCCW provides the following information to OFTA: On Pacnet’s notice of termination PCCW from time to time receives service disconnection orders from Pacnet through the automatic electronic interface for processing. In the second half of 2007, PCCW received a number of disconnection orders from Pacnet. Pacnet did not advise that any of the disconnected links would have to be deployed by HGC; On Pacnet’s notice of suspension PCCW notes from its records that Pacnet submitted a suspension notice (i.e. a notice to suspend earlier submitted disconnection orders) in the first week in November 2007. The notice was processed in accordance with PCCW’s normal procedure; On HGC’s orders to PCCW PCCW received orders from HGC in August and September 2007 with a ready for service target date of 1 November 2007 5 . PCCW acts as the wholesaler with no direct relationship with the end customer. The relevant disconnection orders from Pacnet were not received until November 2007. According to PCCW’s tariffs, the donor operator should provide a written notification to PCCW specifying which customer end lines are to be transferred to which receiving operator. Neither Pacnet nor HGC provided 5 HGC refutes PCCW’s claim that orders from in August and September 2007 all had a ready for service target date of 1 November 2007. HGC says it submitted 117 service application orders (out of a total of 120 orders) to PCCW between 21 August and 4 September 2007 in four batches. The ready for service target dates set by HGC in these 117 orders were from 5 September to 9 October 2007. 10 PCCW with notifications regarding transfers. The provision of access links by PCCW is subject to availability of resources and it sometimes might require a longer lead time for provisioning due to resource issues. In any event, PCCW received no coordination or migration request from the relevant parties and their ordering dates would indicate that they did not coordinate with the customer. 36. In response to HGC’s allegation that PCCW refused to properly deal with HGC’s requests, PCCW contends that this is not a refusal to deal case. HGC has made over [confidential] service applications for PCCW’s access links in the last four years and there have been no systematic or repeated problems. The present case was a one-off and unfortunate event with no section 7K or 7L implications. 37. PCCW emphasises that it was only the wholesaler provider for both Pacnet and HGC and had no responsibility for either the retail customer relationship or the creation of any migration plan. PCCW acted pursuant to the service orders received from Pacnet and HGC. PCCW does not have visibility into the existing customer base of Pacnet or HGC and could not possibly identify which 120 service orders placed by HGC would be used by HGC to meet the Complainant’s demand. In addition, as neither HGC nor Pacnet informed PCCW that any access links held by Pacnet would be migrated to HGC, there was no basis for PCCW to check the relevance of the access links held by Pacnet in respect of the same sites or same end customers under the orders placed by HGC. 38. PCCW reiterates that the orders could not be completed within the 14 days service delivery lead time because there were resource issues, as well as port faults and cable faults in some cases. PCCW had informed HGC of the longer lead time required for provisioning due to resource and other technical issues. 39. PCCW says that at all times it acted in a manner that was consistent with its tariff, available resources and other obligations. Nevertheless PCCW has also accepted that it can do better in the future. OFTA’s conclusions about what happened 40. OFTA’s general conclusion is that the respective factual accounts given by the three operators are basically consistent with each other. On the other hand the Complainant’s account reflects a certain lack of familiarity with the technical aspects of broadband private network provision, especially why and how upstream access arrangements are put together and dismantled. The 11 account is also, understandably, somewhat coloured by the Complainant’s worries about not having full service, as well as the pressure it says it was under due to the “tremendous complaints” being received from the tenants of the estates and buildings under its management. 41. On the issue of whether migration was or ought to have been a feature of the Complainant’s change of service provider, the nature of the Complainant’s allegation is that Pacnet had given an assurance to the Complainant that Pacnet would “terminate” the access link services obtained from PCCW so as to allow PCCW to deploy the same access links to fulfil HGC’s orders. Accordingly the fact that Pacnet just ordered a “suspension” of the links, thereby preventing the switching of the services, was wrongful conduct on the part of Pacnet. 42. But according to the accounts given by Pacnet, HGC and PCCW, migration of existing access links, rather than the commissioning of new ones, was not an issue contemplated amongst any of the operators, at least not until late October. That was when it was becoming apparent to HGC that HGC might not be able to secure the new access links from PCCW for many of the target locations in time. 43. As the service provider which had just lost a customer, Pacnet had no incentive to be in any way concerned with how the incoming service provider, HGC, would secure the necessary upstream resources to provide service to the Complainant. Moreover at no point was Pacnet formally requested by HGC or PCCW to release the access links so as to facilitate HGC’s provision of service to the Complainant. It is Pacnet’s evidence that the company was first contacted by HGC in late October, and that the discussion was exploratory only, and was concerned with help to speed matters up, which is consistent with HGC’s evidence that PCCW had never advised HGC that a migration of links was needed. 44. HGC’s evidence is that at all times the company treated the access link orders placed on PCCW as new service orders. As explained in its submissions to OFTA, HGC always prefers the Parallel Run Approach. HGC was acting on the assumption that it was PCCW’s responsibility to ascertain the availability of resources HGC was requesting. PCCW would therefore advise HGC if resources turned out to be a problem and migration of some existing access links to the Complainant was required. PCCW did reject two orders, but at no time did PCCW indicate to HGC (or Pacnet) that there would be insufficient network resources. 45. PCCW also processed HGC’s orders as orders for new links, and appears to have been acting on the assumption that if at any time a migration of any access links held by Pacnet was required by HGC, both Pacnet as the donor operator and HGC as the receiving one, would be notifying PCCW, so that it 12 could process those orders as migration orders, rather than orders for new links. 46. Whilst the operators might have had different assumptions or expectations as to which party had the responsibility to consider a need for migration so as to meet HGC’s start date, and who might be the ones to actually initiate a migration request, the facts are clear that no formal migration request was ever made to Pacnet by the Complainant or anyone else, for Pacnet to release some of the existing links, nor was any request ever made to PCCW for it to actually process certain of HGC’s orders as migration orders. 47. Accordingly the Complainant’s account that Pacnet had specifically undertaken to release the links to facilitate migration is not corroborated by any other information which has come to light. 48. According to the information provided by Pacnet, HGC and PCCW, the relevant sequence of events is as follows: Between August and October 2007, HGC despatched new orders for access links to PCCW. The need for migration of any links was not contemplated; PCCW processed the orders from HGC as new orders because no migration request in relation to any existing links to the Complainant were included in the orders; The records provided by HGC show that from August 2007, HGC was closely in touch with PCCW via email to check the progress of PCCW’s processing of HGC’s access link service applications and the installation of the access links. There were a number of orders that were met with the problem of “failure to install”. PCCW had never mentioned to HGC that migration was needed; The Complainant was all the time kept updated by HGC of the progress of installation, and started getting concerned about HGC’s ability to provide the service on time and checked with Pacnet in late September and October how quickly Pacnet could restore supply of service to the Complainant after service termination (from Pacnet to the Complainant) on 1 November 2007; As it was getting apparent to HGC that the access link orders could not be completed in time, HGC approached Pacnet in late October to check if Pacnet could help facilitate the switch. Pacnet told HGC to contact PCCW direct6. 6 It is Pacnet’s evidence that HGC had approached them for help. This is not reflected in HGC’s account. HGC’s account is that “[W]e are aware that [the Complainant] had in early October 13 Pacnet surmised that HGC might not be able to provide the service in time, and decided just to suspend the access link service provided by PCCW instead of terminating the service altogether, so that Pacnet would be able to re-activate the downstream service to the Complainant within a short notice of time if the Complainant needed7; Service provided by Pacnet to the Complainant ceased on 1 November 2007, but HGC was not able to take over seamlessly. HGC was not able to provide connection to over 80 of the locations due to the delay in completing the underlying access link work; The Complainant complained to OFTA on 1 November 2007. The Complainant wrote to Pacnet on 1 November 2007 threatening legal action for failing to release the access links it held with PCCW. Pacnet denied liability but as the Complainant requested, served notice to terminate the access links on 2 November. In the meantime HGC started to deploy alternatives to provide temporary connection to the problem sites, and continued to work with PCCW with a view to completing the access link installations. By 21 December 2007, HGC’s orders for physical access links were basically completed. Analysis of the Operators’ Conduct 49. The conduct of each operator is considered separately. enquired with [Pacnet] regarding the release of the network resources (as a result of [the Complainant’s] termination of service). Our senior staff had also discussed the situation with the head of Wholesale Marketing of PCCW. But neither had [the Complainant] nor we received any constructive response then.” This does not necessarily suggest that HGC had not contacted Pacnet. But HGC’s account indicates that requesting Pacnet for help was certainly not an option high up in their mind. HGC simply looked to PCCW to sort out the matter. 7 PCCW confirms that Pacnet sent a suspension notice to PCCW in the first week in November 2007. PCCW says a suspension notice is a notice to suspend earlier submitted disconnection orders. It is unclear whether this means Pacnet might have earlier submitted disconnection orders and then replaced them with suspension orders. This is not apparent in the evidence of Pacnet. But this is unlikely to be significant as it is quite clear that Pacnet had never been requested to assist in the migration of the service, and HGC and PCCW both did not treat the orders placed by HGC on PCCW as migration orders. 14 Pacnet 50. In essence, the Complainant has accused Pacnet of misleading or deceiving it into believing that Pacnet would help in the migration of the access links by terminating Pacnet’s own leases of the links with PCCW. 51. OFTA’s conclusion is that there is no prima facie case of Pacnet engaging in misleading or deceptive conduct in breach of section 7M of the Ordinance. Pacnet denies having ever made a promise to the Complainant that it would terminate its own leases and assist HGC in the migration process. Rather Pacnet says it told the Complainant that its arrangements with PCCW were entirely separate from its deal with the Complainant and were not relevant to whether HGC would be able to provide service. Pacnet’s account is the more plausible version of the facts, bearing in mind HGC’s evidence that HGC had not contemplated that migration of links would be required. 52. Consideration has also been given to whether Pacnet might have engaged in anti-competitive behaviour in preventing the switch of service to HGC. There are two categories of anti-competitive behaviour. One is concerned with “concerted action” or “collusion” between operators which has the purpose or effect of preventing or substantially restricting competition in a telecommunications market (section 7K). The other is unilateral conduct undertaken by an operator in a dominant position which has the purpose or effect of preventing or substantially restricting competition in a telecommunications market (section 7L). 53. In Pacnet’s case its conduct throughout in this matter was anything but “in concert” with other operators. Pacnet was the outgoing operator. At all times its only obligation was to terminate the service provided to the Complainant on the date as requested by the Complainant. This Pacnet did. Then at the Complainant’s request (under the threat of a legal action), Pacnet terminated the leases with PCCW on 2 November 2007, which Pacnet was under no strict obligation to do. There is no information, even in the account given by the Complainant, which in any way points to Pacnet colluding with any party to prevent HGC from providing service to the Complainant. 54. As far as Pacnet’s unilateral conduct is concerned, the company would need to hold a dominant position in the relevant telecommunications market for it to be capable of breaching section 7L. Whilst Pacnet certainly is an active player in the retail commercial broadband market, it does not own a telecommunications network and has to rely on PCCW to provide the upstream access links. On this basis alone it is impossible to say that Pacnet is market dominant. 55. In any case, OFTA has not been able to discern any conduct on the part of Pacnet which has any anti-competitive implication. Pacnet was under 15 no regulatory obligation to effect migration of the access links and it was never formally requested to cooperate in that respect by either of the other operators involved. All Pacnet did, as it was fully entitled to do, was to hold the access links and speculate on resuming some business with the Complainant if the incoming operator failed to perform. That stance is not anti-competitive business behaviour. Competition is all about efficient players strategising to win at the expense of inefficient ones. 56. It is also noted that there is nothing in the evidence to suggest that migration of certain existing links to the Complainant was ever a feature of HGC’s plan for providing service to the Complainant. HGC either knew all along, or at least ought to have known, that Pacnet was using PCCW’s access links to provide service to the Complainant. Nevertheless HGC did not take any steps indicating that it thought that migration was either desirable or necessary. HGC in fact positively confirms that it generally prefers the Parallel Run Approach by ordering new access links from the upstream service provider for provisioning services to its end customers. HGC’s perception that Pacnet’s release of the links was not a prerequisite to HGC also obtaining links from PCCW was obviously based on the assumption that PCCW would have duplicate resources or would find other ways to resolve any resource issues which might arise. That this was a reasonable assumption is supported by the fact that HGC had ordered [confidential] new access links from PCCW in the past without problem. In addition in the instant case, installation of access links at some 35 sites was completed by PCCW for HGC before 1 November 2007, even though at that time Pacnet was still providing service to the Complainant at those sites making use of the links provided by PCCW. HGC 57. The complainant’s accusation against HGC is that it was in a “conspiracy” with PCCW to delay the provision of HGC’s service to the Complainant. This allegation is problematic in terms of the logic of market forces and competitive behaviour which underlies section 7K. It simply does not make sense for HGC to enter into a conspiracy so obviously contrary to its own financial interests. If there was any party with a strong motive for ensuring that HGC’s service to the Complainant was on time then HGC was that party. HGC would be contractually liable to the Complainant if its new service was late and it was clearly at risk of losing its new customer back to Pacnet if it failed to perform. The email correspondence between HGC and PCCW which HGC has furnished to OFTA also shows that in fact as things became critical, HGC was diligent in chasing PCCW’s progress on the installation. OFTA’s conclusion is that the conspiracy allegation has no foundation in fact, and has no currency in term of the legal requirements of section 7K. 58. OFTA has also considered whether, in the course of securing its contract with the Complainant, HGC might have engaged in misleading or 16 deceptive conduct in relation to HGC’s ability to provide service on time. Such a misrepresentation could have arisen if HGC had said that it would be on time when in fact, at the time HGC knew or ought to have known that it could not be on time. However there is nothing in the evidence to suggest that it was impossible for HGC to be in a position to deliver on time. HGC was a frequent user of PCCW’s access links, which are a standard service which can be secured by the simple process of sending a facsimile using PCCW’s standard form. Given HGC’s knowledge of the ubiquity and capacity of PCCW’s network, as well as four years of actual experience using PCCW’s access link services, it was reasonable for HGC to rely on PCCW’s upstream service capability in offering downstream service to the Complainant with a definite start date some seven months ahead. As it turned out HGC no doubt later wished that it had made more detailed enquiries with PCCW to check the resources situation, but there is no section 7M implication arising from its conduct towards the Complainant when the contract was won. PCCW 59. The allegation of conspiracy to delay service to the Complainant was also directed at PCCW. For the reasons noted above the allegation has no substance in terms of the application of section 7K. Consideration has nevertheless been given to whether PCCW might have engaged in a conduct which was anti-competitive in terms of section 7L. 60. PCCW is the upstream service provider to both Pacnet and HGC. The access link service is a tariffed service which is offered on the same terms and conditions to some [confidential] broadband service providers. At any time PCCW has some [confidential] links on lease to different operators. In the particular circumstances of the Complainant’s private network, where HGC would take up some 120 new leases and Pacnet would for the time being retain those already in service, PCCW would be a beneficiary if HGC completed its service to the Complainant on time. 61. The service delivery lead time for provision of access links is 14 days as gazetted, and 7 days according to PCCW’s internal target. However, PCCW has given notice to broadband service providers that such target lead-time does not apply where: The building blockwiring is owned by other fixed line operators The duct/conduit for carrying cable wiring inside the building is full, and there is no space inside the duct / conduit to carry extra cable wire Incomplete / inaccurate customer information provided Additional in-house wiring required8. 8 PCCW’s Megalink Fact Sheet, updated on 18 Feb, 2003, supplied by HGC. 17 62. In short, PCCW’s lead-time pledge is not absolute and is subject, basically, to information and resource availability. What can be observed from the email correspondence between HGC and PCCW on the implementation progress is that certain sites had run into the problem of “failure to install”, with some sites given additional reasons of “port fault” or “cable fault”. It is unfortunate that the email reply of PCCW was imprecise in detailing the actual cause but it is apparent that it indicates particular technical problems. 63. Hutchison’s evidence is that out of the 120 orders it sent to PCCW, PCCW rejected two, confirmed 74 and gave no reply to the remaining 44. Even for the 74 confirmed orders, there was delay in completion by PCCW, resulting in overall 80 plus sites uncompleted at 1 November. But what happened subsequently was that the outstanding sites were progressively completed between November and December 2007. 64. The installations had not progressed as smoothly as HGC or the Complainant would have liked, but with the information available, there is no prima facie evidence of a refusal to deal on the part of PCCW, which could potentially be anti-competitive if PCCW was found to be in a dominant position. The problem appears to be an isolated incident. HGC has placed over [confidential] orders to PCCW in the past four years and those orders “were completed smoothly”. In the present case, the evidence is that of the 120 orders placed, PCCW only rejected two, on the basis of insufficient network resources. PCCW was able to deliver some 35 sites before 1 November 2007, and the rest were progressively completed thereafter. There is no evidence to suggest that PCCW intentionally delayed the completion. Rather PCCW explains that there were resource issues and port and cable fault problems in respect of some of the sites, leading to the delay in completion. It is relevant to note that PCCW’s service provision capability is not absolute and is always subject to resource availability. 65. Overall, there is nothing in the submission of HGC or the evidence itself which suggests that PCCW’s delay in completing the installations effectively amounted to conduct that could be characterised as a constructive refusal to deal. 66. As regards HGC’s allegation of having been “misled” by PCCW’s failure to provide relevant information regarding the availability of network resources, the accusation arises from the somewhat passive and cursory manner in which PCCW handled HGC’s orders and communications with HGC. There is clearly a question mark over the mutual effectiveness of communications between PCCW and HGC. However, PCCW’s conduct on its own does not have the essential characteristics of a breach of section 7M. 18 The Complainant’s Situation 67. OFTA has also approached the Complainant to ascertain the nature and extent of disruptions that the Complainant suffered when the changeover of service failed to materialise at over 80 sites on 1 November 2007. 68. The Complainant has confirmed its private closed network is crucial to its performance of its obligation under its building management contracts. For example, when processing a tenant’s management fee payment, staff at the remote site offices have to access the Complainant’s system for handling the fee calculation, payment record and receipt issue, via the private network. This system also houses all related tenant information which is basic to the Complainant’s staff’s performance of their daily operations. The site offices also have to access other systems via the network to perform various other processes, including procurement and tendering, human resources related processes such as leave applications and approvals, overtime claims, and processes to manage daily maintenance work requests at sites. Therefore, without the private network, communications within the company as a whole can be brought to a standstill. 69. On 1 November 2007, when remote connections to over 80 sites were down, the Complainant had to resort to manual procedures to collect and record management fee payments. All other operations requiring access to systems hosted at headquarters were suspended while the connections were down. The Complainant’s staff had to rely on those sites which were not affected to provide off-the-line information requests and updates. 70. The Complainant says that even though HGC had installed two temporary mobile internet access devices at each of the affected locations instead of a single one, performance and speed were still below its requirements. And because the mobile devices could only connect two computers, those sites with more than two computers in use suffered even greater inconvenience. The Complainant also says there were at least six sites which effectively had no service because of the weak mobile network or bad signal conditions. 71. As a result of all this, the Complainant’s daily operations were seriously affected. Extra working time was required of staff at the remote locations and at headquarters to complete the daily work routine. The fact that staff had to resort to manual procedures to deal with management fee payments lengthened the process, resulting in long queues of residents waiting to make payments, especially in the first few days of the month. The Complainant received over 800 verbal complaints from tenants and some staff were subjected to verbal abuse from the more impatient ones. 72. In terms of the financial cost, although at the time the Complainant 19 characterised this as “huge”, the costs largely involved the additional costs of staff overtime and the additional manpower needed to process and audit the manual handling of management fee collection. There were also legal advice costs, as well as senior management time lost in preparing contingency plans and following up the matter with various parties. The events have not however resulted in the Complainant losing any management contract business. Conclusion 73. OFTA’s consideration of the evidence gathered from its investigation indicates that there is no prima facie case of anti-competitive behaviour or misleading or deceptive conduct on the part of any of Pacnet, HGC or PCCW. No further action will therefore be pursued against those operators in relation to any aspect of the matters raised by the Complainant. 74. By way of a general observation on the events it was certainly unfortunate for all concerned that the switch from Pacnet to HGC was not as smooth as all might have expected, especially since the Complainant relies so heavily on the private network for its day-to-day operations. It is fully understandable therefore that the company has sought to lay blame for the problem on other parties. However in OFTA’s view blame for these events is to be shared. 75. A major contributing factor was the lack of sufficient prior coordination and ongoing effective communication between HGC and PCCW as to the scale of the installation work involved, the availability of resources, and the importance of keeping to the time schedule. With hindsight, both parties could have done better. HGC could have communicated with PCCW more effectively about the nature of the overall project and its requirements at an earlier stage. For its part, PCCW could have been more sensitive to the time pressure under which HGC was required to deliver the service, and more forthcoming with relevant information. And both could have worked more closely to at least better contain the problem when it became apparent that completion of work at certain sites would not be in time. 76. Given HGC’s previous experience in securing the provisioning of access links from PCCW, it is understandable that HGC had no specific reason for thinking that the installation of new access links for the Complainant’s sites would not be routine. However, in view of the end customer’s special need for uninterrupted service, the number of remote sites involved and the daily transaction rate, it would have been prudent for HGC to get things clearer with PCCW beforehand, about the overall project and the significance of the services being completed on time. 77. From the email correspondence between HGC and PCCW, OFTA 20 notes that HGC was diligent in checking PCCW’s progress with installing access links at the sites. However, when it first became apparent that the access links might not all be installed in time, HGC should have recognised that the situation was probably not going to be resolved at the operational level and that escalation to the appropriate management level within HGC and PCCW would be required. 78. This is however in no way a criticism of HGC, in the context of its licence obligations or its obligations under the Ordinance. OFTA is simply observing, with the benefit of hindsight, how HGC might have done better in the special circumstances of the particular case in terms of service provision and efficiency. No doubt HGC will take lessons from this so as to maintain its competitiveness and reputation in the marketplace. 79. In PCCW’s case, its communications with HGC over the course of the installation process could also have been better. The email correspondence between HGC and PCCW suggests that PCCW was relatively passive in responding to HGC’s enquiries about progress. In addition little elaboration of the technical issues that certain sites faced was provided by PCCW to HGC. 80. Being the upstream service provider, PCCW should have been more alert to the needs of its downstream customer HGC, and more sensitive to the time pressure HGC was under in delivering services to an end customer. OFTA thinks PCCW should have been more forthcoming in its communications with HGC, so that HGC was fully updated about the installation progress, and the technical issues which might jeopardise timely completion. With better communication the parties might have been able to sort out technical alternatives (such as migration of existing links). Moreover better communication on PCCW’s part would at least have meant that HGC would have been in a better position to alert its customer and optimise its own contingency arrangements. As it turned out PCCW’s communications were rather cursory and was not attentive to the needs of its customer HGC. OFTA notes that PCCW has accepted that it can do better in the future. OFTA expects PCCW to observe this commitment. 81. The events also hold lessons for customers of private network services. The main ones are that the customer itself needs to ensure that the service provider clearly understands the customer’s business operations and what the customer’s priorities and requirements are when new services are engaged. This is especially true if an existing service is to be terminated. The customer also needs to dispel assumptions about the role of third parties and the exact steps and responsibilities involved in commissioning and de-commissioning particular service elements. The efficacy of any contingency plan also needs to be tested. Moreover because modern information and communication technology operations are complex, customers (like the Complainant) who are heavily dependent on private telecommunications networks should seriously 21 consider getting separate professional assistance when contracting for these kinds of services. Office of the Telecommunications Authority November 2008 22