Jurisdiction - Hong Kong
Reports and Analysis
Hong Kong – End Of The Era For Sector-Specific Competition Regime In The Telecom And Broadcasting Sectors.

5 July, 2012

 

 
The telecom and broadcasting sectors in Hong Kong are the only sectors that have been subject to competition regulations since the 90's. The new Competition Ordinance passed by the Legislative Council on 14 June 2012 provides that the sector-specific statutory provisions will be repealed and replaced by the Competition Ordinance. However, certain rights which arise under the old competition regulatory regime in the telecom and broadcasting sectors before commencement of Part 11 of the Competition Ordinance will be preserved.

 

Concurrent jurisdiction over the telecoms and broadcasting sectors

 

The new Competition Commission (Competition Commission) to be established under the Competition Ordinance (CO) and the Communications Authority will have concurrent jurisdiction in matters relating to telecoms and broadcasting. In relation to a matter in which both competition authorities have jurisdiction, the two authorities may agree that the matter be transferred to and be dealt with by one of them. If one authority is performing or has performed a function as a competition authority and in the absence of any agreement between the competition authorities, the other competition authority must not perform any function in relation to that matter. It has not been expressly addressed in the CO as to whether a party concerned can request for a matter to be dealt with by one authority, and not the other.

 

It is intended that the CO (including Part 11) will be implemented in phases to allow sufficient time for setting up the Competition Commission and the Competition Tribunal (as defined below) and preparing the guidelines before the competition rules come into force. The transition period is expected to take at least one year.

 

To address the concern about the possible inconsistency and conflicts arising from the concurrent jurisdiction regime, the Competition Commission and the Communications Authority must, upon the commencement of Part 11 of CO and after consulting the Legislative Council, prepare and sign a Memorandum of Understanding (MOU) for the purpose of co-ordinating the performance of their functions under the CO. Matters to be provided for in the MOU may include the allocation of responsibilities for competition matters, the manner in which the parties will resolve any dispute between themselves and the provision of assistance by one party to another. The MOU must be published within 6 weeks after it is signed.

 

Amendments to the Telecommunications Ordinance

 

The following sections in the Telecommunications Ordinance (TO) will be repealed:

 

  • 7K  on anti-competitive practices will be replaced by the first conduct rule in the CO;
  • 7L on abuse of position and 7N on non-discrimination will be replaced by the second conduct rule in the CO; and
  • 7P on merger control will be replaced by the merger control rule in the CO, which will continue to apply to carrier licensees only.

 

The CO provides for certain exemptions from the application of the conduct rules including de minimis rules and block exemption orders. The existing section 7M on misleading or deceptive conduct will remain in the TO, and a new section 7Q on exploitative conduct will also be added to the TO. The TO will also be modified preserving rights of appeal and to take private actions under sections 7M and 7Q of the TO. 

 

Amendments to the Broadcasting Ordinance
 

Section 13 on anti-competitive conduct and section 14 on abuse of dominance in the Broadcasting Ordinance (BO) will likewise be repealed and replaced by the relevant provisions in the CO. 

 

Transitional and savings provisions concerning the repealed sections in the TO and BO

 

There are transitional and saving provisions in the CO to ensure continuity of any conduct, investigation, appeal or private action arising from the repealed sections under the pre-amended TO and BO.

 

The Competition Tribunal

 

In addition to the Competition Commission, a Competition Tribunal (Competition Tribunal) will be established as a superior court of record pursuant to the CO. The Competition Commission may apply to the Competition Tribunal for a pecuniary penalty to be imposed on any person in contravention of a competition rule, and/or for any other order it considers appropriate against that person. 

 

If the Competition Commission considers that an anticipated merger is likely to contravene the merger control rule, it may apply to the Competition Tribunal for an order directing the person not to proceed with the transaction totally or partially. In respect of a transaction that has already been carried out, the Competition Commission may still apply to the Competition Tribunal for an order to bring the contravention of the merger control rule to an end.

 

Under the existing telecom and broadcasting regulatory regime, the Communications Authority has extensive enforcement power, such as imposing financial penalty or requiring the relevant licensee concerned to take specific remedial actions. It appears that upon commencement of Part 11 of CO, these powers will be repealed and the Communications Authority may also have to apply to the Competition Tribunal for an appropriate order when it seeks to enforce the competition rule in the telecoms and broadcasting sector as a "competition authority".

 

Key differences between the new and old competition rules in the telecoms sector

 

  • There are significant differences between the merger control rules under the TO and the CO, with the CO following closely the EU merger control rules.
  • The pecuniary penalty to be imposed on a licensee who is in breach of the competition provisions in TO is up to HK$1 million. In the CO, there is no absolute cap on the pecuniary penalty to be imposed on any person that has contravened a competition rule or been involved in a contravention of a competition rule although for each single contravention, the penalty may not exceed 10% of the turnover of local turnover of the infringing undertaking for each year of infringement (up to 3 years). 
 

 

 
For further information, please contact:

 

Michelle Chan, Partner, Herbert Smith
michelle.chan@herbertsmith.com
 
Clarice Yue, Herbert Smith
clarice.yue@herbertsmith.com
 

 

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