Hong Kong cancels 3G auction

Hutchison's 3G unit was among licence winners

The Hong Kong government has scrapped plans to auction third-generation mobile phone licences for lack of bidders.

Instead, it awarded the four licences at the minimum reserve price, one to each of the four companies that came forward.

Carrie Yau, Hong Kong's Information Technology and Broadcasting Secretary, denied the lack of bidders was a setback.

"We plan to issue four 3G (third-generation) licences and we have four bidders... we achieved our goal," she said.

Pricing plan flops

An auction would have been triggered if five or more companies had bid.

Hong Kong is a mature telecoms market where 80% of the six million population already has a mobile phone.

Ahead of the auction, many analysts expressed doubts that the potential market for 3G services was big enough to justify the cost of building networks.

Earlier this year, Singapore also failed to attract more than the minimum number of bidders.

The Hong Kong government acknowledged these concerns when it set the reserve price in July.

It said it had taken account of "the recent downturn of the telecommunications market" and opted for a "royalty-based payment scheme that is intended to minimise the financial burden on operators".

Incumbents stay away

Nonetheless, two incumbent mobile operators decided to stay out of the auction - New World Mobility and People's Telephone.

The four licences were awarded to Hutchison 3G, which is 25% owned by Japanese firm NTT DoCoMo and 75% by Hutchison Whampoa conglomerate; SmarTone 3G; CSL, a joint venture between Pacific Century CyberWorks and Australian phone firm Telstra; and Sunday Communications, the smallest of Hong Kong's six mobile phone firms.

They paid the reserve price of 5% of annual network turnover, subject to a minimum annual fee of 50m Hong Kong dollars ($6.4m) during the first five years of the 15-year licences.

Annual payments may rise during the remaining 10 years of the licences' duration.

Licence winners will have to open up at least 30% of their capacity to other operators.

Ms Yau said the government opted not to postpone the auction on account of economic uncertainty following the terrorist attacks on the US.

"We cannot be too short-sighted and we need to issue the licences on schedule because it will be helpful for the development of the telecoms industry in Hong Kong," she said.