Licensing of New Television Broadcasting Services

1. Licensing of NewTelevision Broadcasting Services 4 July 2000 Information Technology & Broadcasting Bureau

2. Policy Objectives • To widen programme choice • To encourage investment • To ensure fair and effective competition • To promote Hong Kong as a regional broadcasting and communications hub

3. Policy Decisions • 1998 Review of Television Policy • Policy decisions announced in December 1998 • Among others, it was decided that the television market should be opened up for competition

4. Invitation of Applications • Guidance Note issued in August 1999 • set out regulatory requirements • set out assessment criteria • 10 applications received in October 1999 • Working Group under the Broadcasting Authority (BA) • Evaluation against the criteria in Guidance Note

5. Regulatory Requirements • Statutory requirements • cross-media ownership restrictions • residence requirements for directors/principal officers, etc. • Compliance with TA Statement on in-building frequency layout plan • Employment of spectrum-efficient technology

6. Assessment Criteria 1.Service • coverage of service • speed of service roll-out 2. Corporate competence • knowledge about the local broadcasting environment • quality control to ensure compliance with standards

7. Assessment Criteria 3. Financial • size of performance bond • financial capability • sufficiency of investment • feasibility of business plan 4. Technical • technical feasibility • employment of advanced technology • technical readiness

8. Assessment Criteria 5. Programming • quantity and variety 6. Others • benefits to the local broadcasting industry • benefits to the local economy

9. Evaluation Result • 5 successful • 4 failing to meet regulatory requirements and/or assessment criteria • 1 withdrawn

10. Successful Applicants Approval-in-principle for the following applicants: 1. Hong Kong Network TV Limited 2. Elmsdale Limited 3. Pacific Digital Media (HK) Corp. Limited 4. Hong Kong DTV Company Limited 5. Galaxy Satellite Broadcasting Limited

11. Other Applicants • Cable & Wireless HKT VOD Limited • Withdrawn as existing licence deemed a “domestic pay” licence • Turner International Asia Pacific Limited • Existing Hotel TV Services Licence deemed an “other licensable” licence • Others not successful for failing to meet the regulatory requirements and/or assessment criteria

12. Shareholding of Successful Applicants 1. NETV Sino-i.com Ltd. (100%) 2. Elmsdale Elmsdale Media Ltd. (90%) Shaw Media Ltd. (10%) 3. Pacific Digital Pacific Digital Media Corporation (100%) 4. DTV STAR TV Ltd. (100%) 5. Galaxy Television Broadcasts Ltd. (100%)

13. Commitments - Launch of Service From Grant of Licence 1. NETV 12 months 2. Elmsdale 12 months 3. Pacific Digital 6 months 4. DTV 9 months 5. Galaxy 18 months

14. Commitments - Programme Channels 1. NETV 65 channels (24 months) 2. Elmsdale VOD (12 months) + 10 channels (24 months) 3. Pacific Digital 20 channels (12 months) 4. DTV 14 channels (9 months) 5. Galaxy 40 channels (27 months) Total: 149 channels

15. Commitments -3-Year Capital Investment 1. NETV $140 million 2. Elmsdale $108 million 3. Pacific Digital $23 million 4. DTV $250 million 5. Galaxy $180 million Total: $701 million

16. Mode of Transmission • Broadband fixed telecom network : 2 • NETV and Elmsdale • Satellite + SMATV : 3 • Pacific Digital, DTV and Galaxy

17. Galaxy - Considerations • Galaxy has submitted a compliant proposal • Galaxy is subsidiary of TVB • CE in C’s approval for exemption of “disqualified person” restriction, having regard to the following factors: 1. Effect on competition in relevant service market 2. Widening of programme choice 3. Impact on the development of broadcasting industry 4. Overall benefits to the economy

18. Galaxy - Special Conditions To ensure that TVB and Galaxy will not engage in activities involving cross-subsidy or preferential treatment • cross-subsidization between the two companies will be prohibited as a licence condition • TVB cannot show undue preference to Galaxy or vice versa in respect of the supply of programmes, production facilities, programming services and artistes also as a licence condition

19. Galaxy - Special Conditions To ensure that there will be a level-playing field in the pay TV market • any exclusive programme deals between TVB and Galaxy will be subject to a competitive bidding process in the open market • Galaxy’s proposed pay service may only commence after 18 months from the grant of licence

20. Galaxy - Special Conditions To ensure that TVB’s free-to-air service will not be adversely affected • The beneficial ownership of TVB and its associates in Galaxy must be below 50% of the total shareholding in Galaxy • TVB may not invest more than 20% of its net asset value in Galaxy • TVB will spend not less than $2.7 billion annually, of which not less than $100 million on capital investment, in its free-to-air service

21. Sanctions • BA may apply to the Court to impose financial penalty for contravention of competition provisions • $2 million; or • a sum not exceeding 10% of the turnover of the licensee in the relevant television programme service market in the period of the breach (whichever is the the higher)

22. Galaxy -BA’s Assessment • Proposed safeguards constitute an effective “firewall” between TVB and Galaxy • Delayed commencement of Galaxy’s service will give a fair degree of head-start for other new entrants • Galaxy’s service would widen programme choice for viewers without compromising effective competition in the market

23. Liberalisation of TV Market • Open up the TV market • Provide a fair and effective competition environment for the TV market • Additional 149 TV channels • Total capital investment over $700 million • More than 1,000 jobs to be directly created • Service launch within 6-12 months

24. THANK YOU