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(The Master of Ceremony)

Good evening. Ladies and Gentlemen, a warmwelcome to you all to this cocktail reception organisedby the Office of the Telecommunications Authority(OFTA).

A quick word about tonight’s programme: Weshall begin with a talk by our honourable speaker,Professor Richard Whish, from London. This will befollowed by a short question-and-answer session, whenyou will be free to exchange ideas with the professor. Atabout 8 o’clock tonight when the talk concludes, thecocktail reception will resume, and we have arrangedmore refreshments outside for you. Since the professoris catching his flight home tonight, much as we wouldlike to have him here longer with us, we’d have to makesure that he can be allowed to leave the venue by 8:30.

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As you may be well aware, this reception hasbeen organised to mark the closing of an in-houseseminar organised by OFTA on the application ofcompetition law and policy to the Hong Kongtelecommunications sector. This 5-day in-houseseminar actually started last week and today is the lastday.

We are very honoured to have invited ProfessorRichard Whish of King’s College, London to conduct theseminar. Now in just about a few minutes, ProfessorWhish is going to share with you his insights and expertknowledge surrounding competition issues. But beforehe starts, may we invite Mr Anthony Wong, Director-General of Telecommunications, to say a few words tous. Mr Wong, please.

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(Mr Anthony Wong)Good evening to you all. Ladies and gentlemen,

I’m very pleased to see a very good turnout on afunction organised by OFTA. We, as the MC has justsaid, we have conducted an in-house workshop with thehelp of Professor Whish coming here for the last week.He has spent many many hours in the OFTA officetraining up staff in OFTA as well as people from theindustry.

Competition Law is a very new subject in HongKong. Indeed, it is a very new subject in the world.Particularly in Hong Kong, we have not a generalcompetition law environment, and a sector-specific typeof regulation has been applied. Telecommunicationsfortunately or unfortunately is the first sector toexperiment this new theory in the legal area as well asthe economics area…...

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…...I’m sure Professor Whish will agree that this field isnot only on legal issues but very much also oneconomic theories as well. Let me not spend so muchof your time. I’m sure you want to hear from ProfessorWhish, not me tonight. If I may, I’ll introduce ProfessorWhish.

Professor Richard Whish has been professor oflaw at King’s College London since 1991. Prior to that,he has been teaching at the University of Bristol andhe’s a qualified solicitor and was a partner at Watson,Farley and Williams from 89, 1998. He acts as aconsultant to a variety of companies and regulatoryagencies and as a member of the advisory panel of theDirector-General of Fair Trading in the UK…...

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…...Besides, the professor is also the author orcontributor to numerous books on competition law.We’ve had a 5-day seminar and it’s very successfullyconducted. And I would like to take this opportunity toallow the audience here to hear from the professor.May I now pass the floor to you, Professor Whish.

(Professor Richard Whish)

Ladies and Gentlemen. Good evening. Thanksyou very much to the Director-General for thatintroduction. I’ve had an immensely enjoyable time inHong Kong, I must say. I’ve been here since lastMonday and I’ve conducted a series of lectures but I’vealso met many people and we’ve discussed issues oftelecommunications and competition in Hong Kong…...

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…...A most interesting week I have had. I wasn’t awarethat I’d be whisked away at 8:30 precisely. So I have towork out how long to talk for and how long to receivequestions and how long to get for myself a glass of winebecause I haven’t had one yet. So I propose to talkabout 30 or 35 minutes or so, which will give time forsome questions and comments.

In preparing a talk like this, it’s often quite difficultbecause I’m aware sitting in the room there’ll be somepeople who know a great deal about competition lawand policy. And there’ll be another group of peoplewho’ll know a great deal about telecommunications…...

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…..But also I suspect there are some people for whomthe whole subject of competition law and policy is reallyrather new. And when one is unfamiliar with this area itreally is quite complicated. And so what I’ve tried to dois to work out some thoughts and observations which Ihope will be of interest to a fairly mixed group of peoplein terms of their prior experience.

Now early in my teaching career, I was told that anexpert is somebody who comes from overseas withtransparencies. I have come from overseas and I dohave transparencies. So I hope at least I’ve passed thattest. I’ve got six of these slides. I thought it might bequite interesting just to begin with a brief view of thedevelopment of competition law globally before webegin to focus more specifically on Hong Kong andeven more specifically, telecommunications in HongKong.

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(Slide 1)

As the Director-General just said, competitionlaw itself is relatively new. Of course it is the case thatin the United States and Canada there have beensystems since the late 19th century. The United Stateswill often be heard to say that it had the first system ofcompetition law in the world, 1890, the Sherman Act.Actually, the Canadians did get in there in 1888, andthey are very proud to tell you when they have theopportunity. In North America, competition law has fairlydeep roots. But elsewhere in the world it’s much newer.In Europe we adopted in the Treaty of Romecompetition rules in 1957. That came into force in1962…...

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…...But up until the 1990’s there were still about 10serious systems of competition law. So even going back12 years or so, you wouldn’t have found that manycompetition law regimes. And yet, in the 1990’s, yousaw an absolute proliferation of systems of competitionlaw around the world. And as I’ve said on this slide,there are at least 90 competition regimes in place. Soobviously a lot of those happened in the late 80s andearly 90s onwards.

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Of those systems of competition law, not all butmany include provisions for the prohibition of mergersthat would be seriously detrimental to competitivestructure of markets. So about 50 countries have asystem whereby a competition authority or minister orcompetition commission or whatever, in certaincircumstances, can prohibit mergers on competitiongrounds. Some of these cases are extremelycontroversial, as many of you saw last year, Europeancommission prohibited the merger between GeneralElectric and Honeywell. So we’ve got about 90 systems,50 or so include merger control. And the interestingthing is that the systems of competition law that wehave exists in all types of economy.

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Obviously highly developed and very substantialeconomies, such as the United States or Canada, havecompetition regimes. But many of the countries thathave emerged from a state-controlled market structure,the former Soviet Union countries, for example, thecountries of Central and Eastern Europe. Most of thesecountries now have adopted competition regimes. Soyou’ll find that Poland, Hungary, Slovenia, Romania andBulgaria - all these countries do have competitionregimes. And also numerous developing countries, withvery small economies in some circumstances, havealso adopted competition laws. So you can go toZambia, Zimbabwe, Ghana or Senegal and you will findthat there are competition rules.

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So frankly you look around the world globally andthere are very few patches of the atlas where you donot find systems of competition law. And there arenumerous explanations for this. And one could have adebate about why there are so many systems ofcompetition law and to what extent is it because that theIMF and World Bank has required people to adoptcompetition laws.

But at the bottom you have the very importantpoint at the end there that there is undoubtedly agrowing belief in markets. If you think of the greatideological struggle of the 20th century, one of the greatideological struggles was the market as against thestate. And the pendulum globally in the last decade,especially in the last century, moved in favour ofmarkets…...

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…...Hence one sees de-monopolisation, deregulation,liberalisation, the opening, WTO and all these sorts ofphenomena. All of it shows a move towards market-based economies.

And if you’re going to have a market-basedeconomy, obviously it raises the question: Do you needcompetition laws to protect the way in which you hopeand expect your market-based economy to function?It’s a kind of quid-pro-quo. Yes, we want a free market.So do we want competition laws to insure that the freemarket delivers the benefits that are hoped for andanticipated? ….Which logically leads onto this slide.Well, in that case why do we have competition law?

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(Slide 2)

I want to make one very important point here.I’ve been to many countries in the world wherecompetition laws were in the process of beingdeveloped or at least being discussed or recently beendeveloped. And then the business community andconsumer organisations were trying to come to termswith this new law and to ask what should we do with it.And I know that something that sometimes happens isthat there is a kind of suspicion of competition law, oreven more specifically perhaps, a suspicion ofcompetition authorities because the business sectorkind of think to themselves,

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“Well! We used to have all these state controls inthe form of planning and so on and so forth. And nowwe’re meant to have a free market. And all that’shappened is that the old state control mechanisms havegone away and we’ve put competition law in its place.So it’s just as much manipulated as it used to be.”

That is a fear that people sometimes have, but Iwould say that competition law is a tool that should onlybe used where markets fail. In other words, competitionlaw is not meant to be about heavy regulation, heavyintervention. It’s not meant to be that at all. As ageneral proposition, markets should police themselves.Let’s put it this way. If you have a competitive marketstructure, then it should mean that no particular firm hasenough market power to be able to dictate price…...

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…...Or to put the same point another way. If you have acompetitive market structure, the market should settlewhat the price is to be. The monopolist is not a pricemaker. Rather, the market itself makes the price.

According to the conditions of competition, thebalance of supply and demand and ultimately, as I’vesaid here, in a competitive market, the consumerdecides. That is such a crucial point. That is at theheart of the entire business of competition, that insteadof suppliers determining what the price should be, themarket which is nothing other than expression of theaggregated interests of consumers. Consumers decidewhat the market price will be…...

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…...And if this is the market price, some consumersmight be prepared to buy goods and services at thatprice, others might not. But that is their choice. Theyvote with their money. They vote with their purchases.

So as a general proposition one would hope thatone has created markets sufficiently competitive thatthe competition authority can sit there and do nothing.Competition law is not some sort of way of reintroducingregulation into the market. It’s absolutely not that.That’s obviously a highly optimistic thing what I havesaid, that we hope the competitive market is going toyield the right solutions.

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The difficulty with that proposition and the reasonthat you have competition law is that firms may havemarket power. And if they have market power, thenthey may be able to abuse it. In some circumstancesan individual firm has market power, so it can perhapsraise prices to an excessively high level, or just aspossibly, it may reduce prices to an unreasonably lowlevel in order to defeat competitors. Then that firm putsits prices back up. Very difficult to work out when theprice is unfairly low or unfairly high. But the idea is asimple one. It may also be that firms get togethercollectively and agree, for example, to fix prices or toshare out customers, or geographically to dividemarkets.

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Well, all of these things are examples of theabuse of market power. So the purpose and thefunction of competition law is to enable an institutionsomewhere, be it an individual invested with the powersor a commission or a court, or whoever it should be,possible to come in and correct those situations inwhich there is a failure of the market becausesomebody has abused his market power.

So that’s why you have competition law. Itseems to me, I have to say as a general proposition,that in so far as a country or a society chooses as itsinstrument of economic policy the free market, it seemsto me to be logical to start with the proposition that thereought to be laws in place to ensure that the free marketis not abused…...

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…...So in that sense I feel there should be apresumption in favour of having a competition law andthat a government that says it’s not necessary shouldhave to prove why one is not necessary. That seems tobe the logical starting point about any debate aboutshould one have competition law or not. What is theargument for not having one? I don’t think thepresumption should be the other way around - whyshould we have one?

But the last point on that slide simply cannot beoverstated too much. Competition law - competitionlaw is for consumers. That is absolutely crucial to thewhole understanding of the subject. Competition lawisn’t there to give government officials power that theycan use because it’s nice-to-have power…...

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…...And competition law isn’t there because competitorA has got a complaint against competitor B and wewant to do anything that we can to retrain B and so wehave competition laws. Competition law is there toprevent the abuse of market power that will lead tohigher prices that ultimately are detrimental toconsumers.

Now in thinking about competition law and policy oneshould always have that very simple idea in mind. If wehave this law, it is a law for the benefit of consumers.And I may be overstating it, but I’m only overstating itbecause people sometimes have fairly fundamentalmisapprehensions about that. Competition law is not aninstrument for the benefit of competitors, it’s not aninstrument for the benefit of regulators. It’s aninstrument for the benefit of consumers.

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(Slide 3)

So if we have a system of competition law, whatare the problems? What are the issues that competitionlaw is basically concerned with? And the answer to thatis firstly that any system of competition law will beconcerned to ensure that competitors do not cometogether to fix the market.

There’s a very well-known statement of AdamSmith, who was an economist, a Scottish economist inthe 18th century who wrote a very famous book “TheWealth of Nations”. It was a remarkable book in 1776because this was the book in which Adam Smithattempted, I think for the first time, really to explain howmarkets work. And why markets as a generalproposition were to the benefit of consumers becausethey provide choice, they provide lower prices etc.

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So you have this wonderful thesis explainingwhat the benefits of competition were. But there’s a veryinteresting paragraph in the book, in which Adam Smithsaid in 1776, if you have five people from the sameindustry and if they meet in a room where nobody elseis listening to them, if they are competitors, the chancesare that within 10 minutes they will start to discuss eachother’s prices because those people in the sameindustry will very often see that their mutual self interestwould be to try to fix the market.

If you are a monopolist, you know as anintelligent profit maximising monopolist, that thegreatest economic advantage to you will come fromsuppressing your output and thereby raising prices - anobvious and a simple idea. Well we don’t like that. Atleast the customers of the monopolists don’t like that…...

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…...If you have five competitors who meet to discusstheir prices and to discuss their output and so on, theymay very well realise that it is in their interest tosuppress output and to raise price. The OPEC carteldoesn’t actually fix price. It actually decides how muchoil is produced, and if you suppress the amount of oilavailable to the world market, the price rises. So there isthis phenomenon that in the absence of competitionlaws, and in the absence of any other kind of constraint,it seems that people within an industry will inevitablyfind a self interest in meeting to discuss marketconditions.

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And for that reason the modern focus ofcompetition law globally, and there’s absolutely noquestion about this, the modern focus of competitionauthorities is tending to be of horizontal agreementsbetween competitors to rig the market. Whether this isby agreeing to fix prices, whether it’s by agreeing toshare out geographical markets: I will have this marketand you will have that market and we will never invadeeach other’s markets. Or whether it is by allocatingcustomers: I will deal with the wholesale sector and youcan deal with the retail sector. Or I will deal withhospitals and you will deal with the dental end of thehealth service market. These are regarded asabsolutely fundamentally illegal agreements in systemsof competition law.

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And actually the issue that one has whenconfronted with that sort of problem is not whether theagreement is legal or illegal. The issue tends to be: isthe competition authority able to obtain evidence toprove that the agreements exist. And also what kind ofpenalty has to be imposed in order to act as a deterrentto prevent other firms from behaving in this way.

In the United States, if you’re party to a price-fixing agreement, the individual officers of the companythat were responsible for the cartel can be sent toprison. It’s a criminal offence. Two years ago the seniorexecutives of Rote, the pharmaceutical company inSwitzerland, had to fly to the United States to serveterms of imprisonment as a part of the settlement of theaction against the company.

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And in 6 weeks’ time, in the UK, we were tointroduce a bill into our parliament proposing thathorizontal price fixing, market sharing and customerallocation should be criminal under UK law. And so theofficers of the company responsible for the behavior inquestion will be liable to terms of imprisonment. Thatdoes rather concentrate the mind. It’s one thing – “Willmy company be fined?” It’s another – “Am I going tomiss the next two Christmas with my wife and kidsbecause I’m actually in prison somewhere?”

Possibly sharing a cell with Jeffrey Archer, whoof course is in prison at the moment.

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So competition law systems are very concernedwith horizontal agreements of this kind and it isspecifically written into the Telecom Ordinance in HongKong. In Section 7K, these three types of agreementsare specifically stated to be illegal. Price fixing intelecom markets, market sharing and customerallocation are specifically stated to be unlawful intelecoms in Hong Kong.

The other thing that competition law specificallyis concerned with is predatory pricing on the part of adominant firm, a firm with market power. We couldhave a long discussion about market power, significantmarket power and dominance - whether it would befruitful to discuss that at this stage, I don’t know, butthey are very difficult issues.

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But for a firm with market power to indulge inpredatory pricing is normally regarded as unlawful. Andthe idea of predatory pricing is that here I am in adominant position in a market, somebody enters mymarket, or somebody is threatening to enter my market,and I drop my price. Now this is an agonizingly difficultthing for competition authority. Because clearly as ageneral proposition, if a dominant firm charging highprices reduces its price, one would think this is a groundfor congratulation because it means that at last themarket is becoming competitive and we’ve got someprice competition, and that’s a good thing. Manifestlythe competition authority should never punish a firm forcompeting. That would be the ultimate absurdity.

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But what if the new price cut, here is the newentrant, and the price cut is quite severe to the point atwhich the dominant firm is actually making a loss. It’snot simply that it’s dropped its price. It is actuallymaking a loss. Presumably for the period that it takesto eliminate the new entrant at which point its price willgo back up to perhaps a monopolistic level. Well, Ithink competition authorities around the world would saythat when the pricing is actually below cost, that that isanti-competitive and abusive.

In telecommunications cases, it raises thewonderfully intriguing question well what is “cost” whenyou are supplying a service over a fixed network whichwas built a hundred years ago and where the costshave been sunk deeply in the past……

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…...What is the relevant cost standard to apply and thatis very difficult as to whether to apply short or marginalcosts, or average variable costs. Or the instrument oftenused now in these cases, long run average incrementalcosts. Perhaps it should be a higher standard - fullydistributed costs.

These are difficult issues of great specificity intelecom cases. But nonetheless, despite the complexityof this market, there is such a thing as predatory pricefixing and where it is found it will be condemned.Similarly anti-competitive price discrimination. I want tomake an important point incidentally…...

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…...Price discrimination, as a general proposition, Ithink is a good, rather than a bad thing. One shouldn’thave a sort of instinctive feeling that just because aprice is discriminatory, it is therefore bad. Thediscriminatory price might actually be a way in which afirm can simply maximise its output. And there’snothing wrong with a firm maximising its output. On theother hand, if it’s indulging in discrimination because itis a way of eliminating a competitor, I could start to drawdiagrams explaining that idea. But where thediscrimination is anti-competitive in its nature and effect,then there clearly is a case for a dominant firm to beinvestigated by the competition authority.

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Similarly if a dominant firm enters into a deal witha customer or supplier which is exclusive…, “I willsupply a service to you on condition that you do nottake the same service from anybody else for two years,three years, five years….” Clearly a point in time comesat which that sort of exclusive vertical relationship, arelationship between people operating at different levelsof the market, a time comes when competitionauthorities will be concerned that the exclusivity ishaving the effect of foreclosing other people’sreasonable access to the market.

So what we will find is that systems ofcompetition law typically deal with these twophenomena, horizontal agreements and the abuse ofmarket power. They may have provisions on mergercontrol but as I’ve said earlier, some systems do, somesystems don’t. You soon may have that as well.

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(Slide 4)A few more points just on this section.

Terribly important to understand: competition lawis not the same as ex ante regulation. I think this is aterribly important point and it may be something worththinking about quite carefully in a Hong Kong context.That there are many markets where perhaps you’ve hada state-owned monopoly. You’re gradually introducingcompetition into this market. And it may well be in theearly years when there isn’t really any effectivecompetition, it may be necessary to have ex antetelecommunications regulatory rules. That is to say thecompetition authority, sorry, the regulator says: “Youmust do this” and “You mustn’t do that”. And you havethese detailed ex ante rules setting out in detail whatyou can and cannot do…...

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…..And you have the ex ante regulatory rules almost asa substitute for competition. Almost to act as a kind ofdiscipline upon that company precisely because thereisn’t any competition.

However, competition law is really rather different.It goes back to my early... earlier slide. When you havea system of competition law, you hope that there isenough competition in the market, that you can justallow everyone to carry on with the horrible, ghastly,bloody business of competition in which they all killeach other. Well, fine. That’s competition.

….to describe the perennial gale of creative destruction,which is a very nice way to think about the process ofcompetition. It’s people slaughtering each other all thetime. Well, that’s competition. So the law changes frombeing a regulatory law to being a competition law.

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It’s a process that is absolutely clear, for example,in telecommunications in the United Kingdom. And youknow, frankly, one day if the market is to becomeabsolutely fully competitive, the regulation just goes away.It evaporates into thin air. And you simply are left withcompetition. Obviously it’s controversial when have youreached that point. But it seems to me that in policy terms,that is actually what one is aiming for. The time when themarket is competitive enough that you no longer need agovernment agency to regulate it because competitiondoes most of what you want to achieve, and competitionlaw is there to perfect or to overcome the abuses ofmarket power.

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So that really leads onto the last bullet pointthere, which is that systems of regulation tend to haverules that just simply say you must not do this. So reallyit’s the question of look at the behaviour, look at the ruleand you know the answer “Yes” or “No”. Competitionlaw is much more complicated than that. Competitionlaw is going to be about saying – “Has X abused adominant position?” And that is a question which isessentially about economic analysis. It’s asking – “Hasfirm X got market power?” That requires a definition ofwhat the relevant market is. If it has got market power,has it indulged in the low cost selling which hasadversely affected the competitive nature of the market?There is no simple short cut answer in those cases. Byits nature it requires a long and sophisticated analysis.So applying competition law intellectually is just a totallydifferent business from applying regulatory rules.

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So two more slides focusing more specifically ontelecommunications and Hong Kong, but many of theones I want to make have really been made already.

(Slide 5)

Competition law and telecommunications. Ofcourse this is one of those markets where typically youare going to find, and of course there are variations ofthis, but you may well have an incumbent monopolist, ornear monopolist that may have been state owned and itmay now have been privatised. There are lots ofdifferent constellations around the world but you aretypically going to find that there is an incumbent. So youthink to yourself: Well, in so far as we have laws on theabuse of dominance, clearly there is the possibility thatthe former state-owned telecoms operator has marketpower.

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It does tend to be the case that for the marketpower in fixed-line telephony example, it does seem totake a long time for the market share there to reduce.It’s not for the competition law authority to reduce it, it’sup to the consumer to decide whether they want toswitch to somebody else. But the reality of the matter isthat the market power may remain for a long time.

The next point, vertical integration is a veryimportant point of course because there are somesectors which by their very characteristics involve firmsthat are vertically integrated. So typically I might ownthe fixed-line network or the local loop or whatever Imay. It may be that there’s no substitute for havingaccess to that infrastructure…...

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…...And at the same time I also offer services whichmake use of that infrastructure. And the typicalsituation might be that somebody has market powerupstream in the market in relation to the network. Theythen compete downstream in relation to a serviceprovided over that network, and other people wantaccess to that network. And so a very complicatedproblem, especially in telecommunications market but itcould be the same in electricity, transport or gas orwhatever, as you have this vertical integration thatmight put somebody at an advantage over othercompetitors. So then the problems that you get are,has there been an abuse, because I’ve got marketpower in the “A” market and I’ve used my power in thatmarket in order to harm somebody in the downstreamrelated market.

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So that is a typical problem oftelecommunications generally. Obviously it could be aproblem that specifically arises in Hong Kong.

Another problem that you do have, and we’ve had thisin Europe, is that you could have a number ofcompetitors….. shall I use mobile telephony as anexample, perhaps. Because this has just been referredin the United Kingdom to our competition commissionand the problem is that you look at three or fouroperators and you find that their prices are roughlyspeaking, the same. And the great problem then for acompetition authority, as I’ve said at the end of thebullet point there, you’ve got parallel behaviour, peopleare behaving in the same way. But are they behavingin the same way because they’ve entered into anagreement?

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Or is it just that they are very intelligent people,and I can see what your prices are and you can seewhat my prices are? So we end up charging the sameprices although we never actually agreed to do so. Andthat is frankly an extremely difficult issue to whichthere’s no clear and obvious answer. It may be that theproblem is the structure of the market. It may be youneed to do something about a market structure like thatto prevent parallelism. Because if they haven’t agreed,you can’t fine them for doing something when theyhaven’t agreed. It’s a very very difficult area ofcompetition policy.

(Slide 6)

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And so my concluding slide says – “Well. Whatabout the Hong Kong Ordinance?” And it is fascinatingto see where your law has arrived and of course it canbe traced back to the original licence conditions aboutcompetition. It’s the same thing we did in the UnitedKingdom incidentally. We started by imposing licenceconditions on BT - British Telecommunications - andthen in due course, the licence condition went awaybecause we introduced a law to deal with the problemsin hand.

So here one has had the licence conditions butthey have now rolled over into the Ordinance. Youhave Section 7K, which deals with anti-competitivepractices in particular, the price-fixing agreement, themarket-sharing agreement, the customer-allocationagreement is specifically covered by 7K.

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And you have 7L, which is the abusivedominance provision and then that specifically talksabout predatory pricing, price discrimination, which isdetrimental to competition. There’s a specific provisionin there about tie-ins. I won’t go into detail of the law.But clearly, abusive dominance catches that unilateralbehavior by a dominant firm, which is going to beharmful to the process of competition in the market.

Note that your rules are overtly, explicitly basedon economics. Throughout the rules, the question ofwhether there will be a substantial lessening ofcompetition, or a substantial restriction of competition isrepeated again and again. So to the lawyers I wouldsay here: This is not an area of law where you havehard-and-fast rules that you just apply…...

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…...This is an area where you have to understand theeconomics of the market, and the way of which themarket works and the way in which pricing decisionsare made. And only at the end of that kind of analysiscan you conclude if there’s been a competitioninfringement. So it’s very much an economic-basedtest.

A recent interesting phenomenon is theestablishment in Hong Kong of a full appeal tocompetition, and a Telecommunications Appeal Board,which I think is a very sensible thing to have, actually,because one needs to reassure the businesscommunity and consumers of course, that there is someproper mechanisms for ensuring that OFTA’s decisionsare correct. And I think by having an appeal board, it’sa full appeal, it’s not a judicial review. Very importantpoint…...

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…...The Appeal Board could substitute its own decisionfor that of the authority. But such a body has now beencreated and obviously appeals will begin to comethrough the system.

The last two points I have said here is that itseems to me frankly that the competition rules that youhave in the Telecommunications Ordinance, I should ofcourse mention the Broadcasting Ordinance, thecompetition rules that you have there seem to me to bephilosophically an essential underpinning to thesesectors. And these are sectors in which there seems tobe a healthy degree of competition and I don’t think it’sany coincidence that these two things are there. I havewondered whether there’ll have to be a merger of thetelecommunications and the broadcasting rules in duecourse and whether there will be a system of mergercontrol to prevent that merger.

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In the world of convergence in which we live itbecomes increasingly odd actually that we should havea set of telecom rules and a set of broadcasting rules,when it’s my media content being delivered over yourcable and so on so forth. That’s an issue of whichyou’re well aware.

At the end of all of this, my concluding commentis that if one has this healthy, essential underpinning ofa healthy competitive sector, of course it does leave megoing away contemplating mightn’t there be somemethod for introducing competition law to other sectorsof the economy in Hong Kong. But perhaps that’s apoint in which things became too controversial andtherefore I will conclude. So thank you very much.

Slide 1INTERNATIONAL DEVELOPMENTS

• rapid growth of competition law• 90+ systems• 50+ systems of merger control• in all types of economy• growing belief in markets

<<Back

Slide 2WHY COMPETITION LAW?

• markets should police themselves• in a competitive market, no firm can dictate

price• in a competitive market, the consumer

decides!!• but firms may abuse market power• competition law is for consumers!!

<<Back

Slide 3WHAT PROBLEMS DOES COMPETITION

LAW ADDRESS?

• Horizontal agreements– price fixing– market sharing– customer allocation

• Abuse of market power– predatory pricing– anti-competitive discrimination– exclusive agreements

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Slide 4• Note: Competition law is not the same as ex

ante

• Trend is from ex ante regulation tocompetition

• Competition law is about the economicanalysis of markets

<<Back

Slide 5COMPETITION LAW AND TELECOMMUNICATIONS

• Typical position = (Former)(State-owned) incumbentmonopolist

• Vertical integration• Possible abuses – related markets• Possible parallel behaviour, perhaps without

agreement<<Back

Slide 6HONG KONG ORDINANCE

• S7k – Anti-competitive practices• S7l – Abuse of dominance• Economic test• Full appeal to appeal board• Essential underpinning of healthy sector• ? Application to other sectors? <<Back