Hutchison Global Crossing Limited 19/F, Two Harbourfront 22 Tak Fong Street Hunghom, Kowloon Hong Kong Tel +852 2128 2828 Fax +852 2128 3388
Hutchison Global Crossing
Date: 23 November 2001
By fax (2803-5112) and by e-mail (iynchan@ofta .gov.hk) (jlbradfield@ofta .gov.hk) Competition Affairs Branch Office of the Telecommunications Authority 29/F Wu Chung House 213 Queen's Road East Wanchai Hong Kong Attn: Mr. John Bradfield
Dear Sirs, Re : Application for a Declaration of Non-Dominance in the Market for External Bandwidth Services
We refer to the application of Reach Limited ("Reach") for a declaration of non-dominance in the external bandwidth market and OFTA's Consultation Paper. We object to OFTA making such a declaration for the primary reason of Reach having significant market power. Such power results from the benefits of the vertical integration of Reach and PCCW-HKTC . Reach and PCCW-HKTC are structurally separated only in form, not in substance, at least, still for now and for the foreseeable future. As OFTA has correctly noted in the Consultation Paper, both Reach and PCCW-HKT share close staff ties and board members . They also share market intelligence . They also supply service products to each other and share them on bundled basis . At a competition functional level, they together work very much like a single unit. Although Reach and PCCW-HKT are required to supply services to each other at the same preapproved tariffs as applicable to other customers, they are not actually prevented from supplying products to each other at prices lower than those for other customers . They are in a position to give each other tariffed volume discounts based on unreal projected requirements and subsequently allow cancellation of orders with minimal penalty in respect of surplus orders. Reach and PCCW-HKT can easily leverage on the strength of the other to enhance their own competitiveness and their total competitiveness . Reach benefits from PCCW-HKT's dominance
g am I ofta200111tr-221101-ReachNetworks :I
Hutchison Global Crossing in the local fixed network market and is ensured of seamless local connectivity. PCCW-HKT benefits from Reach's control of a large majority of the cable-landing stations in Hong Kong. They can ensure each other service provisioning within the most efficient time frames, which other customers do not usually get to enjoy. We do not agree with Reach's suggestion that vertical integration is no longer a significant factor in the consideration of dominance. Reach argues that technological changes have enabled many wholesale customers to switch between providers at various levels. We would, however, maintain that seamless connectivity by a single service provider still gives a lot of advantages to a customer over multi-providers at different levels, and therefore is a superior service and more competitive . These advantages are reduced negotiation and implementation time, less coordination work and fewer technical complications . If PCCW-HKT were not dominant in the local FTNS market, Reach's argument that vertical integration does not produce significant market power might have some merit. However, PCCW-HKT's control of the local loop, market share and other key network inputs in the local FTNS market defeats this argument . If OFTA should decide, despite our views set out above, that Reach should be declared nondominant in the external bandwidth market, OFTA should impose a condition that neither Reach or PCCW-HKT should be allowed to bundle the other's products with its own. This would help address the issue of the undue benefits accruing to Reach and PCCW-HKT from their vertical relationship . Such benefits give them unfair competitive advantages over their competitors and should not be allowed in the absence of tariff control and the other restrains that would be removed following the lift of the "dominant" status.
Yours faithfully For and on behalf of Hutclicon Global Crossing Limited
Agnes Miu Director of Legal & Regulatory
g:
l am I ofta200111tr-221101-ReachNetworks