Broadband Digital Television. And. its challenges to traditional TV broadcasting regulations. Luk Tak Yiu Anna. A Project.

Broadband Digital Television And its challenges to traditional TV broadcasting regulations Luk Tak Yiu Anna A Project Submitted in Partial Fulfilment of the Requirements for the Degree of Master of Arts in Communication Supervisor: Prof. Russell B. Williams School of Communication Hong Kong Baptist University Hong Kong August 2006

Acknowledgement First of all, I wish to thank my supervisor, Dr. Russell B. Williams for his advice and assistance in preparing this project. I would also like to express my sincere thanks to my family and friends for their full support during the period of preparing this project. Luk Tak Yiu Anna 05408172 M.A. in Communication School of Communication Hong Kong Baptist University Date: 3 rd July, 2006

Broadband Digital Television and its challenges to traditional TV broadcasting regulations Abstract Broadband Internet access has brought many benefits to Hong Kong citizens, its popularity has increased tremendously in both entertainment and business since its availability. The relatively cheap, but fast Internet access with the abundance of special added-value services offered by the services providers has made the market in fierce competition. Broadband television is one of the services provided by some of the services providers via broadband connection to the Internet to compete for subscribers. However these services are causing problems for regulatory bodies of the HKSAR Government. This paper discusses how the broadband television, such as those operated by Pacific Century Cyberworks Limited (PCCW) and Hong Kong Broadband Network Limited (HKBN), challenges the current broadcasting policies and regulations which governing the existing broadcast television. We aim to answer the question whether there is a revelation that Internet based content providers (broadband TV in particular) are not regulated in the same way as over the air. Are they the rivals of the existing pay TV or cable TV and will they pose any effects on service provision or pressure on the market share or the choice for viewers? How is the rate of expansion of broadband TV and trends for their growth?

Table of Content Introduction...P.1-2 What is Broadband Television (Broadband pay TV)?...P.3-4 Television Broadcasting in Hong Kong...P.5-7 The Regulating bodies and Regulations of Television Broadcasting and Telecommunications in Hong Kong...P.8-14 Broadband Digital TV...P.15-21 Broadband Digital TV...P.22-24 HGC Broadband TV...P.25-26 PCCW VOD NOW Broadband TV...P.27-30 Challenges to TV broadcasting regulations...p.31-36 Regulate or not?...p.37-40 Recommendations...P.41-46 Digital TV...P.46-48 Conclusion...P.49-50 Reference...P.51-58 Appendix A List of Licensed Broadcasting Services in Hong Kong Channels Offered by PCCW now Broadband TV Cable TV Service Fee Schedule

Introduction We are now living in a Broadband environment. Information is like flowing in a superhighway in which the speed of it is increasing at a breathtaking way. The possibility of differentiating and characterizing what is flowing in these high tech channels is unlikely possible since these can be data, voice, video, or a mixture of all which represented by zeros and ones in the computer system. Hong Kong s mainstream Internet bandwidth in the mid-1990s is 56 kbps (56 thousand bits per second) modem connections, in which they are primarily provided by Hong Kong Telecom (now PCCW-HKT Limited). According to the Hong Kong Year Book 2004, virtually all households and commercial buildings were covered by the broadband network by the end of 2004. The number of broadband accounts increased significantly during the year to 1 484 486, or 22 broadband accounts per 100 inhabitants, representing an annual increase of 21 per cent. In addition, 61 per cent of households had broadband Internet access. Internet Service Providers (ISPs) numbered 188 at year-end. According to reports issued by the International Telecommunication Union (ITU) in 2003 and 2004 (Hong Kong Year Book 2004), Hong Kong ranks second in the world in terms of broadband penetration and that Hong Kong ranks No. 1 in the world in terms of affordability of Internet access. Up to March 2006, there were 1,659,098 registered broadband Internet access customer accounts, of which 1,514,641 were household connections (OFTA, March 2006). As at February 2006, around 1.66 million customers are using broadband services with speed up to 10Mbps (Megabits per second), accounting for over 24 percent of the total population while in the P.1/58

residential market, 66 percent of the households are using broadband services (Hong Kong Fact Sheet Telecommunications, 2006). It becomes a market trend that many Internet Service Providers (ISPs), in Hong Kong and other developed countries, have developed from providing simple Internet access to many value-added services, including broadband pay-tv in order to stream in alternative revenue. Service providers compete with each other by offering competitive access rates, larger bandwidths and value added services to entice subscribers to their service. Therefore offering television programmes over the Internet (broadband pay TV) seems inevitable. To begin with, it is important to know about broadband pay TV. P.2/58

What is Broadband Television (Broadband pay TV)? As we know, television programmes are traditionally broadcasted over the air by the television stations using their transmitters and relay stations in the form of electromagnetic waves. The signals are received by antennas which are then connected to television sets. In recent decades, other means of receiving TV programmes are available which expanded to the use of satellite dishes (satellite TV) and cable connections with separate decoder sets (cable TV). However, Broadband pay TV is different in its use of Internet technology to transmit signals/data. According to the Office of the Telecommunications Authority (OFTA) (25 th April, 2006), broadband means the capacity to transmit data at the rate of 1.5Mbps or above using family of Digital Subscriber Line (xdsl), Local Multipoint Distribution Services (LMDS),Fibre-to-the-Building (FTTB), cable modem or other technologies. It refers to a high-speed connection to the Internet or Internet-related services in which there is no international agreement on the speed at present. In Hong Kong, the speed of the broadband Internet services that we normally subscribed to is in the range of Mbps (millions of bits per second). Broadband TV is therefore made possible by such high-speed Internet connection and video compression technology. It has made possible to watch TV over the Internet long time ago even when connection speeds were slow (originally 56 kbps in 2 to 3 years ago). The video quality was of course much poorer, and it was viewed in a small window on the monitor screen. Broadband solved the problem with enhancement by allowing the video to fit full screen. In this paper, broadband pay TV refers to television P.3/58

programmes transmission over the Internet by using TCP/IP protocol and can be viewed on a television set or a personal computer monitor screen. P.4/58

Television Broadcasting in Hong Kong Hong Kong television viewers and listeners can subscribe to over 200 local and overseas television channels in various languages through free-to-air services and satellite reception or pay television services provided by 13 licencees (HKBA, 2006). Hong Kong also served as a regional broadcasting hub with 9 licencees providing over 100 satellite television channels for the regional market. Terrestrial television broadcasters are migrating to digital broadcasting and the Government is updating the regulatory regime in the light of technological and market convergence (Hong Kong Year Book, 2004). Hong Kong's two domestic free television programme services licencees, Television Broadcasts Limited (TVB) and Asia Television Limited (ATV), each operates one Cantonese channel and one English channel. The two broadcasters are required by law to cover information in their services like news, current affairs, education, and arts, etc., as well as programmes produced and provided by Radio Television Hong Kong (RTHK). There are also Putonghua, Japanese, Korean and Tagalog programmes to cater for the needs of minority communities in Hong Kong. according to the Communication and Technology Branch of the Commerce, Industry & Technology Bureau (CTB, CITB (2005), domestic free television is received by more than 99.6% of the population, i.e. more than 6.8 million viewers or 2.2 million households. Besides, the Government encourages the deployment of digital terrestrial television (DTT) broadcasting technology in Hong Kong to enhance spectrum efficiency and enable the provision of new services such as high-definition television broadcasting, which is not possible in the analogue mode. In July 2004, the Government promulgated a framework for implementing DTT broadcasting in Hong Kong. The P.5/58

two incumbent terrestrial broadcasters, ATV and TVB, are required to launch DTT by 2007, and achieve 75% of coverage of their digital services by 2008 (Hong Kong Year book, 2004). Hong Kong Cable Television Limited (HKCTV) first launched a domestic pay television programme service based on cable technology in 1993 and the number of channels has increased from the original 8 to around 100 now. Its subscribers reached 738,000 by the year of 2005 (i-cable Communciations Limited, 2005). The second domestic pay television programme service was launched in March 1998 by PCCW-VOD Limited. It offered the world's first commercial-scale video-on-demand (VOD) service which enabled viewers to choose from a list of pre-loaded programmes and interactive multimedia services. However, the service was terminated in October 2002 because of technical problems and huge deficit. Since then, PCCW has launched another pay-tv service named the NOW Broadband TV in September 2003 (PCCW, 2005). Another pay-tv run by the TVB Pay Vision Limited is currently transmitted via satellite through existing SMATV and CABD networks into set-top boxes of individual homes (TVB Pay Vision Ltd., 2006). It also transmits its service via the broadband network of Hutchison Global Communications Limited, and PCCW, in order to increase its competitiveness in the market. Major shareholders of TVB PAY VISION Limited are Television Broadcasts Limited (49%) and Enjoy Profits Limited (49%) and the latter is a wholly owned subsidiary of See Corporation Limited (TVB Pay Vision Ltd., 2006). The Third rival has come into the market in August 2003. Hong Kong Broadband Network (HKBN), a wholly-owned subsidiary of City Telecom (HK) Limited (CTI), P.6/58

launched a pay-tv service with their self-built Metro Ethernet IP network (CTI, 2006). In this paper, broadband pay TV refers to the television programme services offered by HKBN and PCCW. Since the year of 2000, there are a list of non-domestic television programme services licencees available in the domestic pay-tv market, they are the Starbucks (Hong Kong) Limited, Turner International Asia Pacific Limited, China Entertainment Television Broadcast Limited, i-cable Satellite Television Limited, Pacific Century Matrix (HK) Limited, Skywave TV Company Limited, Auspicious Colour Limited and Phoenix Satellite Television Company Limited (HKBA, 2006). According to the CTB (2004), penetration rate of the domestic pay television programme services is around 30 of the total local household and the total number of subscribers exceeds 610,000 (CTB, CITB 2004). Internationally, Hong Kong is second only to South Korea in terms of Broadband penetration rate. P.7/58

The Regulating bodies and Regulations of Television Broadcasting and Telecommunications in Hong Kong The Regulating bodies There are several government and government related regulating bodies responsible for regulating the broadcasting industry and carrying out policies and guidelines for broadcasting objectives and services. Communications and Technology Branch of the Commerce, Industry and Technology Bureau (CTB, CITB) As one of the bureaus within the HKSAR Government which is responsible for the broadcasting policy. It is responsible for implementing framework for the migration from analog to digital terrestrial television broadcasting 1 with a view to commencing digital terrestrial television broadcasting by 2007 and achieving within 2008 digital coverage for 75 % of the area of Hong Kong. It is also responsible for reviewing the broadcasting regulatory regime to access whether it remains effective in facilitating the development of the broadcasting industry (CTB, CITB 2005). The Office of the Telecommunications Authority (OFTA) 1 Digital TV is an alternative method of broadcasting the images and sound that appear on TV screen. Rather than being broadcast as a continuous analogue signal, the signals are sent as discrete bits of information. Digital TV improves picture quality and eliminates problems such as ghosting and snowing. Citizens will have to add suitable converters to the CABD system in order to receive digital terrestrial television. and buy an integrated digital TV set or add a set-top box with digital terrestrial TV reception capabilities to the existing TV set. (Government s Digital Website, 29, April, 2006). P.8/58

It was established as an independent government department on 1 July, 1993 and is the executive arm of the Telecommunications Authority (TA), who is the statutory body responsible for regulating and facilitating development of the telecommunications sector in Hong Kong. Its work covers five main areas including, providing technical and economic regulation of telecommunications services, enforcing fair competition, coordinating satellite and managing radio frequency spectrum, advising and planning and helping with international affairs about telecommunications (OFTA, 2005) Broadcasting Authority (BA) It is a statutory body established in September 1987 under the Broadcasting Authority Ordinance (Cap. 391). Its role is to regulate licenced television and radio broadcasters in Hong Kong through provisions in the Broadcasting Ordinance (Cap. 562), the telecommunications Ordinance (Cap. 106) and the Broadcasting Authority ordinance (Cap. 391) (HKBA, 2006). The Broadcasting Ordinance empowers the BA to perform functions like licence applications and renewals, issuing codes of practice, handling complaints, giving directions to licencees, granting exemptions to the licencees for deviations from the standard requirements or restrictions, monitoring performance, conducting inquires and making decisions on sanctions (HKBA, 2006). Television and Entertainment Licensing Authority (TELA) It is a Government department under CTB, its scope of services includes broadcasting regulation (mainly handling complaints about broadcasting materials), entertainment licensing, film classification, facilitating film services, handling registration of local newspapers and news agencies (TELA, 2006) P.9/58

The Regulations In order to meet the fast paced change in technology advancements and changing market demands, together with '1998 Review of Television Policy 2 ' (1998), the Government realized that there is a need for independent and separate regulators to govern the transmission and provision of television programmes services. Therefore in 2000, there were amendments in the Telecommunications Ordinance in which a new Broadcasting Ordinance was implemented to replace the Television Ordinance. The Broadcasting Ordinance basically regulates the programme content broadcast by the licencees while the Telecommunications Ordinance regulates facilities provision like making better provision for the licensing and control of telecommunications, telecommunications services and telecommunications apparatus and equipment, in other words, to be responsible for the physical infrastructure in delivering the programme content. 1. 2 Aims: (a) to encourage and promote expansion, penetration and common use of the broadcasting and telecommunications networks and cross fertilisation of the markets; (b) to create a fair, flexible, pro-competition and technology-neutral regulatory environment that would encourage and stimulate investment, technology transfer, diversification and innovation; (c) to maximise consumer benefits in choice, service quality, affordability and accessibility; (d) to facilitate the overall development of information technology and bring Hong Kong to the forefront of the Information Age; and (e) to promote Hong Kong as a pre-eminent regional broadcasting, information technology and telecommunications (Review of Television Policy (1998)) P.10/58

The Telecommunications Ordinance The Telecommunications Ordinance (TO) (Cap. 106) is enacted in 1936. Major amendments (the Telecommunications (Amendments) Ordinance 2000) were made in 1999 in order to reflect technological advancement and market developments. The main purposes of the amendment were to integrate and enhance powers of the TA; to update and streamline exemption arrangement and licensing procedures, to ensure vibrant telecommunication market by strengthening competition, and to improve communications and arrangements to access broadcasting services (ITBB CR 7/5/14/2 (02) (2003)). The amendments seek to provide fair competition and interconnection between licencees and the public. According to the amendments in sections 7K, 7L, 7M, and 7N, it aims at strengthening safeguards against anti-competitive practices, abusing of dominant position, misleading or deceptive conduct, and discriminatory acts ((ITBB CR 7/5/14/2 (02) (2003)). Also, penalties for breach of the licence were increased a maximum fine of HK$1,000,000, which is in ten folds compared with the original one. In TO, there are four types of telecommunication licences: Exclusive Licence, Carrier Licence, Class Licence, and an exclusive licence with category exclusive to all the previous ones. Among the four licences, he most common is the Carrier Licence and it covers television, fixed telephone networks and Internet services which include broadband networks. P.11/58

The Broadcasting Ordinance Serving as a regulatory body, the government sets out the Broadcasting Ordinance (BO) which main objectives are to provide more programme choice; to stimulate investment, encourage innovation and technology transfer in the broadcasting industry; to ensure fair and effective competition among service providers; to ensure broadcast services do not offend public and decency (HKBA, 2006). According to Section 5 of the BO, there are four kinds of television programme service license under the BO. Service providers are categorized according to the common nature of the services rather than the mode of transmission. Any person who provides a broadcasting service must have the specific license' in accordance with their categories. The four categories include: Domestic Free Television Programme Service Licences - These are the most common among four categories of television programme services. Therefore, they are subject to more rigid regulation due to free subscription nature and easily reach every resident in Hong Kong. Current licencees are TVB and ATV. The Annual licencing fee for such licence has a fixed fee of HK$3811000; and a variable fee calculated by multiplying HK$1566000 with the number of television programme service channels (if any) provided under the licence- (i) for the first annual licence fee, on the specified day; and (ii) for any subsequent annual licence fee, on each anniversary of the specified day (Broadcasting (Licence Fees) Regulation, Cap. 562A, Schedule 1, 2001). P.12/58

Domestic Pay Television Programme Service Licences Since viewers are free to choose in subscription of the service, this licence is regulated by a less demanding regulatory body. The annual licence fee for such licence has a fixed fee of HK$1371000; and a variable fee calculated by multiplying $4 with the number of subscribers (if any) to the television programme service provided under the licence- (i) for the first annual licence fee, on the specified day; and (ii) for any subsequent annual licence fee, on each anniversary of the specified day (Broadcasting (Licence Fees) Regulation, Cap. 562A, Schedule 2, 2001). Current licencees are Hong Kong Cable Television Limited with total 102 channels, PCCW Media Limited with total 85 channels and TVB Pay Vision Limited with total 49 channels (HKBA, 2006). Non-domestic Television Programme Service Licences - Television programme broadcasting services which do not primarily target Hong Kong audience is categorized in this category. They only require complying with the minimum standards set by the HKBA. Current licencees include the Starbucks (Hong Kong) Limited, Turner International Asia Pacific Limited, China Entertainment Television Broadcast Limited, i-cable Satellite Television Limited, Pacific Century Matrix (HK) Limited, Skywave TV Company Limited, Auspicious Colour Limited and Phoenix Satellite Television Company Limited (HKBA, 2006). The annual licence fee of this type of licence is HK$56600 and HK$69600 with a variable fee calculated by multiplying $4 with the number of subscribers (if any) to the television programme service provided under the licence- (i) for the first annual licence fee, on the day the licence comes into force; and (ii) for any subsequent annual licence fee, on each anniversary of the day the licence comes into force according to the availability of reception by public in Hong Kong (Broadcasting (Licence Fees) Regulation, Cap. 562A, Schedule 3, 2001). P.13/58

Other Licensable Television Programme Service Licences - These refer to television programme services provided in hotel rooms. Its licence fee is a fixed fee of $224000; and (b) a variable fee calculated by multiplying $4 with the number of subscribers (if any) to the television programme service provided under the licence- (i) for the first annual licence fee, on the day the licence comes into force; and (ii) for any subsequent annual licence fee, on each anniversary of the day the licence comes into force (Broadcasting (Licence Fees) Regulation, Cap. 562A, Schedule 4, 2001). According to Schedule 3 of the BO, certain television programme services are exempted from the Ordinance which requires licencing because they are not regarded as television programme services. It states that any services provided on the service commonly known as the Internet are exempted from applying the licence (HKBA, 2006). Therefore any broadcasting operators providing television programme services via the Internet do not require a licence. According to the BO, all television programme service licencees must comply with its requirements and the related subsidiary legislations. They are also bounded with the licence s terms and conditions and follow the guidance and codes of practice by the HKBA in providing broadcasting services. They need to follow the rules by the HKBA in licensing provisions, requirements relating to licenced services, etc. The objectives of the current regulatory regime are to provide a fair playing platform for the broadcasting operators in the telecommunications and broadcasting markets, and that viewers and consumers can get best services with competitive price and quality. P.14/58

Broadband Digital TV As noted in the introduction, we aim to answer the question whether there is a revelation that Internet based content providers (broadband TV in particular) are not regulated in the same way as over the air. Is broadband TV controlled and regulated by the existing TO or BO according to the legislature? If the answer is no, then what are the implications and effects which pose on other licencees and the choices for viewers? It is inevitable to take a look at the two ordinances. One of the distinctive features of broadband TV is that it uses Internet technology to transmit TV content. As with all telecommunications services providers, network operators are also required by law to apply for a telecommunications licence from the OFTA in which the network services would be regulated by the TO. Therefore all services providers providing physical network for broadband TV ought to hold a licence. It is important to note that the TO is just to regulate the means of providing the services (facilities) other than regulating the provision of services. However in this way, the content of the programmes are not regulated and that the services provided by licencees operated outside Hong Kong are not regulated as well. The programme contents we have on broadband TV is therefore not regulated by the TO. Even if the Ordinance is amended to empower the regulation of type of services provided by local network services providers, broadband TV can still escape from the regulations by streaming facilities outside Hong Kong. Then we move on to take a look at the BO. A television programme is defined by the section 2 of BO (2000) as means moving visual representational images (that is, images comprised within sequences of visual images capable of being seen as moving P.15/58

images), or a combination of sounds and such images, that are intended to inform, enlighten or entertain, but does not include visual images that consist predominantly of alphanumeric text, data, graphs, charts, diagrams or video games. Whereas a television programme service is defined as means the provision of a service that includes television programmes for transmission by telecommunications- (A) that are readily accessible to, or made available to, the general public in or outside Hong Kong; or (B) to persons, in 2 or more specified premises, simultaneously or on demand, whether on a point-to-point or a point-to-multipoint basis, or any combination thereof, having equipment appropriate for receiving that service; and includes a service, or a service belonging to a class of services, which is a television programme service in accordance with the provisions of a notice to the Chief Executive to the Legislative Council (BO Cap 562 Sect 2, 2004). Broadband TV clearly falls into these two definitions. Any TV services available over the Internet which could be viewed by a computer monitor screen with point to point nature (single computer connected to single network service provider) seem to be included in the Ordinance. According to the Ordinance (2004), television programme services does not include the provision of a service that- (i) consists only of a television programme that is made solely for performance or display in a public place; (ii) consists only of a television programme that is intended wholly or mainly for the purposes of the trade, business, employment or profession of the recipient (but excluding a television programme delivered to hotel rooms); (iii) consists only of a service that is specified in Schedule 3; or (iv) is a service, or a service belonging to a class of services, which is not a television programme service in accordance with the provisions of a notice to the Chief Executive of the Legislative council. In particular, schedule 3 of the ordinance (BO Cap 562 Schedule 3, 2000) clearly states that Any P.16/58

service provided on the service commonly known as the INTERNET is not regarded as television programme services while the term Internet is not defined. Broadband TV is exempted from the Ordinance because its television programme content provided over the Internet. So that broadband TV service providers need not to apply for a broadcasting licence. In fact, the broadband digital TV operated by the HKBN does not have a valid a broadcasting licence. In this way, HKBN saves more than HK $1371000 for annual licence fee and a variable fee calculated by multiplying $4 with the number of subscribers (if any) to the television programme service provided under the licence, by not having to apply for a domestic pay-tv programme service licence (BO 562A Schedule 2, 2001). This could be unfair to the other domestic and non-domestic pay-tv programme services providers like TVB Pay Vision and PCCW. The problem of whether Internet based pay TV should be exempted from the BO is therefore needed to be revised. The above arguments have several implications. In fact, the purpose of the BO is to provide codes of practice and guidelines to the licencees as well as giving a fair playground for them in the broadcasting industry. According to the BO; Generic Codes of Practice and Guidelines for television These codes set out clear standards relating to programme including use of language, sex and nudity, violence, protection of children, privacy etc., advertising and technical standards applicable to the licensees. These codes are reviewed regularly in consultation with the licensees to take account of changing community attitudes and standards (HKBA, 2006). Any services providers which are exempted from these P.17/58

codes of practices, the programmes offered may not be regulated and supervised. Viewers may receive misled and false information and could be misleded, which can pose very serious effects on viewers. Determination of whether television programme service primarily targets Hong Kong Under Section 12 of BO in 2000, Internet Pay-TV programme providers are not stated and included in the statement apply to the HKBA to determine whether a television programme service would or would not be primarily target Hong Kong. Normally it is important for the HKBA to determine the concerning licencees of such matter because the nature of foreign language programmes is different from the local ones, it is therefore important to judge on this so that the HKBA could determine category of licence for the service providers. Prohibition on Anti-Competitive Conduct In Section 13 of the BO in 2001, the exempted broadband TV services providers need not have direct or indirect agreements to fix the price in the television programme service market, they are not restricted to prevent supply of goods or services of content providers to competitors or giving discounted deals or apply dissimilar conditions with other trading parties. In this way, viewers may have fewer choices in particular types of programmes and may need to pay for the services. P.18/58

Prohibition on Abuse of Dominance According to the BO (Section 14.2, 2001), a licensee is in a dominant position when, in the opinion of the Broadcasting Authority, it is able to act without significant competitive restraint from its competitors and customers. It includes the licensee's power to make pricing and other decisions and barriers to entry to competitors into the relevant television programme service market. HKBA has the power to interfere and enact powers if any of the services providers abuse their dominant position. As HKBN operates as a non-licence services provider, the BO cannot perform its duties of stopping it from dominating the market with inappropriate behavior if there is such case. Disqualifications for Holding Domestic Free or Pay Television Programme Service Licences and Restrictions on Voting Control According to Part 2 of Schedule 1 in the BO (2003), any licencees in the same category of licence or in a different category of licence, including a non-domesic television programme licence and an other television programme service licence are prohibited from having control of domestic free and domestic pay service except with prior approval in writing of the Chief Executive in the Legislative Council. The current dominant Fixed Telecommunications Network Services (FTNS) licencee (PCCW), cannot be approved of having the domestic free or domestic pay-tv licence by the Government. Therefore HKBN profits from having the chance, in theory, to become dominant in both telecommunications and broadcasting markets. P.19/58

On the other hand, broadband TV services providers are suggested to follow some rules and regulations by the HKISPA. Code of Practice by the Hong Kong Internet Service Providers Association The code is a voluntary adoption by members of the HKISPA, in which the guidelines are broad and does not have solid guidelines for business practices of the Internet Services Providers. Broadband Digital Pay TV Service Providers in Hong Kong There are altogether three broadband digital Pay TV service providers in Hong Kong, namely Hutchison Global Communications (HGC), HKBN and PCCW VOD. They use similar technologies in providing the service via the Internet; the only difference lies in their physical network technology. It is essential to note that both HGC and HKBN operate without acquiring a domestic pay-tv broadcasting licence while the PCCW has one. The discrepancy accounts to the service delivery method in which PCCW is a telecommunication network provider using IP technology run by a licenced operator according to the Telecommunication Ordinance and that they are not providing the service by merely using the Internet. Also, it is a fact that the NOW TV operated by the PCCW VOD is now made available to watch with a separated decoder set and accounting as one of the domestic pay-tv programme service providers (HKBA, 2006). Also, several channels of the TVB Pay Vision is made available on the Internet via the PCCW Broadband as well (TVB Pay Vision Ltd., 2006). It is in 2003 when PCCW commenced its domestic pay TV programme service licence (CTB, CITB 2006) which setting path to provide TV broadcasting in the same P.20/58

form of other pay TVs (Cable and TVB Pay Vision). Before that, the itv of the PCCW is also operated without any licence. P.21/58

HKBN Digital Pay TV HKBN launched Hong Kong Broadband Network Digital Television ('HKBN Digital TV') (originally Hong Kong Broadband Network Television) in August 2003 by making use of the Internet Protocol (IP) network platform, which is facilitated by the advanced Metro Ethernet technology (HKBN from Wikipedia, 2006). HKBN is now the subsidiary of City Telecom Limited (CTI). In June 2002, Hong Kong Broadband Network Limited built up the largest Metro Ethernet network in the world and confirmed by Cisco Systems which offer a triple play of voice, video, and broadband Internet access services (HKBN from Wikipedia, 2006). HKBN Digital TV aims at the Chinese language market. Additionally, it attempts to provide pay-tv service at a price lower than the other pay-tv service providers. Apart from carrying non-local channels, it also carries local and self-produced channels (HKBN from Wikipedia, 2006). The broadband digital pay-tv service can be displayed in a TV set via a decoder box with 10/100/1000 BaseT Ethernet interface or connect directly to a personal computer s LAN port with different MPEG video format (HKBN bb1000, 2005). HKBN tried to differentiate its services with free-to-air TV and Cable TV in terms of programme services. Since the time it was established, the number of channels increased from 11 to over 70.6 (HKBN from Wikipedia, 2006), it has more than 70 channels with 13 different genres, including Movie, News and Information, Children Education, Lifestyle/Leisure/Sports, Music and Culture, Lifestyle, Adult, Entertainment, Interactive channels which let viewers shop, play video games, send emails and SMS, as well as check weather reports, real-time text news and stock quotes, Current Affairs Channel, Channel News Asia with English news reports on P.22/58

global news from an Asian viewpoint and Hong Kong Sports with a combination of local sports news and competitions, including Inter-University and Inter-School competitions. According to the CTI's Interim Report on 28 February 2006, HKBN total FTNS subscription base, including all registered paid and free, on-net and off-net subscriptions, is 634,000 during the six month period before 28 February 2006. And that the IP-TV s subscription base is 109,000 as stated in the annual report by the CTI group in 31 st August 2005. HKBN Broadband Digital Pay TV service provides customers with a subscription package at HK$128 per month with an 18-month contract for 70 basic channels and HK$38 for an extra Adult channel, while mere subscription to an Adult channel is HK$50 (HKBN, 2005). Its rivals, the i-cable s Cable TV offers a basic package fee of HK$308 per month for 63 basic channels and HGC offering Concert-Video channel at HK$10 per programme and 3 selective channels ranged from HK$25-33 per month and 5 free channels for network subscribers. The dominating rival, PCCW-VOD s NOW Broadband TV is having a special package of HK$388 per month for more than 70 channels with a 18-month contract plan and collaborate program offer with the TVB Pay Vision at an extra HK$138 package plan offering 20 channels provided by the TVB Pay Vision and transmitted through the PCCW network either displayed on a computer monitor screen or a TV set with additional decoder sets. As discussed in the above, HKBN operates its broadband digital TV without a broadcasting licence although it can also be watched by TV sets with decoder sets. It P.23/58

seemed to be exmpted from the Schedule 3 of the BO. In fact, the Standard (3 September, 2003) also quoted from the CITB that the broadband digital TV service provided by the HKBN is actually transmitted through its Metro Ethernet Technology via the network and transmitted throught the Internet platform, therefore its TV programme service need not to have a licence in order to operate. P.24/58

HGC Broadband TV HGC is providing a broadband TV named YesPlus TV through the Internet Broadband service while YesPlus TV is actually a division of the Yes TV operated by the Yes Television Asia (Yes TV, 2005). It is not in the list of the television broadcasting operators as its technology in transmission of television programmes is different to that of the antenna aided broadcasting operators which requires a licence according to the BO. Yes Television Asia is a pan-asian media company delivering entertainment programmes over broadband in the Asia region including places like China, India, Thailand, Myanmar, Cambodia, Laos, Hong Kong, Malaysia, Singapore, the Philippines, Taiwan, Sri Lanka, the Maldives and Indonesia since 1998 (Yes TV, 2005). It consists of a division called the YesPlus which enable its clients to acquire, manage and deliver integrated video services to subscribers via broadband and other IP based networks by providing the IPTV service (Yes TV, 2005). YesPlus is currently deployed by major telecom and broadband partners in the United Kingdom, and in Asia such as Hutchison Global Communications (Hong Kong), Singtel (Singapore) and Astro (Malaysia), and it distributes both mainstream and niche content across all genres - news, family, lifestyle, fashion, sports, movies, adult - including product from such established companies as Manchester United, Walt Disney, China Central Television (CCTV), Asia Television (Hong Kong), Celestial (Shaw Brothers Films) and Universe Chinese movies, the Playboy Channel, Private Media Group, and Viva (Philippines) (Yes TV, 2005). P.25/58

In Hong Kong, there are altogether 9 channels subscribed by the HGC broadband and available for network subscribers to subscribe. There are 3 free basic channels package but is currently unavailable for new subscribers, HGC network subscribers are available to subscribe a Concert-Video channel at HK$10 per programme and 3 selective channels ranged from HK$25-33 per month (HGC, 2006). Having the same situation as the HKBN Digital Broadband TV, it operates without a television programme service broadcasting licence because it is tranmitted through the Internet using broadband service as an IPTV. P.26/58

PCCW VOD NOW Broadband TV PCCW-VOD NOW Broadband TV moved its web portal (now.com) from originally being only able to be viewed through computer monitor screens to TV sets with separate decoder sets. NOW TV is at present the second largest pay-tv operators in Hong Kong, after Cable TV which is operated by the i-cable Communications Limited (NOW Broadband TV from Wikipedia, 2006). At the time when PCCW-VOD Limited launched the new pay-tv service (NOW Broadband Pay TV), it tried to apply for renewal of its previous pay TV licence for its Interactive TV (itv) which launched in March 1998 and surrendered in July 2002 (PCCW, 2006). itv s pay TV services included wide range of information and entertainment such as news, music videos, home-shopping, home-banking and educational contents etc. itv was serving 67,000 subscribers at the end of 2000. It was forced to terminate its operation in the last quarter of 2002 due to fierce competition with the i-cable, the liberation of the pay-tv market by the HKSAR Government in early July 2000 and fewer subscribers and declination in revenue (NOW Broadband TV from Wikipedia, 2006). However, the application to the renewal was rejected because the Government ruled out that the service provided by NOW broadband TV was different to that of the itv with the video-on-demand technology (PCCW, 2006). PCCW then applied for a new licence in May 2003 and it was granted in September 2003. Its service is provided with their broadband network under the asymmetrical digital subscriber line (ADSL) technology (PCCW, 2006). Since NOW Broadband pay TV is operated under the same umbrella with the mother company PCCW; itv is thus commonly viewed as the predecessor of now TV. P.27/58

NOW Broadband pay-tv service was officially launched in September 2003 with 23 channels but was soon expanded to exceed 30 with the addition of sports-related channels and BBC World and the Animax channel, as well as the Cantonese Star Chinese Movies and Xing Kong channels (PCCW 2006). With less than four months of launch, now TV had attracted more than 200,000 customers at the year end of 2003 (NOW Broadband TV from Wikipedia, 2006). NOW Broadband pay TV mainly targets at the high-income group, its number of subscribers has been under substantial growth and the number of paying subscribers to now TV reached 549,000 (in which approximately 61% is paid subscribers and 31% is free subscribers) at the end of December 2005 according to the Annual Reports issued by PCCW in 2005. Its service is available at home, hotel rooms, offices, sports bars etc. In December 2005, now TV improved its services by introducing a technology with connection speed up to 12 megabits per second and the resolution of video display is made four times higher than ordinary televisions with the technology of high-definition television and Video-On-Demand services was launched. And on February 21, 2006, PCCW and TVB Pay Vision Limited ("TVBPV") announced that they have entered into an agreement under which TVBPV's service will be carried on the Now TV's platform (NOW Broadband TV from Wikipedia, 2006). To compete with its rivals, PCCW-VOD offered the pay TV service as add-on service to its network subscribers with free decoder installation in late September 2003 (1 month after the launch of the HKBN s digital pay TV service. P.28/58

At the beginning of the business, NOW TV only operated 23 channels but the number of channels has already exceeded 70 in June 2005. At present, it offers 15 free channels and 57 pay channels. It provides some free channels to non-subscribers and some exclusive channels for its subscribers such as Star Sports, Mei Ah Asian Drama Channel etc. In order to deal with ferocious competition, it has added several brand new channels, such as the Korean Drama channel and also the ESPN sports channel, to provide more diversity in their service. And it categorizes the free 15 channels and the 57 pay channels into 9 groups. They are Movie, Music, News, Infotainment, Entertainment, Sports, Kids, Adult and Indian (NOW Broadband TV from Wikipedia, 2006). Charge schemes adopted by NOW Broadband pay TV are different from other pay-tv service providers since it charges its customers on a pay-per-channel basis. Under the pay-channel scheme, it allows flexibility among the subscribers to choose the channels they are interested in and enjoy their own combinations of channels; they only have to pay for the channels they choose with no extra monthly fees (NOW Broadband TV from Wikipedia, 2006). Alternatively, customers may choose channel packages at discounted prices (e.g. $138 for all TVBPV channels, plus $12 per month for the channel of BBC World 12-month package while the original price is $20) or having a special package of HK$388 per month for more than 70 channels with a 18-month contract plan displayed either on a computer monitor screen or a TV set with additional decoder set (PCCW NOW TV Website, 2006). The decoder s installation charges could be waived for Netvigator Broadband subscribers. P.29/58

According to the Annual Report 2005 of the PCCW HKT Limited, PCCE has 953,000 broadband access lines and 549,000 NOW TV installation as at 31 December, 2005 (PCCW, 2006) P.30/58

Challenges to TV broadcasting regulations With the fast paced technological advancement, people are able to live in environment with numerous visualization equipments such as plasmas, LCD monitors with diversity of functions which enable viewers to connect the visual display units to different electrical appliances with compatibilities. Now viewers could play, work and enjoy television with such development and it is no longer retaining at an era in which there is a clear distinction between computer monitor and TV screen. People could use the TV screen to surf on the Internet and receive information transmitted through the Internet. It provides a golden opportunity for Internet visuals related business to emerge to the digital and electronics market with advanced technology. According to the regulations discussed in the above sections, there is no doubt that the regulations do have grey areas. Both the Ordinances for telecommunications and broadcasting seem to have different regulating ground to different broadcasting service providers which come together in the same market with different technologies and industries. Both providers are providing broadcasting services to the Hong Kong public using different forms of transmission and subscription method. Some of the providers come from the broadcasting industry while some from the telecommunications industry in which they are providing mainly television programmes and internet connection and digital/electronics aided communications respectively. The government tried to amend this shortcoming in the TO and BO in 2000 with statement stating that the policies for deciding regulations governing the method of broadcasting television programmes, whether the service providers are transmitting or providing the television programmes, should be distinguished clearly and that the licencing and regulations for those services provison via internet P.31/58

should be bounded to the technology section. According to the Broadcasting Bill of the Legislative Council Brief in 2000 (ITBB (CR) 9/19/1(00) Pt. 7), it specified that certain services which may involve the transmission of visual images by telecommunications will not be regarded as television program services for purposes of the Bill and will therefore be exempted from its application and that services provided in the internet are exempted. And it also pointed out that the video and audio services available on the Internet has a different mode of broadcasting operation and their pervasiveness is not comparable to television programme services currently operating in Hong Kong and this type of service is exempted from the application of the Bill unless and until its pervasiveness and mode of operation is drawn closer to broadcasting and the question of effective enforcement is resolved (Broadcasting Bill of the Legislative Council Brief, ITBB (CR) 9/19/1(00) Pt. 7, 2000). In this way, Internet based television programme services provision is exempted from the BO to require for a licence. However, there are more and more challenges to the broadcasting and telecommunications markets and industry and that new business and operational models emerges because of technological advancements with a diversity of broadcasting programmes, it is questionable that the current regulations regime can afford to keep up with the fast paced development. And it is observed that the Government has underestimated the shortcoming of having different regulating ground for different broadcasting service providers. The regional trend in having common regulatory ground has become a difficult issue for governments to deal with (Felton, 2003). Problems like discouraging new entrants and competitors and the creation and distribution of new kinds of broadband TV services and contents would be hindered if there exist too many regulations. However, if the market is so free that P.32/58

everything is left to be solved by the market itself, monopolization, frauds and content deviations and misled audiences would be resulted. In order to have further discussion, one word we need to be defined first. Convergence, which broadly means coming together in which it is applied to corporate strategies (the merger of AOL and Time Warner), to technological developments (video on demand and interactive television), to marketing efforts (partnerships between newspapers and TV stations to promote each other's work), to job descriptions ("backpack journalists," who return from the scene of a story with words, audio and video) and to storytelling techniques (the melding of text and multimedia on news Web sites) in the 21 st Century (Gordon, 2003). Companies tried to create content that are able to be distributed digitally through the Internet as more and more people have access to the Internet. But while the Internet has changed people's patterns of media usage, it is far from dominant as a distribution channel (Gordon, 2003). Most consumers do not use digital display devices to view information or entertainment besides using the computer. Most TV viewers rely on analog programming delivered to traditional TV set both in Hong Kong and the US although the U.S. Federal Communications Commission (FCC) and the HKSAR Government has set a 2006 and 2008 deadline for conversion to digital television respectively (Gordon, 2003). In Hong Kong, the HGC Broadband TV, the HKBN Digital Pay TV are the two uses Ethernet Technology to transmit data Cable television companies are the leading providers of high-speed Internet access in most countries, but their Ethernet cables connect to computers, not to TV sets or set-top boxes.in short, the era of complete technology convergence is not yet upon us. But we can see its outlines taking shape. For Technology convergence to enter to the living room, televisions need access to the internet, the capacity to receive and store digital P.33/58