HK mobile carriers seek to split 3G tab

By CNN's Kristie Lu Stout and reports

HONG KONG, China (CNN) -- Two of Hong Kong's four 3G mobile license holders want to share the cost of building the pricey next-generation networks with rival carriers.

SmarTone and Sunday said they should be allowed to jointly build-out the infrastructure in order to cut costs and better contain the risk of launching a largely untested technology.

But Hong Kong's telecom authorities may not be in the giving spirit.

Relaxation of the rule that each 3G license holder must build its own network could be viewed as unfair to those carriers who withdrew from the initial 3G bid out of cost fears.

'Waste of resources'

In September, Hong Kong awarded 3G licenses to each of the only four carriers that applied at the floor price set by the government, canceling the need for an auction.

The licenses were awarded to Hutchison, CSL, SmarTone, and Sunday -- Hong Kong's smallest mobile carrier and the auction's surprise fourth winner.

Each carrier will pay the reserve price of 5 percent annual network turnover, subject to a minimum annual fee of $6.41 million during the first five years of the 15-year licenses.

The carriers have estimated the 3G build-out cost anywhere from $192 million to $513 million.

"To build one network is expensive enough," SmarTone CEO Douglas Li told reporters last week. "To build four networks is a waste of resources. It's ridiculous."

He added that the extra cost in network infrastructure would translate into higher phone bills.

Sunday managing director Craig Ehrlich said earlier this month that his firm was in talks with other carriers to jointly build a next-generation network, despite rules that prohibit such sharing.

Regulatory debate

Hong Kong's Office of the Telecommunications Authority (OFTA) requires each operator to build its own 3G infrastructure.

Its 3G license rules state, "The licensee shall not share the use of the network or any part of it with any other MNO (Mobile Network Operator) unless prior written consent has been given by the Authority."

OFTA spokeswoman Diana Foo told CNN that network sharing would only be considered "on an individual basis and under very special circumstances."

But Ehrlich had previously stated the 3G conditions do not prohibit operators from joint 3G network build-outs.

"There are no rules on the issue of sharing infrastructure. There are only issues with what we have to do before 2006," he told Reuters last week, referring to the minimum coverage requirements.

Hong Kong's mobile carriers may have to convince the telecom authorities of the uncertain fate of 3G before any leniency could be granted.

"What they need to do is to show the government that at the beginning of the 3G rollout its popularity is a question mark," said Tai Fook Securities senior analyst Shea Kai Ming.

"If it's not too popular, there is no need for many operators to build out separate networks… but the issue will drag on for some time in the future."

Reuters contributed to this report.