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Following is a question by the Hon Martin Lee and a reply by the Secretary for Commerce, Industry and Technology, Mr Joseph WP Wong, in the Legislative Council today (January 17):
Question:
The Financial Times of the United Kingdom published a report on November 29, 2006 alleging that the Director of the Hong Kong and Macao Affairs Office of the State Council intervened in PCCW Limited's sale of its assets to two foreign companies, and that the Director had made it clear that he did not want Hong Kong's largest fixed-line and broadband telecommunications networks to fall into foreign hands. In this connection, will the Government inform this Council:
(a) as it is provided in Article 22 of the Basic Law that "no department of the Central People's Government...... may interfere in the affairs which the Hong Kong Special Administrative Region administers on its own in accordance with this Law", and in Article 105 that "the Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the...... disposal...... of property" and "the ownership of enterprises and the investments from outside the Region shall be protected by law", whether the Government of the Hong Kong Special Administrative Region has, in order to discharge the above duties provided in the Basic Law, looked into and followed up the above incident, including approaching the Mainland government departments and officials; if it has, of the details, and in what capacity did the Director and other officials of the Hong Kong and Macao Affairs Office intervene in the above commercial transaction, which is protected by the Basic Law; and
(b) whether it has assessed if the above intervention has breached the provisions of Articles 6, 22, 105, 109 and 115 of the Basic Law; if it has, of the assessment results?
Reply:
Madam President,
Merger and acquisition activities in the telecommunications industry in Hong Kong are subject to regulation by the Telecommunications Authority (TA) in accordance with the Telecommunications Ordinance (TO). The purpose of regulation is to ensure that merger and acquisition activities will not affect effective market competition. Under an ex post regulatory regime, such merger and acquisition activities do not require the prior consent of the TA.
According to section 7P of the TO, if there is a change in the beneficial ownership or voting control over a carrier licensee as defined in section 7P, the TA may, within 14 days, decide whether to initiate an investigation to examine whether such a change will have the effect of substantially lessening competition in a telecommunications market. If, after such investigation, the TA forms an opinion that the change has the effect of substantially lessening competition in a telecommunications market and that the benefit to the public brought about by the change cannot outweigh the adverse impact to the public from the substantial lessening of competition in the market, the TA may issue a direction to the relevant licensee requiring him to take action to eliminate or avoid the substantial lessening of competition in the market. Such actions may include the procuring of modifications to the change in relation to the beneficial ownership or voting control over the licensee.
At present, neither the TO nor any other laws of Hong Kong impose any restriction on foreign ownership or control of shares in a telecommunications licensee. In addition, Hong Kong, China is an independent member of the World Trade Organisation (WTO). We have committed to the WTO, as part of the liberalisation of the telecommunications market, not to impose foreign ownership restriction for investment in the local telecommunications market.
Next, I would like to give a brief account of how the Government dealt with the possible transfer of shares of the PCCW Limited (PCCW) in order to demonstrate that the Government's actions are fully compliant with the current policy and the requirements of TO.
On June 19, 2006, PCCW announced that it had received a non-binding expression of interest from an independent third party in relation to a possible acquisition of the majority of the telecommunications and media related assets of the company.
On June 21, 2006, PCCW disclosed the identity of the "independent third party" referred to in its previous announcement. It also announced that it had received a second non-binding expression of interest on June 20, 2006 in relation to a possible acquisition of the majority of telecommunications and media related assets of the company.
As the TO does not require the prior approval of the TA for merger and acquisition activities, the fact that the above two announcements on acquisition did not appear to have significant implications on market competition, and that there is no statutory restriction on foreign investment, the TA, upon the issue of the two announcements, approached the carrier licensee of PCCW on an informal basis to remind the licensee to observe the obligations stipulated in relevant legislation and licence, i.e. to maintain a public telecommunications service in a manner satisfactory to the TA, and to submit applications as required by the relevant legislation and licence in a timely manner.
On July 10, 2006, PCCW further announced that one of its substantial shareholders, Pacific Century Regional Developments Limited (PCRD), has entered into a conditional sale and purchase agreement with Mr Francis Leung and Fiorlatte Limited, pursuant to which PCRD had agreed to sell approximately 22.66% of the issued share capital of PCCW to Mr Francis LEUNG and Fiorlatte Limited.
As the composition of investors owning Fiorlatte Limited might have a significant implication on the telecommunications market, the TA contacted Mr Francis Leung and Fiorlatte Limited soon after the announcement was made and asked them to provide the names of the investors owning Fiorlatte Limited and other information that may be relevant to section 7P of the TO, even though the law does not require prior approval from the TA on merger and acquisition activities. Mr Francis Leung responded that he would cooperate with the Office of the Telecommunications Authority and would provide the information to the TA at appropriate time.
On November 12, 2006, Mr Francis Leung disclosed the names of the investors in the shares of PCCW.
With a view to further assessing the implication of the composition of the investors as announced by Mr Francis Leung on competition in the telecommunications market, the TA immediately approached Mr Francis Leung and Fiorlatte Limited for more detailed information that may be relevant to section 7P of the TO.
On November 30, 2006, the minority shareholders of PCRD voted against the proposed sale of approximately 22.66% of issued share capital of PCCW to Fiorlatte Limited at a general meeting. Therefore, the acquisition of shares of PCCW proposed by Fiorlatte Limited was aborted.
It can be seen from the above that the SAR Government has been dealing with the sale of assets and share proposed by PCCW in accordance with the current policy and relevant legislation. The TA has considered the issue and taken action entirely for the purpose of enforcing the TO and the terms and conditions of the licence.
Furthermore, business activities and ownerships of Hong Kong enterprises, foreign investments, free flow of capital, private property rights etc. are protected explicitly by the Basic Law and the laws of Hong Kong.
In the light of the background and facts above-mentioned, my replies to the questions are as follows:
(a) we do not consider it necessary to follow-up on the media article; and
(b) accordingly, we have not made any assessment.
Ends/Wednesday, January 17, 2007
Issued at HKT 14:28
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