Hybrid system for HK's 3G auction

Hong Kong will be adopting a hybrid scheme for both the auction of its 3G licenses, and for the payment for the spectrum, which will be royalty-based, with a fixed minimum.

The minimum reserve for each of the four licenses has been set at 5 percent of the annual network turnover, subject to a floor of HK$50 million (US$6.41 million) a year for the first five years. The licenses each have a validity of 15 years.

The Hong Kong government will adopt a hybrid system for the auction, with bidders being preselected, as was the case with Singapore. The preselection will close on September 17 or 18. For the September 24 sale, companies will raise their offers in a "blind auction." As the bidding proceeds, each will fax a reply on whether they want to quit.

"Recognizing the recent downturn of the telecommunications market, we have introduced a royalty-based payment scheme that is intended to minimize the operators' financial burden," the Information Technology and Broadcasting Bureau (ITBB) spokesman told The Business Times.

"The royalty scheme is underpinned by a schedule of minimum payments, which minimize the government's credit risk but allow it to share the upside of the 3G business," he explained.

The auction is expected to net the Hong Kong government HK$5.2 billion (US$0.67 billion). The minimum each license holder can pay is HK$1.3 billion (US$0.17 billion).

"We think the minimum reserve price we set is lower than most countries, and may be in line with a few," ITBB deputy secretary Eva Cheung told Bloomberg.

Singapore's 3G auction in April garnered S$300 million (US$164 million) for three 3G licences. There were no takers for the fourth.

If any of the bidders were to bid at the 26 percent legal maximum, they could end up forking over HK$415 billion (US$53.2 billion), calculated the South China Morning Post.

However, bidding at maximum is unlikely, as industry players were already chafing at the minimum sum.

"It's not cheap," Credit Suisse First Bank analyst Niq Lai said to SCMP. "It's not a giveaway."

"Considering the 3G technology delay, and the bleak market sentiment, the cost of the license is too high," declared Hong Kong CSL chief executive Hubert Ng. CSL is No 2 among the SAR's six mobile operators. The Pacific Century CyberWorkds subsidiary is also the only mobile operator in Hong Kong to turn a profit.

As of yesterdy, only SmarTone would confirm that it would bid for a 3G licence.

Licences will be granted before the end of this year.