HONG KONG TELECOMMUNICATIONS (HKT) LTD v. SECRETARY FOR COMMERCE AND ECONOMIC DEVELOPMENT AND ANOTHER

HCAL 448/2018

[2018] HKCFI 1667

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 448 OF 2018

________________________

________________________

____________

JUDGMENT

____________

This Judgment shall be divided into the following Sections:

	Contents	Paragraphs
I	Introduction	1-2
	Background facts
	(i) Expiry of the existing assignments in respect of the 900/1800 MHz bands in 2020/21	3-7
	(ii) The First Consultation	8-10
	(iii) The Plum Study	11-14
	(iv) The Second Consultation	15-20
	(v) The Joint Statement	21
	(vi) Application for leave to apply for judicial review	22
	(vii) Subsequent events	23-27
III	Regulatory framework
	(i) The Authority	28
	(ii) The Authority’s powers and functions	29-33
	(iii) Licensing arrangements for the use of radio spectrum	34-36
	(iv) Spectrum utilisation fee	37-38
IV	The Spectrum Policy Framework (SPF)	39-46
V	Mr Reynold’s evidence	47-50
VI	Ground 1 – the Authority failed to followed the SPF and mistake of fact	51-68
VII	Ground 2 – the Authority acted irrationally in having regard to service continuity only in respect of 2G and a limited part of 4G services	69-73
VIII	Ground 3 – the Authority erred in refusing and failing to carry out a full ‘refarming” cost-benefit analysis under §4.4 of the SPF	74-82
IX	Ground 4 – the Respondents failed to discharge its Tameside duty and took into account irrelevant consideration and failed to take into account relevant consideration	83-101
X	Ground 7 – the Authority frustrated HKT’s substantive legitimate expectation that renewal would be considered in accordance with the SPF and best practices in the communications market	102-106
XI	Ground 8 – the Authority mischaracterised Option 1 as a “perpetual” assignment	107-109
XII	Ground 9 – Special Condition 10.4 is ultra vires Section 7A of the Telecommunications Ordinance	110-123
XIII	Ground 10 – procedural unfairness: redaction of the Plum Report	124-128
XIV	Irrationality challenges	129
	(i) Ground 11 – it is irrational, unfair and unlawful to set aside the same amount of spectrum for each incumbent’s right of first refusal	130-140
	(ii) Ground 12 – it is irrational, unfair and unlawful to impose a spectrum cap that denied HKT the opportunity of increasing its holding	141-146
	(iii) Ground 13 – it is irrational, unfair and unlawful to link the spectrum utilisation fee for the RFR Spectrum to the outcome of the auction, particular so under the conditions imposed by the Decision	147-158
XV	Disposition	159-160

I.   INTRODUCTION

1.  In this application for judicial review, Hong Kong Telecommunications (HKT) Limited (“HKT”) challenges the decision (“the Decision”) of the Secretary for Commerce and Economic Development (“the Secretary”) and the Communications Authority (“the Authority” or “the CA”) contained in a Joint Statement dated and published on 19 December 2017 (“the Joint Statement”) and headed “Arrangements for the Frequency Spectrum in the 900 MHz and 1800 MHz Bands upon Expiry of the Existing Assignments for Public Mobile Telecommunications Services and the Spectrum Utilisation Fee” to conduct a partial auction of the 900 MHz and 1800 MHz bands upon expiry of the existing assignments in 2020/21.

2.  In the Form 86, HKT advances a total 13 grounds of judicial review.  Under each of the 13 grounds, HKT raises numerous complaints against the Decision from all directions.  At the substantive hearing of the application for judicial review, Mr Roger Beresford (on behalf for HKT) did not pursue Grounds 5 and 6.  Further, in view of the judgment of the Court of Appeal given on 9 January 2019, Mr Beresford did not press Ground 10 relating to procedural unfairness (redaction of the Plum Report), although he maintained that the ground was not withdrawn.  In this judgment, I propose to deal only with the major points or arguments raised by Mr Beresford on behalf of HKT, and leave out subsidiary points or arguments of little consequence or significance (which I consider to be unsound anyway).  For reasons which I shall endeavor to explain below, I am not satisfied that any of HKT’s grounds of judicial review is well founded.  Accordingly, the present application for judicial review stands to be dismissed.

II.   BACKGROUND FACTS

(i)   Expiry of the existing assignments in respect of the 900/1800 MHz bands in 2020/21

3.  There are currently 4 mobile network operators (“the MNOs”), namely, HKT, China Mobile Hong Kong Company Limited (“CMHK”), Hutchison Telephone Company Limited (“Hutchison”) and SmarTone Mobile Communications Limited (“SmarTone”), in the mobile telecommunications market in Hong Kong, which has been said to be one of the most competitive markets and have one of the highest penetration rates in the world (with about 18.25 million subscribers for a population of some 7.3 million as at September 2017, translating to a penetration rate of about 247%).

4.  In order to provide their respective mobile telecommunications services in Hong Kong, the MNOs require the use of radio spectrum made available by the Authority.  Radio spectrum is a finite public resource, and of fundamental importance to the operation of telecommunications and broadcasting networks and services in Hong Kong.  It is divided into frequency “bands” and sub-divided into frequency “channels” which are then “allocated” for use for the provision of particular services.  Individual frequency channels may be “assigned” to individual users for the provision of specified services in accordance with the terms of the assignment.  Two frequency bands of radio spectrum are relevant to the present case, namely, the 900 MHz band and 1800 MHz band.

5.  Currently, 552 MHz of radio spectrum in four different frequency bands are assigned to the MNOs.  They include radio spectrum in the 900/1800 MHz bands, which are being deployed for the provision of 2G, 3G and 4G mobile services by the MNOs.  All 4 MNOs have been assigned spectrum in the 1800 MHz band, while three of them (namely, HKT, Hutchison and SmarTone) have been assigned spectrum in the 900 MHz band.  HKT has the largest holding of spectrum in the 900/1800 MHz bands amongst the 4 MNOs.  The following table summarizes the MNOs’ respective holdings of spectrum in the 900/1800 MHz bands and their overall spectrum holdings:

	Overall total (MHz)	Share in total	Radio spectrum in the 900/1800 MHz bands due to expire in 2020/21
			900 MHz (MHz)	1800 MHz (MHz)	Total (MHz)	Share in MNO’s total
HKT	194.0	35%	16.6	72.8	89.4	46%
Hutchison	129.4	23%	16.6	23.3	39.8	31%
CMHK	116.0	21%		26.4	26.4	23%
SmarTone	112.6	20%	16.6	26.4	43.0	38%
Total	552.0	100%	49.8	148.8	198.6	36%

6.  It can be seen from the above table that the existing assignments of 49.8 MHz of spectrum in the 900 MHz band and 148.8 MHz of spectrum in the 1800 MHz band (making a total 198.6 MHz) will expire in 2020/21.  In addition, there are (i) 2 x 0.1 MHz of spectrum in the 900 MHz band, and (ii) 2 x 0.6 MHz of spectrum in the 1800 MHz band, which are currently vacant or un-assigned.  Accordingly, a total of 200 MHz of spectrum (“the Available Spectrum”) in the 900/1800 MHz bands (comprising 2 x 25 = 50 MHz in the 900 MHz band and 2 x 75 = 150 MHz in the 1800 MHz band) will become available for re-assignment in 2020/21 upon the expiry of the existing assignments.

7.  In this connection, the Secretary and the Authority jointly conducted two rounds of public consultation in 2016 and 2017 on the arrangements for the re-assignment of the Available Spectrum and the related spectrum utilisation fees.

(ii)   The First Consultation

8.  On 3 February 2016, the Secretary and the Authority jointly issued a consultation paper (“the First Consultation Paper”) to solicit views from the industry and other affected persons on the arrangements for the re-assignment of the Available Spectrum, as well as on the methods for setting the related spectrum utilisation fees.  Three re-assignment options for the Available Spectrum were raised for consultation, namely -

Option 1:   full-fledged administratively-assigned approach;

Option 2:   full-fledged market-based approach; and

Option 3:   hybrid administratively-assigned cum market-based approach.

9.  In the First Consultation Paper, it was stated, inter alia, that:

(1)   The Authority would evaluate the options for the re-assignment of the Available Spectrum according to the extent to which they satisfied the following policy objectives:

(a)   ensuring customer service continuity;

(b)   efficient spectrum utilisation;

(c)   promotion of effective competition; and

(d)   encouragement of investment and promotion of innovative services[1].

(2)   In relation to “customer service continuity”, the Authority considered that the continuity of 3G and 4G services in indoor areas, including those at MTR stations and along MTR lines, would unlikely be an area of concern when assessing the options for the re-assignment of the spectrum in the 900/1800 MHz bands in 2020/21[2]. However, ensuring the continuity of mobile voice servicesto customers using 2G handsets might be an area of consideration in the Authority’s assessment of the options, as these handsets could only support the MNOs’ 2G networks operating with the 900/1800 MHz spectrum[3].  Also, the extent of the need to provide inbound roaming services for visitors to Hong Kong using 2G handsets would also need to be considered[4]. The Authority would continue to adopt its technology-neutral approach when considering the views of the industry on the technology to be adopted in the provision of public mobile telecommunications services, as well as the types of mobile services to be provided using the radio spectrum which may be assigned to the MNOs.  The Authority considered that the decision on whether, and if so when, the 2G networks would be switched off in Hong Kong should be determined by the MNOs based on their assessment of the demand for 2G services, so long as they ensured that the impact on the affected customers would be kept to the minimum through reasonable transitional arrangements and affordable migration plans[5].

(3)   In relation to “efficient spectrum utilisation”, the Authority pointed out that the existing fragmented spectrum holdings by the individual MNOs in the range from 2 x 0.8 MHz to 2 x 3.2 MHz in the 900 MHz and 1800 MHz bands were not conducive to optimal utilisation of spectrum.  The fragmentation inhibited the refarming of spectrum for the provision of 3G services which required carriers to employ a larger bandwidth of at least 2 x 5 MHz, or for the provision of 4G services which required carriers to employ a range of bandwidths of 1.4, 3, 5, 10, 15 or 20 MHz pairs.  Spectral efficiency was higher where carriers employed larger bandwidths.  Accordingly, with a view to achieving more efficient spectrum utilisation, the Authority considered it important to ensure that the re-assignment arrangements should permit consolidation of the 900/1800 MHz spectrum prior tore-assignment.  With carriers employing spectrum of at least 2 x 5 MHz, MNOs would be able to refarm the spectrum they are re-assigned and/or to aggregate carriers to attain higher spectral efficiency and service speed post 2020/21[6].

(4)   In relation to “promotion of effective competition, encouragement of investment and promotion of innovative services”, the Authority considered that, consistent with the longstanding market-driven approach to regulation of the telecommunications sector, the optimal number of MNOs to meet demand for mobile telecommunications services in Hong Kong should be determined by market forces[7].

(5)   In relation to the 3 “options” for the re-assignment of the Available Spectrum –

(a)   The Authority considered that there would likely be competing demands for the 900/1800 MHz spectrum from the MNOs and from potential new entrants to the market[8]. It follows that, in accordance with the Spectrum Policy Framework (more particularly described below), a market-based approach should be used for the assignment of the Available Spectrum unless there were overriding public policy reasons to do otherwise[9].

(b)   Under Option 1 (full-fledged administratively-assigned approach), the 4 MNOs would be offered a right of first refusal to acquire their current holdings of spectrum in the 900 MHz and 1800 MHz bands, subject to their payment of spectrum utilisation fee to be specified by the Secretary and agreement to the licence conditions to be imposed by the Authority.  If any incumbent spectrum assignee decided not to exercise the right of first refusal, the spectrum which then became available would be put to auction[10]. However, the Authority’s current view was that there was no public policy reason, let alone any overriding one, supporting the full-fledged administratively-assigned approach to the re-assignment of the Available Spectrum.  The Authority also noted that the cons of the option were likely to far outweigh the pros, making it the least capable of meeting the multiple objectives of spectrum assignment the Authority had identified for the re-assignment exercise[11].

(c)   Under Option 2 (full-fledged market-based approach), all the Available Spectrum would be re-assigned by auction prior to the expiry of the existing assignments in 2020/21.  It would be open to the incumbent spectrum assignees to participate in the auction to obtain frequency spectrum which may be more than, less than, or similar to their current spectrum holdings.  Likewise, those who would like to enter the mobile telecommunications market could compete for the spectrum by participating in the auction[12]. The Authority considered that:

(i)   continuity of 2G services beyond 2020/21 could be at risk under the full-fledged market-based mechanism[13];

(ii)   in terms of achieving efficiency of spectrum allocation, assignments by way of auction provided the maximum flexibility for MNOs to optimise their overall spectrum holdings, taking into account their spectrum holdings in the other frequency bands, their own business considerations and the prevailing market situation, and hence auction was the best mechanism to ensure that the scarce spectrum resource would be assigned to the parties who valued it the most and who would be most likely to put it to the most efficient use[14]; and

(iii)   putting as much as 200 MHz of spectrum out for auction under Option 2 would provide an opportunity for interested parties to enter the local mobile telecommunications market.  With successful bidders striving to make the most effective and economical use of the spectrum, effective competition should be promoted.  Consumers could expect to benefit in terms of competitive pricing, quality services and more service choices.  Also, if all the Available Spectrum were to be re-assigned by way of auction, MNOs could be expected (subject to the spectrum cap as discussed later) to bid for amounts of spectrum which would enable them to build up contiguous frequency slots to unleash the full potential of 4G technology and more advanced technologies in the future[15].

(d)   Under Option 3 (hybrid administratively-assigned cum market-based approach), a right of first refusal for a small part of the Available Spectrum would be offered to the incumbent spectrum assignees for their continued provision of 2G services beyond 2020/21, while the remaining much larger portion would be re-assigned through auction.  If any incumbent spectrum assignee decided not to exercise the right of first refusal, the spectrum becoming available would be pooled together with the remaining spectrum to be released by the incumbent spectrum assignees and put to auction[16].  This option was put forward as an alternative to Option 2, if the outcome of the consultation indicated that there would likely be a continuation of 2G services post 2020/21 to meet the service needs of local users and inbound roamers until 2G services were phased out from Hong Kong altogether[17]. The Authority proposed that each MNO be given a right of refusal of 2 x 5 MHz of radio spectrum in either the 900 MHz and/or 1800 MHz bands[18].  The Authority also considered that Option 3 would not only bring forth the benefits under Option 2 in respect of 80% of the Available Spectrum, but also help ensure continuity of the 2G services post 2020/21 to meet service needs if the conclusion of the consultation was that they were likely to remain material at least in the short to medium term[19].

(6)   The Authority proposed to impose a “spectrum cap” of 90 MHz for the total amount of the Available Spectrum that might may be acquired by an independent party or its associated parties, whether the spectrum was acquired in the 900 MHz or 1800 MHz bands or in both[20] and whether through the exercise of right of first refusal and/or auction[21], in order to avoid the possibility of a highly disproportionate distribution of spectrum among MNOs and help ensure the maintenance of effective competition in the long term[22].  Further, the Authority was of the preliminary view that it should set a “sub-cap” of 20 MHz for spectrum holding in the 900 MHz band, which would enable a minimum of three MNOs (two with 2 x 10 MHz and one with 2 x 5 MHz) and a maximum of five MNOs (each with 2 x 5 MHz) to be assigned spectrum in that band, so that following the spectrum re-assignment, there would be no fewer assignees of the sub-1 GHz spectrum than the existing number of MNOs.  This was proposed in order to avoid the possibility of a highly disproportionate distribution of the sub 1-GHz spectrum, which was said to have superb propagation characteristic, among MNOs[23].

10.  The First Consultation lasted about three and a half months and ended on 18 May 2016.  A total of 325 submissions were received from 299 individuals and 26 parties, including a submission from HKT dated 18 May 2016.  HKT supported Option 1 (ie, the 4 MNOs would be offered a right of first refusal to acquire their current holdings of spectrum in the 900 MHz and 1800 MHz bands), subject to a proposed modification, namely, that the Available Spectrum be firstly re-organised into 2 x 5 MHz or 2 x 10 MHz blocks, as appropriate, in order to remove the “fragments” in the existing assignments.

(iii)   The Plum Study

11.  In March 2016, the Authority commissioned Plum Consulting London LLP (“Plum”), an external consultant, to conduct a technical study (“the Study”) on the impact of the proposed re-assignment of the Available Spectrum on the continuity and service quality of all generations of mobile services.

12.  On 1 April 2016, the Office of the Communications Authority (“OFTA”) provided the MNOs with a copy of the “consultancy brief” (“the Consultancy Brief”) issued to Plum.  The Consultancy Brief set out in detail the objectives, scope, methodology, deliverables and timeframe applicable to the Study.

13.  Between April and September 2016, Plum conducted an extensive information gathering and consultation process with the MNOs for the purpose of the Study.  In September 2016, Plum produced a report on the Study (“the Plum Report”).  A redacted version of the Plum Report, in order to preserve the confidentiality of the sensitive information provided by the MNOs during the information gathering and consultation process, was published on 14 February 2017.

14.  The key conclusions of the Plum Report were as follows:

(1)   There would be no impact on the quality of 2G, 3G and 4G services provided by all the MNOs as a whole in the territory of Hong Kong, even in the high traffic areas, under any of the scenarios considered in the Study.

(2)   The provision by individual MNOs of their 2G, 3G and 4G services on a territory wide basis would not be affected under all the scenarios considered in the Study.  It would only be in the high traffic areas that the 3G network of one MNO would be affected in 2021, and the 4G network of that and another MNO would be affected in 2023 under the scenario in which there would be a new entrant.  However, they should be able to resolve or alleviate the problem by implementing the mitigation measures identified by Plum.

(3)   In relation to the provision of mobile service in the MTR premises, Plum recommended that 2 x 10 MHz in the 1800 MHz band should be re-assigned to each of the incumbents by way of an offer of a right of first refusal with a view to maintaining the continuity of 4G services in the MTR premises.

(iv)   The Second Consultation

15.  On 14 February 2017, the Secretary and the Authority, having considered the views received in response to the First Consultation and the findings of the Plum Report, issued a further consultation paper (“the Second Consultation Paper”).

16.  In the Second Consultation Paper, the Authority set out its responses to the major views of the respondents in regard to meeting the multiple objectives in spectrum management and the proposed options for the re-assignment of the Available Spectrum[24], and its evaluation of the extent to which the three re-assignment options proposed in the First Consultation Paper could meet the multiple objectives in spectrum re-assignment[25].

17.  The Authority stated what it considered to be the spectrum re-assignment option which would best meet the multiple objectives at §§89 to 90 of the Second Consultation Paper, as follows:

“89. Having carefully considered the submissions received in the first round of public consultation, the analysis and recommendation of the Consultant in the Study, the pros and cons evaluation of the three options against the multiple objectives in spectrum re-assignment as outlined above, and in particular the need to safeguard the provision of 4G services in the Remaining MTR Stations and to ensure the provision of 2G services on a territory-wide basis post 2020/21 which constitute the overriding public policy reasons for deviating partially from a full-fledged market-based assignment approach required otherwise in accordance with the Spectrum Policy Framework, the CA’s considered view is that the hybrid administratively-assigned cum market-based approach under Option 3 (with the RFR Spectrum suitably adjusted as per the Consultant’s recommendation[26]) should be adopted for further consultation with the industry and other affected persons in the second round of public consultation, for it is the option that best meets the multiple objectives for the spectrum re-assignment.

90. For the purpose of the second consultation, the CA proposes that a hybrid administratively-assigned cum market-based approach under Option 3, comprising the following elements, should be adopted for the Re-assignment of the 900/1800 MHz Spectrum, viz. –

(a) 2 x 10 MHz of spectrum in the 1800 MHz band to be re-assigned to each of the four incumbent spectrum assignees through the offer of a right of first refusal, i.e. a total of 2 x 40 MHz or 40% of the 900/1800 MHz Spectrum to be re-assigned as the RFR Spectrum; and

(b)   the remaining spectrum in the 1800 MHz band and all the spectrum in the 900 MHz band to be assigned by way of auction, i.e. a total of 2 x 60 MHz or 60% of the 900/1800 MHz Spectrum to be auctioned.”

18.  In relation to spectrum cap, the following was stated at §112 of the Second Consultation Paper:

“The CA also maintains its proposal in the First Consultation Paper that a sub-cap of 20 MHz be imposed on the holding of spectrum in the 900MHz band, such that the number of spectrum assignees in this band will not be reduced from the present three and there will be room for five at most. This is in view of the superb radio propagation and penetration characteristics of sub-1GHz spectrum and hence the need to avoid high concentration of the spectrum in just one or two assignees. Again, this spectrum sub-cap will apply to the incumbent MNOs and new entrants alike. It will be counted towards the overall spectrum cap of 90 MHz for the holding of the 900/1800 MHz Spectrum by individual spectrum assignees. As stated in the First Consultation Paper, the spectrum sub-cap will not take into account the spectrum in the 850/900 MHz bands currently held by some of the MNOs, as the assignment dates and conditions for those spectrum assignments are different from those of the 900/1800 MHz Spectrum which is subject to re-assignment in this exercise.”

19.  In the Second Consultation, the Authority raised for further consultation the revised hybrid option of the administratively-assigned cum market-based approach for the re-assignment of the Available Spectrum, and the Secretary raised for further consultation the methods for setting the spectrum utilisation fee of the administratively-assigned portion of the spectrum and the minimum spectrum utilisation fee of the auctioned portion of the spectrum, and invited views and comments from the industry and other affected persons.

20.  The Second Consultation lasted up to 24 May 2017.  Submissions were received from 22 respondents, including the 4 MNOs, 12 commercial firms, an industry organization, a consultant and 4 members of the public.  HKT made submissions in response to the Second Consultation on 21 March 2017 and 24 May 2017 (“the HKT Submission”), and its consultant, Competition Economists Group (“CEG”), made a submission on 19 May 2017 (“the CEG Response”).  CEG comprised a group of economic and financial experts, including Mr Paul Nicholas Reynolds, who were asked by HKT to assess proposed arrangements for the 900/1800 MHz bands upon the expiry of the existing assignments in 2020/21 and make a submission in response to the Second Consultation Paper.  Both HKT and CEG supported Option 1[27].

(v)   The Joint Statement

21.  On 19 December 2017, the Secretary and the Authority, having considered the views received in the two rounds of public consultation and the findings of the Plum Report, published the Joint Statement.  In summary, the Secretary and the Authority decided that:

(1)   each of the 4 incumbent MNOs would be offered a right of first refusal to be re-assigned 2 x 10 MHz of spectrum in the 1800 MHz band, viz, 80 MHz of spectrum in total (“the RFR Spectrum”);

(2)   subject to the completion of the legislative process to amend the subsidiary legislation for the setting of the spectrum utilisation fee in respect of the RFR Spectrum, the Authority expected to offer to the incumbent MNOs the right of first refusal for re-assignment of the RFR Spectrum in the second half of 2018;

(3)   the remaining 70 MHz of spectrum in the 1800 MHz band and all the 50 MHz of spectrum in the 900 MHz band, making a total of 120 MHz of spectrum, would be assigned by way of auction.  If any incumbent MNO decided not to exercise the right of first refusal to take up the RFR Spectrum, the spectrum thus becoming available in the 1800 MHz band would be pooled together with the aforesaid 120 MHz of spectrum for assignment by way of auction (“the Auctioned Spectrum”); and

(4)   subject to the completion of the legislative process to amend the subsidiary legislation for designation of the Auctioned Spectrum subject to payment of the spectrum utilisation fee and setting of the spectrum utilization fee in respect of the Auctioned Spectrum, a single auction for the assignment of the Auctioned Spectrum (“the Auction”) was expected to be conducted around the end of 2018.

(vi)   Application for leave to apply for judicial review

22.  The application for leave to apply for judicial review was made on 19 March 2018.  Leave to apply for judicial review was granted by the court on 23 March 2018 upon consideration of papers alone.

(vii)   Subsequent events

23.  In July 2018, the Authority offered to each of the MNOs a right of first refusal for re-assignment of 2 x 20 MHz of the RFR Spectrum for a new term of 15 years starting from 30 September 2021.  The offers were subsequently fully accepted by the MNOs.

24.  In so far as the Auctioned Spectrum is concerned, the bidding stage of the Auction commenced on 17 December 2018 and the Auction was completed on 18 December 2018.  No new entrant participated in the Auction.  On 18 December 2018, OFCA issued a press release summarizing the outcome of the Auction in the following terms:

“[OFCA] announced today (18 December 2018) that a total of 120 MHz of spectrum, comprising 50 MHz of spectrum in the 900 MHz band and 70 MHz of spectrum in the 1800 MHz band was successfully auctioned off to four mobile network operators (MNOs) at total spectrum utilization fees (SUF) of HK$6 billion …

Together with 20 MHz of the spectrum administratively re-assigned to each of the four incumbent spectrum assignees earlier, CMHK, HKT, [Hutchison] and SmarTone would respectively be assigned 50 MHz, 60 MHz, 40 MHz and 50 MHz of spectrum in the 900 MHz and 1800 MHz bands for a new term of 15 years after expiry of the existing assignments …”

25.  The following table summarises the existing holdings of the 900/1800 MHz spectrum of the 4 MNOs, and their prospective holdings following the acceptance of the RFR Spectrum and completion of the Auction:

	900 MHz Spectrum		1800 MHz Spectrum		Total
	Existing (MHz)	Prospective (MHz)	Existing (MHz)	Prospective (MHz)	Existing (MHz)	Prospective (MHz)
CMHK	0	10	26.4	40	26.4	50
HKT	16.6	20	72.8	40	89.4	60
Hutchison	16.6	10	23.2	40	39.8	40
SmarTone	16.6	10	26.4	40	43.0	50

26.  As clearly illustrated in a coloured chart handed up by Mr Abraham Chan, SC to the court on 14 February 2019, the MNOs’ current holdings of the spectrum in the 900/1800 MHz bands are divided into numerous fragmented and non-contiguous bands, but their prospective holdings of the spectrum after completion of the re-assignment exercise will be defragmented, with each MNO holding one to two 10 or 20 MHz blocks in each of the 900 MHz band and 1800 MHz band which, it is not in dispute, would be conducive to a more efficient and cost-effective use of the spectrum.

27.  Each of the MNOs issued a public announcement relating to its successful bids in the Auction on 18 or 19 December 2018.  None of the MNOs stated or suggested that there would be any service quality or continuity issue arising from the re-assignment of the Available Spectrum after the commencement of the new assignments in 2021.  In HKT’s public announcement dated 19 December 2018, HKT stated, inter alia, that (i) it was pleased to have achieved its strategic objective of securing 40 MHz of spectrum forming two contiguous blocks in the 900 MHz and 1800 MHz bands in the latest government auction for deployment from 2021, (ii) it was the only operator which had valuable contiguous blocks of spectrum in both the 900 MHz band and 1800 MHz band, namely, 2 x 10 MHz in the 900 MHz band and 2 x 20 MHz in the 1800 MHz band, and (iii) the contiguous blocks can be utilized more efficiently and deployed in a more cost-effective manner, and would enable HKT to continue to provide the fastest mobile connectively for customers.

III.   REGULATORY FRAMEWORK

(i)   The Authority

28.  The Authority is a statutory body established under Section 3 of the Communications Authority Ordinance, Cap 616.  With effect from 1 April 2012, it took over the functions of the former Broadcasting Authority and Telecommunications Authority.

(ii)   The Authority’s powers and functions

29.  The object or purpose of the Telecommunications Ordinance, Cap 106 (“the Ordinance”), as stated in its long title, is to make better provision for the licensing and control of telecommunications, telecommunications services and telecommunications apparatus and equipment.  In what follows, references to Sections shall be to the Ordinance, unless the context indicates otherwise.

30.  Under the Ordinance:

(1)   the Authority may do all things necessary to be done to perform its functions under this Ordinance (Section 6A(1));

(2)   the Authority is under a duty to promote the efficient allocation and use of the “radio spectrum” (defined in Section 2(1) to mean “the range of frequencies within which radiocommunications are capable of being carried out”) as a public resource of Hong Kong (Section 32G(1));

(3)   the Authority shall, before exercising its powers under Sections 32H(2)(a) and (b) and 32I(1), carry out such consultation with (a) the telecommunications industry, and (b) such other persons who may be directly affected by the exercise of such powers, as is reasonable in all the circumstances of the case (Section 32G(2));

(4)   the Authority may assign frequencies and bands of frequencies in all parts of the radio spectrum used in Hong Kong (Section 32H(1)(a));

(5)   subject to the consultation requirement under Section 32G(2) –

(a)   the Authority may divide any part of the radio spectrum into the number of bands of frequencies it thinks appropriate and specify the general purpose for which each band may be used (Section 32H(2)(a));

(b)   the Authority may divide a frequency band into the channels it considers appropriate and specify the general purpose for which each channel may be used (Section 32H(2)(b));

(6)   the Authority may assign the frequencies or bands of frequencies to users of radiocommunications apparatus and specify the purpose for which and the conditions under which the frequencies or bands of frequencies are to be used (Section 32H(2)(c));

(7)   subject to the requirement of giving reasonable notice of an intended variation or withdrawal to the licensee which has been assigned the relevant frequency or band of frequency, the Authority may vary or withdraw the frequency or band of frequency assigned, or vary the purposes for which and the conditions under which the frequency or band of frequency shall be used (Section 32(H)(3) and (4));

(8)   subject to the consultation requirement under section 32G(2), the Authority may by order designate the frequency bands in which the use of spectrum is subject to the payment of spectrum utilization fee by the users of the spectrum (Section 32I(1)).

31.  Under Section 6A(3), in exercising its powers under the Ordinance, the Authority when –

(a)   forming an opinion or making a determination, direction or decision under the Ordinance, shall only do so on reasonable grounds and having regard to relevant considerations; and

(b)   forming an opinion or making a determination, direction or decision under the Ordinance –

(i)   shall provide reasons in writing for it;

(ii)   shall not depart from guidelines issued under section 6D which are applicable to the subject matter of the opinion, determination, direction or decision, as the case may be, unless it has provided reasons in writing for the departure.

32.  Under Section 6D, the Authority may, for the purpose of providing practical guidance in respect of any provisions of the Ordinance, issue such guidelines as in its opinion are suitable for that purpose.

33.  Section 4(4) of the Communications Authority Ordinance provides that in performing its functions, the Authority must have regard to such of the following as appear to it to be relevant in the circumstances –

(a)   the fostering of an environment that supports a vibrant communications sector to enhance Hong Kong’s position as a communications hub in the region;

(b)   the encouragement of innovation and investment in the communications market;

(c)   the promotion of competition and adoption of best practices in the communications market for the benefit of the industry and consumers; and

(d)   acting in a manner consistent with the provisions of the Hong Kong Bill of Rights Ordinance.

(iii)   Licensing arrangements for the use of radio spectrum

34.  There is no general right to use or be assigned any radio spectrum.  In order to be able to lawfully use radio spectrum for the provision of public telecommunications services, a person must have a licence issued under the Ordinance specifying the radio spectrum that the person is permitted to use.

35.  The Ordinance sets out the general licensing arrangements in relation to the control of telecommunications services.  In particular:

(1)   under Section 7(2), the Secretary may by regulations prescribe –

(a)   the general conditions, including the period of validity, for a carrier licence other than an exclusive licence; and

(b)   the fees payable including for the grant and renewal of a carrier licence other than an exclusive licence and by way of annual fees;

(2)   under Section 7(5), the Authority may issue a licence other than an exclusive licence;

(3)   under Section 7A, the Authority may attach special conditions, consistent with the Ordinance and not inconsistent with the prescribed general conditions, to a licence it is empowered to issue, including special conditions on a carrier licence in addition to the prescribed general conditions and which special conditions are to be interpreted subject to the prescribed general conditions.

36.  In so far as HKT is concerned, it is the holder of a Unified Carrier Licence No 008 dated 22 October 2016 issued by the Authority, pursuant to which it operates and provides public mobile radiocommunications services and mobile virtual network services in Hong Kong.

(iv)   Spectrum utilization fee

37.  Under Section 32I(2), the Secretary may by regulation prescribe:

(a)   the level of spectrum utilization fees (defined in Section 32I(11) to includes a fixed fee, a fee calculated by a formula or a fee ascertained by another method, or any combination thereof), or

(b)   the method for determining the spectrum utilization fees, which may be by –

(i)   auction or tender or a combination of auction and tender; or

(ii)   such method as the Secretary thinks fit, including any method combined with a method mentioned in subparagraph (i).

38.  Under Section 32I(4)(b), the power of the Secretary to make a regulation prescribing a method for determining spectrum utilization fee shall include the power to make a regulation to provide for, inter alia, empowering the Authority to –

(i)   promote, hold, conduct, suspend, cancel or conclude an auction or tender to which the method relates;

(ii)   specify the terms and conditions of an auction or tender to which the method relates by notice published in the Gazette (including terms and conditions relating to the payment of the fee).

IV.   THE SPECTRUM POLICY FRAMEWORK

39.  On 25 October 2006, the Commerce, Industry and Technology Bureau issued a “Consultation Paper on Proposed Spectrum Policy Framework” (“the SPF Consultation Paper”) together with a consultancy report prepared by Ovum entitled “Spectrum Policy Review - Final Report” (“the Ovum Report”).

40.  The object or purpose of the proposed Spectrum Policy Framework, as well as the Government’s broad policy thinking regarding the management of radio spectrum in Hong Kong, are set out in the “Executive Summary” of the SPF Consultation Paper, as follows:

“Radio spectrum is a finite public resource. Its availability is important to the operation of radiocommunications networks and services. Radio spectrum needs to be managed to manage demand and to contain interference to acceptable levels.

2. With fast technological advancements and dynamic market developments, there is a need to review the spectrum policy with a view to formulating a responsive and transparent policy that enables the community to reap maximum benefits from the deployment of spectrum. This consultation paper sets out the proposed high-level spectrum policy framework.

3. In developing a spectrum policy framework, the Government should have regard to a number of considerations. These considerations include the ability to accommodate the future shape of radiocommunications, international developments in spectrum policy and management frameworks, clarification of spectrum allocation and assignment procedures that could encourage investment by the industry, the flexibility to support wider strategic policy objectives for the overall benefit of Hong Kong, the ability to serve policy objectives that support social needs, and the provision of fair return to the community for the use of spectrum for commercial purposes.

4. Having regard to the above considerations, the consultation paper proposes a spectrum policy framework that covers six aspects – spectrum policy objectives, guiding principles in spectrum management, spectrum rights, spectrum supply (including spectrum trading and liberalisation), spectrum for government services and spectrum pricing.

6. Drawing on the practice of some overseas regulators, the consultation paper proposes that the spectrum policy framework should set out a guiding principle that the TA[28] should use market-based approach in spectrum management when there are competing commercial demands, unless there are overriding public policy reasons to do otherwise, which should be published for transparency to the industry. The publication of this guiding principle in spectrum management will provide transparency to and predictability of regulatory decisions in spectrum management.

7. Because some radiocommunications equipment and receivers can have an economic life of at least 5 to 10 years, the lack of predictability of how the TA may exercise his statutory powers to vary or withdraw spectrum assignment could deter investment. The proposed spectrum policy framework clarifies that the TA should not vary or withdraw frequencies assigned to a licensee before the expiry of the spectrum assignment except in circumstances where public interest, or government policy or international obligation, or where interference between legitimate spectrum users, renders it necessary to exercise the statutory powers. The TA should also give minimum notice periods to affected spectrum assignees to enable them to plan ahead.

8. On the other hand, the spectrum policy framework re-affirms that there is no legitimate expectation for spectrum rights after the end of a spectrum assignment, but for licences where substantial investment in the underlying infrastructure is required, a sufficiently long notice period should be given before the expiry of the spectrum assignment. The TA will draw up the appropriate notice periods for different types of spectrum assignments.

9. For spectrum refarming exercises, which is a significant regulatory intervention to introduce new spectrum use for the benefit to consumers and new spectrum users by vacating existing spectrum users, the spectrum policy framework will require the TA to undertake an appraisal of the impacts of different options, including an option of ‘do nothing’, so as to provide a firm and transparent basis for his consideration in the exercise of statutory powers for spectrum management purposes.

13. On spectrum supply from other spectrum users, this can be facilitated through permitting secondary trading of spectrum in Hong Kong. While spectrum trading can be a significant market mechanism to provide financial incentives for spectrum assignees to put spectrum to the most efficient use, there are substantial implementation issues to be resolved, most significantly the licensing arrangements to facilitate spectrum trading, the question of trading gains from sale of spectrum obtained, and the regulatory measures to prevent anti-competitive practices such as hoarding of spectrum by operators with means. The consultation paper proposes, as a broad direction under the spectrum policy framework, that consideration should be given to introducing secondary trading of spectrum in the longer term future, subject to a study on the feasibility of this proposal in Hong Kong.

14. On spectrum supply through allowing a spectrum user to change the technology and/or use of the assigned spectrum without the need to obtain consent from the regulators (generally called ‘spectrum liberalisation’), there are constraints on the degree of flexibility that could be introduced, particularly from interference management angle. Since spectrum liberalisation is not yet proven in a small, densely populated place like Hong Kong, we intend to monitor its development in other jurisdictions and consider further study for its general introduction in Hong Kong.

16. Spectrum utilisation fee (SUF) is currently only applicable to spectrum for second and third generation mobile services. It can be a useful financial tool to manage competing commercial demands for spectrum and enable the community to reap financial benefit from the commercial use of spectrum as a public resource…

17. For spectrum with competing commercial demands, the auction process should be able to determine the appropriate SUF. For spectrum which is not auctioned, the SUF should be administratively set to reflect the opportunity cost of the spectrum, which may be determined by taking reference from outcome of a similar spectrum auction in Hong Kong or elsewhere conducted recently, or by considering the lowest cost of alternative methods that could meet the spectrum user’s communications needs without using the spectrum.”

41.  On 24 April 2007, the Commerce, Industry and Technology Bureau, after a 3-month public consultation exercise, issued a policy document called the “Radio Spectrum Policy Framework” (“the SPF”). It sets out for general information of the public the current policy thinking and key issues identified by the Government in relation to the management of radio spectrum in Hong Kong (§1.1).

42.  In §1.2 of the SPF, it is stated that the document is “a living document and will be reviewed, revised, modified and updated from time to time by the Government as it thinks fit having regard to all relevant circumstances including but not limited to the latest technological, market and societal developments in Hong Kong and internationally, as well as further deliberations in key issues related to spectrum policy and management.”  In §1.3 of the SPF, it is stated that nothing in the document shall be construed or be relied upon by any person against the Government (including but not limited to all public officers) and the Telecommunications Authority.

43.  §2.1 of the SPF sets out the Government’s overall “Spectrum Policy Objective”.  It provides that, without prejudice to section 32G(1), Hong Kong’s spectrum policy and management aims to –

(a)   facilitate the most economically and socially efficient use of spectrum with a view to attaining maximum benefit for the community;

(b)   achieve technically efficient use of spectrum to facilitate the introduction of advanced and innovative communications services and strengthen Hong Kong’s position as a telecommunications and broadcasting hub;

(c)   fulfil Hong Kong’s regional and international obligations relating to the use of spectrum;

(d)   strengthen Hong Kong’s strategic position as a world city and the gateway between the Mainland of China and the world by facilitating the provision of key services in Hong Kong which are deployed, or will be deployed, globally or in the Mainland of China; and

(e)   ensure that necessary spectrum is reserved for services to be provided by or on behalf of the Government.

44.  §3 of the SPF sets out the Government’s “Guiding Principles in Spectrum Management”:

(1)   The policy inclination is that a market-based approach (defined to mean “methods relying on market forces to ensure the efficient use of spectrum as a public resource”) in spectrum management will be used wherever the Authority considers that there are likely to be competing demands from providers of non-Government services, unless there are overriding public policy reasons to do otherwise (§3.1).

(2)   If the market-based approach for managing spectrum with competing demands from providers of non-Government services will not be used, the relevant public policy reasons will be published (§3.2).

45.  §4 of the SPF, titled “Spectrum Rights”, states as follows:

“4.1 TA is empowered to vary or withdraw any spectrum assigned by reasonable notice under sections 32H(3) and (4) of the [Ordinance]. Without affecting the generality of the powers which TA has, the policy inclination is that the said statutory power will be exercised only in exceptional circumstances before the expiry of a spectrum assignment under the [Ordinance], including where the public interest or international obligations of the Government so require, there is a serious breach of spectrum assignment conditions or serious interference between legitimate spectrum users has to be resolved or minimized.

4.2 There is no legitimate expectation that there will be any right of renewal or right of first refusal of any licence or spectrum assignment upon the expiry of a licence or spectrum assignment under the [Ordinance]. The decision whether a new spectrum assignment, with the same or varied radio frequencies, should be given to the spectrum assignee would be made and notified to the spectrum assignee within a reasonable time before the expiry of its spectrum assignment or after receipt of its application by TA as it is applicable in the circumstances, after taking into account the spectrum policy objectives set out in paragraph 2 of this document as well as all other relevant factors, including but not limited to any other public interest considerations.

4.3 If a spectrum assignment is to be varied or withdrawn before the assignment expires, the spectrum assignee to be affected will be notified before the variation or withdrawal is to take place in accordance with sections 32H(3) and (4) of the [Ordinance]. For this purpose, TA may state minimum notice periods for different types of spectrum assignments. In the case of spectrum assignment to a carrier licensee for the provision of mobile or wireless carrier services, a notice period of not less than three years before the date of variation or withdrawal would be given insofar as it is practicable in the circumstances. If a spectrum assignment is to be renewed with different radio frequencies assigned, or not renewed upon the expiry of an assignment, notification would be given as mentioned in paragraph 4.2 above. If the circumstances permit, the minimum notice periods to be stated by TA would also apply in relation to these changes or non-renewal.

4.4 Before the conduct of a spectrum refarming exercise, an appraisal of the impacts of different options, including an option of ‘do nothing’, will be undertaken by TA before a decision is taken. The same minimum notice periods described in paragraph 4.3 above will be given to the affected spectrum assignees insofar as it is practicable in the circumstances.”

46.  Lastly, two other provisions in §5 of the SPF relating to “spectrum trading” and “spectrum liberalization” should be noted at this stage:

“5.3 The policy inclination is to introduce spectrum trading in Hong Kong in the long term, subject to a feasibility study and resolution of various implementation issues.

5.4   The policy inclination is not to introduce spectrum liberalization in the short-term. Developments in and effectiveness of spectrum liberalisation in jurisdictions with comparable circumstances to Hong Kong will be closely monitored for re-consideration in future whether spectrum liberalisation should be introduced in Hong Kong.”

V.   MR REYNOLDS’ EVIDENCE

47.  There is one other matter that was debated at the hearing of this application for judicial review which I should briefly deal with before I consider the individual grounds of judicial review raised by HKT in the Form 86 and maintained at the hearing.  It concerns the evidence of Mr Reynolds, who has made 3 affirmations in support of HKT’s application on 16 March 2018 (“Reynolds 1”), 24 July 2018 (“Reynolds 2”) and 14 January 2019 (“Reynolds 3”) respectively.  Mr Reynolds is put forward and relied upon by HKT as an expert economist with extensive experience in relation to spectrum licensing, spectrum auctions and other assignment process, spectrum licence renewal, spectrum refarming and spectrum pricing in numerous jurisdictions.  In each of Reynolds 1, 2 and 3, Mr Reynolds declares that he has read the code of conduct for expert witnesses set out in Appendix D of the Rules of the High Court, and he understands that he has an overriding duty to assist the court impartially and independently on matters relevant to his expertise.

48.  Mr Reynolds is not, however, an independent witness, in that he was one of the consultants engaged by HKT to prepare the CEG Response dated 19 May 2017 in support of HKT’s submission to the Second Consultation.  At that stage, CEG was plainly acting in a partisan capacity.

49.  As a matter of strict legal position, the fact that Mr Reynolds is not independent does not mean that he is disqualified from giving expert evidence, although this is a fact which may affect the weight that the court may place on his opinion.  The court is entitled to treat his evidence with caution and scrutinize his evidence with care[29].

50.  What is also of significance is that, as submitted by Mr Chan, “[a] remarkable feature of this litigation is HKT’s extensive reliance for many grounds on the opinion of” Mr Reynolds (see §83 of the Respondents’ Skeleton Submissions).  HKT’s reliance, or dependence, upon the evidence of Mr Reynolds is evident from Mr Beresford’s oral and written submissions.  It is no exaggeration to say that large parts of HKT’s case are built around and based almost entirely on the evidence of Mr Reynolds.  That this is so is neatly illustrated by a table handed up to the court by Mr Chan on 14 February 2019 titled “Comparative table of issues in Competition Economists Group’s Response to the Second Consultation Paper dated 19 May 2017 (‘CEG Response’) and the First Affirmation of Paul Nicholas Reynolds dated 16 March 2019 (‘Reynolds 1’)”, which lists out some of the major issues raised by HKT in this application and the corresponding supporting evidence contained in Reynolds 1 and the CEG Response.  It is apparent that there is a very extensive overlap between the CEG Response and Reynolds 1.  There is thus plainly a risk that Mr Reynolds may feel, consciously or sub-consciously, the need to give evidence consistency with the opinion previously expressed in the CEG Response.  As it is, much of the evidence of Mr Reynolds I find to be irrelevant, or unhelpful, to the issues to be determined in this case.  I shall address some specific aspects of Mr Reynold’s evidence below.  Overall, although I would not ignore Mr Reynolds’ evidence, I am not prepared to attach much weight to it either.

VI.   GROUND 1 – THE AUTHORITY FAILED TO FOLLOW THE SPF AND MISTAKE OF FACT

51.  Under this ground, HKT submits that:

(1)   the Respondents wrongly treated auction as the default market-based option;

(2)   auction was not the only market-based option, in particular spectrum trading, AIP and release of new spectrum were other available options;

(3)   “re-auction” was not a market-based approach to re-assignment;

(4)   the Respondents failed to take account of the difference between initial assignment and re-assignment;

(5)   had the Respondents properly directed themselves, they would have approached the issue with an open mind;

(6)   the Respondents misinterpreted the SPF; and

(7)   the Respondents failed to have proper regard to the SPF.

52.  In considering this ground, it should first be noted that HKT does not, and has no basis, to challenge the lawfulness of the SPF itself.  The management of radio spectrum is a matter for the Secretary, and not a matter for the court which has no power to formulate, revise or vary the SPF when exercising its supervisory jurisdiction in judicial review.

53.  Under §3.1 of the SPF, the Secretary has decided that in spectrum management, the policy inclination is to adopt a “market-based approach”, which is defined to mean “methods relying on market forces to ensure the efficient use of spectrum as a public resource”.  Auctions fall squarely within this definition.  As stated in §33 of the Joint Statement, “… auction, can best ensure that [the spectrum] through the competitive bidding process will be put into the hands of those MNOs and/or new entrants which value it most and can be expected to put it to the most efficient use during the term of the licence.”

54.  The expression “market-based approach” in the SPF cannot be read in isolation.  It is a concept which was discussed in the Ovum Report and the SPF Consultation Paper preceding the publication of the SPF.  Ovum was engaged by the Commerce, Industry and Technology Bureau to undertake a review of the then spectrum management policy in Hong Kong and to consider policy options for the management of spectrum in Hong Kong.  In Section 5 of the Ovum Report, four market mechanisms were mentioned which the consultant explained could be used for spectrum management purposes, namely:

(1)   Auctions: “Auctions involve assigning licences based on the sums bid.  These may be absolute amounts or percentages of revenue (i.e. royalties).  Bidders may be required to meet minimum technical, financial or other criteria.  To the extent that auctions are well designed they are likely to result in the allocation and assignment of spectrum to the highest value uses/users”.

(2)   Administered incentive prices (AIP): “Prices charged to spectrum licensees are set by the regulator and are intended to reflect the opportunity cost of spectrum use and thereby provide effective incentives for efficient use of spectrum. They are applied to incumbent users of spectrum in circumstances where the spectrum is not auctioned.  AIP can be applied to government and non-government users.”

(3)   Secondary trading: “Secondary trading involves allowing licensees to trade their licences.  It spans a range of trading arrangements including simple sale, leasing and aggregation and subdivision of rights of access to spectrum.  The analogy with trading in land can be useful in thinking about how spectrum trading might work.  By making spectrum tradeable users face the opportunity cost of their spectrum use and therefore have incentives to economise on their spectrum use and to reallocate spectrum to higher value uses/users.  Through leasing spectrum users in effect become private band managers.”

(4)   Liberalisation of spectrum use: “Liberalisation of spectrum use allows users to change the technology used, network deployment and services offered using a block of spectrum.  It is of most value when linked to trading, as significant changes of uses will require trades with neighbours if spectrum is to be used efficiently.  Liberalisation allows market participants to reallocate spectrum to higher value uses.”

55.  In relation to “auctions”, it was stated in Section 5.2 of the Ovum Report that: “Auctions are now the default assignment mechanism in Hong Kong in situations where there are competing demands for spectrum.  This is also the case in an increasing number of countries.  Auctions are increasingly used because they are transparent, efficient, and can be used in situations where the future use of the spectrum is uncertain and/or there could be many bidders who will be difficult to compare.  There is also no evidence so far that auctions raise final prices or have resulted in worse outcomes than beauty contests (e.g. in terms of service rollout).”  This having been said, Ovum also recognised that there were some circumstances in which auctions would not be justified and the regulator might choose to assign licences by beauty contest if there were non-price factors of overriding importance in determining who should be assigned the spectrum.

56.  In Recommendation 5.1, Ovum stated that: “Auctions should continue to be the default assignment mechanism in circumstances where there are competing demands for spectrum and should be designed according to the circumstances prevailing at the time.  Administrative assignment or beauty contests should only be used if there are good cost or policy reasons for such an approach.” [emphasis added]

57.  Ovum’s views and recommendations were accepted by the Secretary.  In the SPF Consultation Paper issued by the Commerce, Industry and Technology Bureau in October 2006, the following was stated:

“Guiding principles in spectrum management –

36. … we propose, as a published guiding principle under the spectrum policy framework, that the TA should use market-based approach in spectrum management when there are competing commercial demands for the spectrum, unless there are overriding public policy reasons to do otherwise. Those public policy reasons should be published for transparency to the industry.

37.   In the context of spectrum assignment, this guiding principle would mean that auctions should always be used when there are competing commercial demands for spectrum. Non-market mechanisms, such as direct assignment of spectrum by the TA, or selection of the most suitable spectrum assignees by the merits of proposals, should be considered only if there are overriding policy justifications.” [emphasis added]

58.  In other words, in so far as spectrum assignment is concerned, the Secretary regards auction as the default option when there are competing commercial demands for the spectrum, but the default option may be departed from where there are overriding policy justifications.  This is a policy decision which it is lawful for the Secretary to adopt as a matter of public law.

59.  As a matter of fact, the Respondents did not simply adopt the default option of auction for the re-assignment of the Available Spectrum in the present case.  Instead, they adopted an administratively-assigned cum market-based approach (ie, Option 3) in view of what they considered to be an overriding policy justification of safeguarding the provision of 4G services in the Remaining MTR Stations and ensuring the provision of 2G services on a territory-wide basis post 2020/21.

60.  HKT has suggested three other possible options, namely, spectrum trading, AIP and release of new spectrum.  In so far as spectrum trading is concerned:

(1)   In the SPF Consultation Paper, the following was stated:

“Secondary trading of spectrum –

64.   We propose, as a broad direction under the proposed spectrum policy framework, that consideration should be given to introducing secondary trading of spectrum in the longer term future, subject to a study on the feasibility of this proposal in Hong Kong.”

(2)   In May 2018, the Commerce and Economic Development Bureau published a study report prepared by a consultant, Analysys Mason Limited, on the “Implementation of spectrum trading in Hong Kong” dated 31 May 2018.  The consultant’s conclusion was as follows:

“In conclusion, spectrum trading may be a useful tool to enhance spectrum flexibility and efficiency, especially in certain market environments, e.g. those featuring regional licensing or perpetual licensing system. There are however potential costs to spectrum trading implementation that need to be carefully mitigated through a range of safeguards, and there are risks that might not be adequately addressed despite safeguards.

In the case of Hong Kong, it already has a spectrum management system which is reasonably effective in promoting efficient use of spectrum. Insofar as further enhancing the efficient use of spectrum and improving market flexibility are concerned, there are other spectrum management tools that can be used. The other tools could also potentially be enhanced to achieve similar benefits to that of the introduction of spectrum trading, without incurring the associated costs and risks. This suggests there is limited justification for introducing spectrum trading in Hong Kong in the short and medium terms.

In the longer term, the potential 5G spectrum-related challenges are likely to be complex and interlinked.  Hong Kong should monitor the technology and market developments as well as the allocation of mobile spectrum for 5G in the coming years and the implications on the spectrum assignment regime for mobile services both in primary and potentially in secondary assignments, with a view to keeping it up to date in the 5G era.”

(3)   In a Legco Paper titled “Spectrum Trading” prepared by the Commerce and Economic Development Bureau for discussion by the Legislative Council Panel on Information and Technology and Broadcasting on 11 June 2018, the Bureau set out its short and medium term assessment on the issue of spectrum trading, as follows:

“31. Having considered the above and taking into account overseas experience in spectrum trading, the supply and demand situation of spectrum in Hong Kong, various implementation issues, the costs/risks and benefits analysis and the alternatives available to achieve just as effectively if not more the goal of enabling efficient use of spectrum, we see no justifiable case for introducing spectrum trading in Hong Kong in the short term, i.e. the next five years.

32.   As for the medium term (i.e. five to ten years), we note the Consultant’s assessment that 5G will likely be the key driver of a new generation of innovative telecommunications services and will have a huge impact on the mobile telecommunications market. Given that the spectrum supply in the high frequency bands suitable for 5G are abundant, it is possible that the CA may in accordance with the guiding principle in the Framework decide to assign the spectrum administratively should it consider that there are no competing demands for such spectrum… As things now stand, we do not see a case for implementing spectrum trading in the medium term either.”

(4)   In short, the current policy of the Secretary is that spectrum trading should not be permitted in the short to medium term (ie, in the next five years and from five to ten years), but may be introduced in the long term.  This policy is consistent with §5.3 of the SPF and is one which the Secretary may lawfully adopt.

61.  In so far as AIP is concerned, it is a means of setting spectrum prices in the situation where it has been decided that the spectrum will not be auctioned.  As mentioned in §35 of the Third Affidavit of Sanda Cheuk (Assistant Director of OFCA), AIP and, for that matter, spectrum liberalisation are not market mechanisms which provide a means of assigning or re-assigning spectrum between potential users, or determining to whom spectrum should be assigned or re-assigned.  In other words, they cannot be used to answer the initial question of how the Available Spectrum should be re-assigned.

62.  The third suggested option of “release of new spectrum” is also not germane to the present discussion, which concerns how the Available Spectrum should be re-assigned.  In all, none of the options suggested by HKT is relevant to the present case.

63.  HKT’s contention that re-auction is not a market-based approach is based on Mr Reynolds’ answer to the following question[30]:

“Question 1: What is or are the market-based approaches that could be adopted by the Authority specifically in respect of previously assigned spectrum and is there any distinction in market-based approaches between situations concerning the initial release of spectrum versus situations where released spectrum is being re-assigned?”

64.  Mr Reynolds considers different “market-based approaches” which have been adopted by other countries or bodies in the world, including the European Commission, the UK, the US and Australia.  It seems to me that while there may, in theory, be different “market-based approaches” which can be adopted in the assignment or re-assignment of radio spectrum in any given place or situation, none of them is germane to the present discussion.  The question before the court is whether it is open to the Respondents to adopt the particular market-based approach, with auction being regarded as the default option for spectrum assignment/re-assignment, which they have in fact chosen.  In my view, the answer is “yes”.

65.  At §33 of Reynolds 1, Mr Reynolds argues that “periodically taking back and re-auctioning already assigned spectrum” by the regulator is not a market-based approach, because (i) re-auctioning involves the regulator, rather than the market participants, determining how long they will be allowed to retain their rights to use the spectrum, (ii) while an auction does have some market-like features (ie, potential buyers of the licences can bid against each other with the licences being assigned to whoever bids the most), the bidding is subject to various rules set by the regulator which, if set too high, can lead to some spectrum going unsold, and (iii) there may be rules as to how much spectrum each player is allowed to acquire (eg, spectrum caps or reserved spectrum for new entrants) that may be designed to achieve a particular market structure and go beyond what is needed to maintain effective competition.

66.  In my view, point (i) fails to recognize that an assignment is generally for a fixed term and an assignee accepts the assignment with full knowledge that it has no further legal right to use the spectrum after the expiry of the assignment.  It cannot sensibly be argued that auctioning (or re-auctioning) the spectrum upon the expiry of such assignment is not a market-based approach.  The following exposition in §§6.14 and 6.15 of Annex 2 to the Joint Statement is, I consider, is correct:

“6.14 The Spectrum Policy Framework specifies that a market-based approach relies on market forces to ensure the efficient use of spectrum as a public resource and it should be adopted for management of spectrum where there is a likelihood of competing demands. No distinction is made between the management of newly released spectrum and re-assigned spectrum. Auction, as a major component of Option 3, when applied to spectrum re-assignment upon expiry, with ‘who’ gets ‘what amount of spectrum’ and ‘at what prices’ all determined by the competitive bidding process is clearly a market-based approach to spectrum assignment. Contrary to HKT’s allegation, Option 1 with all spectrum re-assigned to the incumbent assignees according to their existing holdings and the level of SUF to be charged for the re-assignment all determined on an administrative basis, does not embody in it any elements or features commonly accepted as being constituents of a market-based approach to spectrum re-assignment.

6.15   The suggestion of CEG and HKT that there is a ‘take back’ or ‘withdrawal’ of spectrum is baseless, as the Re-assignment of the 900/1800 MHz Spectrum will only take place upon (and not before) expiry of the existing assignment terms. Once the current assignment terms have come to an end, the incumbent assignees are not entitled to claim any right or privilege to continue holding the spectrum concerned. The incumbent spectrum assignees can however freely participate in the auction to be conducted well before expiry of the current assignment term, and decide, even before the auction is conducted, whether or not to exercise the right of first refusal to acquire the RFR Spectrum based on their own commercial considerations.”

67.  In so far as points (ii) and (iii) are concerned, while one can legitimately argue about the merits of a particular rule or rules set by the regulator for an auction of a scarce and strategic public resource (such as radio spectrum in this case), it is important to bear in mind that the management of such public resource involves multi policy angles and public interest considerations.  The prescription of some rules to regulate an auction of such public resource is, I consider, inevitable.  I fail to see how the prescription of rules by the regulator for the auction can lead to a general conclusion that such auction is no longer a market-based approach for the management of the public resource.  In all, I consider Mr Reynolds’ arguments to be without merits.

68.  The other complaints raised by HKT, ie, the Respondents failed to approach the issue with an open mind, misinterpreted the SPF or failed to have proper regard to the SPF, are plainly without substance.

VII.   GROUND 2 – THE AUTHORITY ACTED IRRATIONALLY IN HAVING REGARD TO SERVICE CONTINUITY ONLY IN RESPECT OF 2G AND A LIMITED PART OF 4G SERVICES

69.  HKT’s complaint is that the Authority’s decision to recognize the need for service continuity in relation to 2G and a limited part of 4G services, but not in relation to 3G or the bulk of the operators’ 4G services, was irrational and unreasonable[31].

70.  It is incorrect to say that the Authority did not recognize the need for service continuity in relation to 3G or the bulk of the operators’ 4G services.  In §§29 and 30 the Joint Statement, the following is stated:

“29. Insofar as customer service continuity is concerned, the Re-assignment of the 900/1800 MHz Spectrum will have an impact on the provision of 2G services in the whole territory. It is not expected to affect the provision of 3G services in general since 3G services are primarily provided by using the spectrum in the 1.9 – 2.2 GHz band. In relation to the provision of 4G services in areas other than the Remaining MTR Stations, given that spectrum in the 1.9 – 2.2 GHz, 2.3 GHz and 2.5/2.6 GHz bands is also used by MNOs for 4G services, it is not expected that the provision of 4G services will be affected by the present spectrum re-assignment exercise. In addition, the findings of the Study reveal no general adverse impact on service quality post spectrum re-assignment, except for the possible marginal service degradation in high traffic areas on the 3G network of an MNO in 2021, and on the 4G networks of this and another MNO in 2023 if some of the 900/1800 MHz Spectrum is acquired by a new entrant. The marginal service degradation could be effectively mitigated by the affected MNOs implementing remedial measures such as migrating more 3G traffic to the 4G network, increasing the number of antenna sectors and offloading more traffic to the Wi-Fi networks.

30.   The above analysis demonstrates that if 2 x 10 MHz of spectrum in the 1800 MHz band is to be re-assigned to each of the incumbent spectrum assignees through the offer of a right of first refusal under the revised hybrid approach (i.e. Option 3 as proposed in the Second Consultation Paper), it can be expected to adequately address the concerns about customer service continuity in relation to the 4G services at the MTR premises, particularly in the Remaining MTR Stations, as well as the continuous provision of 2G services in the territory .”

71.  The Authority’s assessment is further explained in §§2.7 to 2.10 of Annex 2 to the Joint Statement, as follows:

“2.7 When considering customer service continuity, an important factor is that 2G services are provided with the use of the 900/1800 MHz Spectrum only. In contrast, spectrum used by MNOs for the provision of 3G services is mainly in the 1.9 – 2.2 GHz band. Besides, the provision of 4G services is supported not only by the 900/1800 MHz Spectrum, but also by spectrum in the 1.9 – 2.2 GHz, 2.3 GHz and 2.5/2.6 GHz bands. These other frequency bands taken together account for almost 60% of the spectrum deployed for the provision of 4G services, and they will not be affected at all by the present spectrum re-assignment exercise. According to the findings of the Consultant, the continuity of 4G services is only a concern in the Remaining MTR Stations which are expected to continue to rely primarily on the 120 MHz of spectrum in the 1800 MHz band by the time of the spectrum re-assignment in 2021. To address the problem, the CA has decided to adopt the hybrid approach for spectrum re-assignment and to re-assign a total of 80 MHz, or 67% of the spectrum currently deployed for the provision of 4G services in the Remaining MTR Stations, to the incumbent spectrum assignees through the offer of a right of first refusal, such that the provision of 4G services will be maintained throughout all the MTR premises.

2.8 As pointed out by the CA in the First Consultation Paper, 2G service continuity could be a potential concern as 2G services are provided with the use of the 900/1800 MHz Spectrum only. Nevertheless, based on the carrier bandwidth of 2 x 0.2 MHz supported by the Global System for Mobile Communications or GSM technology used for 2G services in Hong Kong and a standard re-use factor of 12 for network planning, it is estimated that only a small portion, namely 2 x 2.4 MHz of the 900/1800 MHz Spectrum, would be required to support the territory-wide 2G voice services. The decision of the CA to offer for re-assignment to each of the four incumbent spectrum assignees 2 x 10 MHz of spectrum in the 1800 MHz band as the RFR Spectrum under the hybrid approach, apart from safeguarding the continuity of 4G services in the Remaining MTR Stations, will also provide the capacity required for serving the existing 1.5 million of 2G service subscribers in Hong Kong as well as inbound roamers.

2.9 As regards the amount of RFR Spectrum needed to ensure service continuity, while SmarTone supports the CA’s proposal of making available 2 x 10 MHz in the 1800 MHz band for each incumbent spectrum assignee for that purpose, there are comments that more spectrum should be offered, including spectrum in the 900 MHz band, for re-assignment to the incumbent spectrum assignees through the offer of a right first refusal. The CA has already explained in the above that the 2 x 10 MHz of spectrum in the 1800 MHz band to be re-assigned as RFR Spectrum would serve to safeguard the continuity of 4G services at the MTR premises and 2G services on a territory-wide basis. As for the provision of 4G services outside MTR premises and 3G services on a territory-wide basis, since they are supported also by other frequency bands, the provision of these services is not affected by the present spectrum re-assignment exercise and hence there is no service continuity issue.

2.10   It should also be pointed out that ensuring service continuity is not equivalent to guaranteeing the existing level of service quality for individual MNOs. It is incumbent upon the MNOs themselves to take the necessary actions such as bidding for the necessary amount of 900/1800 MHz Spectrum in the auction, after making their decisions on whether to exercise their right of first refusal to acquire the RFR Spectrum, and/or to invest further in their networks for the provision of quality mobile services to their own customers.”

72.  In short, the Authority’s assessment was that:

(1)   the proposed re-assignment of the Available Spectrum was not expected to affect the provision of 3G/4G services in general, save for marginal service degradation in high traffic areas on the network of one MNO in 2021 and on the 4G networks of that and another MNO in 2023 if some of the 900/1800 MHz Spectrum was acquired by a new entrant;

(2)   such marginal service degradation could, however, be effectively mitigated by the implementation of remedial measures (such as migrating more 3G traffic to the 4G network, increasing the number of antenna sectors and offloading more traffic to the Wi-Fi networks); and

(3)   in relation to concerns about customer service continuity in respect of 4G services at the MTR premises, particularly in the Remaining MTR Stations, they could be adequately addressed if 2 x 10 MHz of spectrum in the 1800 MHz band was re-assigned to each of the incumbent spectrum assignees through the offer of a right of first refusal under the revised hybrid approach (ie, the revised Option 3 as proposed in the Second Consultation Paper).

73.  It is clear that the Authority did consider the need for service continuity in relation to 3G and the bulk of the operators’ 4G services, and how possible concerns on those services could be addressed. I should add that there is no evidence to show that the Authority’s assessment is incorrect, nor is there any suggestion that the MNOs’ 3G or 4G services (including those provided by HKT) will be adversely affected after the commencement of the new 15-year term assignments on 12 January 2021 (in relation to the 900 MHz band) or 30 September 2021 (in relation to the 1800 MHz band), whether in relation to service quality or continuity.

VIII.   GROUNDS 3 – THE AUTHORITY ERRED IN REFUSING AND FAILING TO CARRY OUT A FULL “REFARMING” COST-BENEFIT ANALYSIS UNDER §4.4 OF THE SPF

74.  §4.4 of the SPF states as follows:

“Before the conduct of a spectrum refarming exercise, an appraisal of the impacts of different options, including an option of ‘do nothing’, will be undertaken by TA before a decision is taken. The same minimum notice periods described in paragraph 4.3 above will be given to the affected spectrum assignees insofar as it is practicable in the circumstances.”

75.  The question which arises for determination is whether the re-assignment of the Available Spectrum under the revised Option 3 should properly be regarded as a “spectrum refarming exercise” within the meaning of §4.4 of the SPF.  The answer to this question depends on the true construction of the SPF.

76.  The proper approach to the construction of a technical document like the SPF is to be found in the judgment of the Court of Final Appeal in Shiu Wing Steel Ltd v Director of Environment Protection & Airport Authority (No 2) (2006) 9 HKCFAR 478, at [23] to [28], in particular:

(1)   The SPF should be understood as an expert risk assessor, properly understanding the legal requirements it creates, would understand it.

(2)   Its proper meaning is a question of law for the court to determine, not what the Secretary or the Authority think it means, or would like it to mean.

(3)   It should be read in a “practical down-to-earth way”.

(4)   It has a correct meaning, and one meaning only.

77.  The expression “spectrum refarming exercise” is not defined in the SPF.  The word “refarm” (or “refarming”) is not a term of art, and has been used to mean different things in different documents or contexts.  For example:

(1)   In a document titled “Hong Kong Third Generation Mobile Services Licensing Information Memorandum” issued by OFTA dated July 2001, at §2.2.2.2, it was stated that “[t]he 800/900 MHz and 1.7 – 1.9 GHz bands are currently being used by existing 2G Operators. Under the technology-neutral regime adopted by the TA, the existing 2G Operators are free to use any technology, regardless of whether it is 2G or 3G, in the spectrum under their 2G Licences.  In line with this regime, existing 2G Operators will be allowed to re-farm the spectrum for 3G, if they so wish, under the current terms and conditions of their existing 2G Licences for the remaining period of validity.”  There, the word “re-farm” was used to mean the deployment of the relevant spectrum for the use of a new technology (from 2G to 3G).  No variation or termination of an existing assignment or licence was involved in that exercise.

(2)   In a statement of the Telecommunications Authority titled “Licensing of Mobile Services on Expiry of Existing Licences for Second Generation Mobile Services” dated 29 November 2004, at §44, it was stated that “the TA decides that the spectrum vacated from the TDMA licence may be re-farmed for EGSM services.  The re-farmed spectrum may be made available for capacity expansion by the existing mobile operators.”  The context of that statement was that a TDMA licence was going to expire in July 2005 and the TA had no discretion to further extend that licence as a matter of law (§25 of the statement).  The word “re-farm” was used in the sense of deploying the spectrum so “vacated” from one use to another (namely, from TDMA service to EGSM service).

(3)   In a consultation paper issued by OFTA titled “Assignment of the Available Spectrum in the 800 MHz and 1800 MHz Bands to the Existing Mobile Network Operators” dated 28 February 2005, on p 1, it was stated that “[t]he Telecommunications Authority ... issued a TA Statement on 29 November 2004 … setting out OFTA’s view on how OFTA will handle the licensing arrangement upon the expiry of the existing licences for the second generation mobile servicing.  The TA Statement also mentions the availability of the unassigned spectrum in the 1800 MHz band and the spectrum that will become available by refarming the spectrum vacated by an existing mobile network operator in the 800 MHz band by July 2005”, and in §8, it was stated that “the TA has decided that the spectrum vacated from the TDMA licence should be refarmed for the Extended GSM (EGSM) service”.  In that document, the word “refarm” was again used to refer to the deployment of the spectrum which would become available upon the expiry of an existing licence from one use to another (namely, from TDMA to EGSM service).

78.  More pertinently:

(1)   In the Ovum Report (at p 81), it was stated that “refarming” involved reallocating spectrum from one use to another. Three scenarios were considered: (i) termination of long duration licences to allow for the possibility of refarming, (ii) existing licences were annual and so could in principle be terminated within a relatively short notice period, and (iii) existing use was not licensed (eg, satellite broadcasts, other receive only applications, some government use).

(2)   In the SPF Consultation Paper, the following discussion of the concept of “Spectrum Refarming” appeared:

“47. One of the reasons the TA may vary or withdraw spectrum assignment is to vacate existing spectrum users so that the vacated spectrum could be used more efficiently or allocated to another higher value or more important use (the whole process is commonly called ‘spectrum refarming’). Existing spectrum users, in particular those assigned with large blocks of spectrum, are invariably affected adversely by such decisions.

48. While the above clarification of spectrum rights before and upon the expiry of spectrum assignment should give more certainty to spectrum assignees, spectrum refarming is, after all, a significant regulatory intervention in which the TA decides that the benefits to the consumers and new spectrum users from the new use of spectrum outweigh the costs arising from the different options to accommodate the new use of spectrum, including discontinuing and loss of the existing use of spectrum, moving the existing spectrum users to another band of spectrum or a different technology platform, or protecting existing spectrum users from interference so that sharing the use of spectrum between the new and existing users would be feasible. As pointed out by the consultant, it is possible to appraise the costs and benefits for making a spectrum refarming decision.

49.   We thus propose that the TA should be required to undertake an appraisal of the impacts of different options, including an option of ‘do nothing’, so as to provide a firm and transparent basis for his consideration in the exercise of statutory powers for spectrum management purposes.”

(3)   In the Legislative Council Brief titled “Proposed Spectrum Policy Framework – Outcome of Consultation” dated 24 April 2007, at §18, the following was stated:

“All submissions support the proposal that impact appraisals should be carried out before spectrum refarming (which refers to the TA varying or withdrawing spectrum assignment to vacate existing spectrum users to enable the vacated spectrum to be used more efficiently or allocated to another higher value use) is to take place. This is now set out in paragraph 4.4 of [the SPF]. A couple of submissions raise the issue of compensation for affected parties. Since spectrum refarming will unlikely take effect before the relevant spectrum assignments expire, the issue of compensation should not arise if there is no legitimate expectation for renewal of spectrum assignments …”

79.  These explanations strongly support the view that the ordinary situation of re-assignment of spectrum for the same use upon the expiry of an existing assignment is not a “spectrum refarming exercise” for the purpose of §4.4 of the SPF.  That this is the correct reading of §4.4 of the SPF is also clear upon a consideration of the provision itself as well as the context of the other provisions in §4 of the SPF titled “Spectrum Rights”:

(1)   §4.4 requires an appraisal of the impacts of various options to be carried out, including the option of “do nothing”. Bearing in mind that radio spectrum is a finite public resource of great value, the option of “do nothing” would generally not be a sensible option that could have been contemplated by the draftsman of the SPF in the ordinary situation of the expiration of an existing assignment, which would result in the spectrum being allowed to remain idle.

(2)   The consequence of the expiration of an existing licence or spectrum assignment is expressly provided for in §4.2, which states that there is no legitimate expectation that there will be any right of renewal or right of first refusal in such situation.  In this regard, HKT’s contention that the purpose of §4.4 properly construed is that “the regulator should intervene only to disturb established and efficient uses of spectrum where there is good reason for believing that the benefits of intervention will outweigh the costs of disturbance” (see §149 of the Form 86), when applied to the situation of the expiration of an existing assignment, would be contrary to the manifest intention of §4.2.

80.  The position is, I consider, correctly stated in §6.11 of Annex 2 to the Joint Statement, as follows:

“On the claim for legitimate expectation under the Spectrum Policy Framework of a cost-benefit analysis, it should be pointed out that neither the Spectrum Policy Framework nor the TO has imposed such a requirement on the CA in relation to the Re-assignment of the 900/1800 MHz Spectrum. The requirement for the conduct of a cost-benefit analysis in paragraph 4.4 of the Spectrum Policy Framework refers to the situation of varying or withdrawing the spectrum assignment to enable the vacated spectrum to be used more efficiently or allocated to another higher value use, and is not relevant to the present re-assignment exercise. In any event, the CA has conducted pros and cons evaluations of the three spectrum re-assignment options against the multiple policy objectives in spectrum re-assignment in the two rounds of public consultation. The incumbent spectrum assignees have been given adequate opportunities to make submissions on these evaluations or to put forward their own evaluations which the CA would take into account in making its decision on spectrum re-assignment.”

81.  In all, I am of the view that the present case does not concern a “spectrum refarming exercise” within the meaning of §4.4 the SPF.  It follows that the Authority is under no duty to carry out an “appraisal of the impacts of different options” (or “cost-benefit analysis” or “regulatory impact assessment” as suggested HKT) under that paragraph.

82.  In any event, even if the above conclusion on the true construction of §4.4 the SPF is incorrect, the Authority did consider the impacts (or the pros and cons) of different options and came to the conclusion that the revised Option 3 best met the multiple objectives of spectrum assignment.  §4.4 the SPF does not prescribe the precise steps to be taken for an impact appraisal, or require the Authority to carry out the appraisal in any particular way.  The scope and depth of an impact appraisal to be carried out are generally matters within the Authority’s broad discretionary judgment.  The court is not entitled to intervene unless the Authority’s conduct has crossed the high threshold of Wednesbury unreasonableness[32], which is not the case here.  In short, Ground 3 is rejected.

IX.   GROUND 4 – THE RESPONDENTS FAILED TO DISCHARGE ITS TAMESIDE DUTY AND TOOK INTO ACCOUNT IRRELEVANT CONSIDERATION AND FAILED TO TAKE INTO ACCOUNT RELEVANT CONSIDERATION

83.  As is clear from Mr Beresford’s submissions, there is a large degree of overlap between Grounds 3 and 4.  I have already rejected HKT’s Ground 3 that the Authority was required to carry out a “cost-benefit analysis” or “regulatory impact assessment” under §4.4 the SPF. Under Ground 4, HKT argues, effectively, that the same duty is imposed on the Authority by reason of what is referred to as the Tameside duty at common law.

84.  This is not the first time that applicants for judicial review have resorted to the Tameside duty in an attempt to impose on the part of a decision-maker a wide-ranging duty of inquiry when no such duty otherwise exists, whether under statute or other applicable written regulations, rules or guidelines or the like.  For the purpose of the present discussion, it is important to understand what precisely Tameside decided, and what the Tameside duty actually encompasses.

85.  The case of Secretary of State for Education and Science v Tameside Metropolitan Borough Council [1977] AC 1014 concerned a scheme proposed by a local education authority to bring all the schools in their area under the comprehensive principle by turning the existing grammar schools into comprehensive schools.  That scheme was approved by the Secretary of State for Education and Science in November 1975.  Implementation of the scheme was envisaged by the beginning of the school year in September 1976.  However, following local government elections held in May 1976, the opposition party gained control of the authority and considered that they had a mandate to reconsider their predecessors’ education policy.  They wrote to the Secretary saying that the schools in their area were not ready for the changed roles proposed by their predecessors and that implementation of the proposal in September 1976 would have caused grave disruption to the children’s education, and they wished to maintain the status quo with the least disturbance and disruption to the children’s education pending any longer term, well thought out proposals.  They further proposed the adoption of a selection procedure for those parents who wished to enrol their children in grammar schools based on a combination of reports, records and interviews without any formal 11-plus examination.  The secretary issued a direction under section 68 of the Education Act 1944 (which empowered the Secretary to intervene if he was satisfied that any local education authority had acted or were proposing to act “unreasonably”) to the authority to give effect to the proposal previously approved by him in November 1975, followed by an application for an order of mandamus to compel the authority to comply with his direction.

86.  The Divisional Court held that the Secretary was justified in saying in the circumstances there was no time to carry out the proposed selection procedure by September and that accordingly there had been materials on which he had been entitled to express himself as satisfied that the authority was going to act unreasonably.  The Court of Appeal received evidence to the effect that the selection procedure proposed by the authority was well known and tried and workable, and allowed the authority’s appeal.

87.  The House of Lords upheld the decision of the Court of Appeal, holding that the Secretary could give a direction only if the authority were acting “unreasonably”, that the critical question was whether the Secretary had had a sufficient factual basis for believing that the authority’s proposal would lead to educational chaos or undue disruption, that the question which the Secretary should have considered was whether a reasonable authority would have attempted to carry out the proposed selection procedure in the time available or at all, but that the Secretary did not appear to have directed his mind properly or at all to that question.  Accordingly, the Secretary’s decision to issue the direction was flawed.

88.  It seems to me to be clear that Tameside does not establish any general common law duty to inquire or consult before a public officer or body can lawfully exercise a statutory power which may affect the public generally or some persons specifically.  It is a decision based on traditional administrative law principles, namely, that a decision-maker exercising a statutory power must ask himself the right question and take reasonable steps to acquaint himself with the relevant information to enable him to answer it correctly.  That this is the true scope of the decision in Tameside can clearly be seen from the speeches of Lord Wilberforce and Lord Diplock at pp 1047C-E and 1064F-1065C respectively.  In other words, the so-called Tameside duty is simply a facet of Wednesbury unreasonableness.

89.  As to what should be regarded as “relevant information” that a decision-maker must take into consideration in reaching his decision, I am content to repeat what I stated in BH v Director of Immigration, HCAL 105/2014 (14 April 2015):

“[64] Fourth, it is important to distinguish between three different categories of consideration: (i) those clearly (whether expressly or impliedly) identified by the relevant legislation as considerations to which regard must be had, (ii) those clearly identified by the relevant legislation as considerations to which regard must not be had, and (iii) those to which the decision maker may have regard if, in its judgment and discretion, it thinks it right to do so: see Wing On Co Ltd v Building Authority (1996) 6 HKPLR 432, at 439 per Godfrey JA, citing with approval the judgment of Simon Brown LJ in R v Somerset County Council, ex p Fewings [1995] 1 WLR 1037. In relation to the third category of consideration, what is and what is not a relevant consideration for a public decision-maker to have in mind is, absent a statutory code of compulsory considerations, for the decision-maker, not the court, to decide: R (AL Rawl) v Foreign Secretary [2008] QB 289, at paragraph 131 per Laws JA.

[65]   Fifth, in relation to the third category of consideration and to the extent that the Director has decided to take into account any particular factor as being relevant to the exercise of his discretion, the weight that should be given to that factor is likewise a matter for the Director, not for the court: see Qamar Zaman v Department of Immigration, HCAL 145/2002 (13 June 2003), at paragraphs 17 and 18 per Hartmann J (as he then was).”

90.  When considering the rationality of the Decision made by the Secretary and the Authority in this case, the following principles should also be borne in mind.  First, where the decision-maker is an expert statutory body appointed by the legislature to deal with technical issues, the court should respect the expertise of the statutory body and be cautious against undue intervention in matters within the areas of specialist competence of the statutory body, and be slow to interfere[33].

91.  Second, the court will be especially slow to interfere where the decision involves policy matters requiring weighing and balancing multiple competing objectives or interests, such as the allocation of scarce public resources[34]. “The greater the policy content of a decision, and the more remote the subject of a decision from ordinary judicial experience, the more hesitant the court must necessarily be in holding a decision to be irrational” (see R v Ministry of Defence, ex p Smith [1996] QB 517, at 556 per Sir Thomas Bingham MR).

92.  In R(Ahmad) v Newham LBC [2009] UKHL 14, which concerned a rationality challenge to a housing allocation scheme maintained by the defendant authority pursuant to Section 167 of the Housing Act 1996, Baroness Hale of Richmond stated the following at [15] of the judgment:

“The trouble is that any judicial decision, based as it is bound to be on the facts of the particular case, that greater weight should be given to one factor, or to a particular accumulation of factors, means that lesser weight will have to be given to other factors. The court is in no position to re-write the whole policy and to weigh the claims of the multitude who are not before the court against the claims of the few who are. Furthermore, relative needs may change over time, so that if the council were really to be assessing the relative needs of individual households, it would have to hold regular reviews of every household on the waiting list in order to identify those in greatest need as vacancies arose. No-one is suggesting that this sort of refinement is required. It would be different, of course, if the most deserving households had a right to be housed, but that is not the law.”

93.  R(Ahmad) was quoted by Kenneth Parker J in R(McDonagh), whose comment at [26] of his judgment is equally apposite to the present situation:

“… the case at its core involved a challenge to a policy that was designed to ration a scarce resource, in which there would be competing arrangements and potential winners and losers whatever policy was chosen, a situation commonly called ‘polycentric’ in the academic literature following Professor Fuller’s first use of that expression.”

94.  In the context of decisions raising issues of competition and service to customers in the telecommunications field, the court’s approach, when being asked to review the rationality of such decisions, is as stated by Lightman J in R v Director General of Telecommunications, ex p Cellcom Ltd [1999] ECC 314, at [26]:

“It is appropriate to state briefly the relevant principles on which the court is to act in judicial review proceedings when a challenge is made to a decision by a person on whom decision-making powers are conferred by the legislature. Where the Act has conferred the decision-making function on the Director, it is for him, and him alone, to consider the economic arguments, weigh the compelling considerations and arrive at a judgment. The applicants have no right of appeal: in these judicial review proceedings so long as he directs himself correctly in law, his decision can only be challenged on Wednesbury grounds. The court must be astute to avoid the danger of substituting its views for the decision-maker and of contradicting (as in this case) a conscientious decision-maker acting in good faith with knowledge of all the facts. As Lord Brightman said in R v Hillingdon London Borough Council, ex parte Puhlhofer:

Where the existence or non-existence of a fact is left to the judgment and discretion of a public body and that involves a broad spectrum ranging from the obvious to the debatable to the just conceivable, it is the duty of the court to leave the decision of that fact to the public body to whom Parliament has entrusted the decision-making power save in a case where it is obvious that the public body, consciously or unconsciously, is acting perversely.

If (as I have stated) the court should be very slow to impugn decisions of fact made by an expert and experienced decision-maker, it must surely be even slower to impugn his educated prophesies and predictions for the future. Guidance as to the appropriate approach to the written reasons of the decision-maker for his decision (in that case the Secretary of State for Education) was given by Lord Wilberforce in Secretary of State for Education v Tameside Borough Council:

These documents are to be read fairly and in bonam partem . If reasons are given in general terms, the court should not exclude reasons which fairly fall within them: allowance must be fairly made for difficulties in expression. The Secretary of State must be given credit for having the background to this situation well in mind, and must be taken to be properly and professionally informed as to educational practices used in the area, and as to the resources available to the local education authority. His opinion, based, as it must be, upon that of a strong and expert department, is not to be lightly overridden.”

95.  In the present case, by virtue of Section 32G(2), the Authority, before exercising its powers under Sections 32H(2)(a) and (b) and 32I(1), is expressly required to carry out such consultation with (a) the telecommunications industry, and (b) such other persons who may be directly affected by the exercise of such powers, as is reasonable in all the circumstances of the case.  The Ordinance does not further prescribe the manner or form, or the scope or extent, of the consultation which the Authority is obliged to carry out.  The only requirement is that it should be “reasonable in all the circumstances of the case”.  Having regard to the principles referred to in paragraphs 89 to 94 above, I consider that it is generally a matter for the Authority to decide on the manner and form, as well as the scope and extent, of the consultation.  The court is only entitled to intervene where the Authority’s decision has crossed the high threshold of Wednesbury unreasonableness as appropriate to the nature of the decision in question.

96.  The same approach applies to the matters which the Authority is required to take into account in reaching its decision.  As earlier noted:

(1)   Under Section 6A(3)(a), the Authority is required to act on “reasonable grounds” and have regard to “relevant considerations”.

(2)   Under Section 6A(4), the Authority should not depart from applicable guidelines issued under Section 6D unless it has provided reasons in writing for the departure.

(3)   Under Section 32G(1), the Authority is under a duty to promote the “efficient allocation and use of radio spectrum as a public resource of Hong Kong”.

(4)   Under Section 4(4) of the Communications Authority Ordinance, the Authority, in performing its functions, should have regard to such of the following as appears to it to be relevant in the circumstances –

(a)   the fostering of an environment that supports a vibrant communications sector to enhance Hong Kong’s position as a communications hub in the region;

(b)   the encouragement of innovation and investment in the communications market;

(c)   the promotion of competition and adoption of best practices in the communications market for the benefit of the industry and consumers; and

(d)   acting in a manner consistent with the provisions of the Hong Kong Bill of Rights Ordinance.

97.  The matters which the Authority is required to take into account are all expressed in general terms, leaving a wide margin of appreciation and discretion to the Authority.  There is no particular order of priority amongst those matters, which may be pulling their weights in different directions.  For example, the promotion of efficient allocation and use of radio spectrum as a public resource of Hong Kong or the encouragement of innovation and investment in the communications market may not be consistent with the promotion of competition in the short term, or may come into conflict with the rights of a person or party under the Hong Kong Bill of Rights Ordinance.  Subject to the protection of any overriding constitutional rights, it is generally a matter for the Authority to determine what aspects of a particular matter should be taken into account, and how much weight ought to be given to those aspects it has decided to take into account, when exercising its powers and performing its functions.

98.  In the present case, the Authority conducted two round of public consultations in 2016 and 2017, obtained expert advice from an independent consultant (Plum), and carried out an extensive appraisal of various options, before reaching the Decision in December 2017.  HKT’s views to the Consultations were also carefully reviewed by the Authority as can be seen from Annex 2 to the Joint Statement.

99.  At §85 of his Skeleton Argument dated 28 January 2019, Mr Beresford refers to 5 areas which he argues the Authority must take into account if it is to make a decision on reasonable grounds and having regard to relevant considerations as required by Section 6A(3)(a), namely:

(1)   likelihood and magnitude of key potential benefits and costs of its decision;

(2)   evaluation of alternatives - whether the Authority’s proposed approach was superior to alternative well-established market-based approaches to promote the efficient use of the spectrum, including AIP, secondary spectrum trading and the release of new spectrum;

(3)   assessment of net benefits - whether there was any evidence to show that the proposed approach could be expected to generate greater benefits than alternative options;

(4)   encouragement of innovation and investment - the benefit of renewal in encouraging investment and the likely effects of the approach that the Authority adopted; and

(5)   circumstances of incumbents – the financial implications of a refusal to renew for incumbent operators.

Mr Beresford goes on to develop detailed arguments on each of these 5 areas (see §§89 to 117 of Mr Beresford’s Skeleton Argument).

100.  It needs to be emphasised that the Authority is the primary decision-maker in relation to radio spectrum management.  It is no part of the court’s function in an application for judicial review to take over the Authority’s decision making process, or re-examine the merits of the Authority’s decision.  As earlier mentioned, save where specifically mandated by legislation, it is generally a matter for the Authority to decide what factors to take into account and what weight should be given to each factor as the Authority, using its experience and expertise, considers appropriate in making decisions in relation to the management of radio spectrum in Hong Kong. For this reason, it is not necessary to examine in this judgment the merits of the detailed arguments advanced by Mr Beresford in respect of these 5 areas, save to point out that:

(1)   They basically disregard the fundamental principle laid down in the SPF that there is no right or legitimate expectation of renewal upon the expiry of an assignment, and that the spectrum which becomes available would be re-assigned based on a market-based approach (with auction being treated as the default option) unless there are good policy reasons or justifications to depart from this approach.

(2)   For reasons mentioned in the discussion under Ground 3 above, I do not consider that the Authority was under a duty to carry out any specific “cost-benefit analysis”.

(3)   In relation to the issue of “evaluation of alternatives”, I repeat the discussion in paragraphs 60 to 62 above.

(4)   In so far as “encouragement of innovation and investment” is concerned, this matter was fully considered in §§41 to 44 of the Joint Statement, and Section 5 of Annex 2 to the Joint Statement.

101.  Overall, having considered the submissions of Mr Beresford in detail, I am not satisfied that the range and depth of the Authority’s inquiry and assessment can be said to be Wednesbury unreasonable.

X. GROUND 7 – THE AUTHORITY FRUSTRATED HKT’S SUBSTANTIVE LEGITIMATE EXPECTATION THAT RENEWAL WOULD BE CONSIDERED IN ACCORDANCE WITH THE SPF AND BEST PRACTICES IN THE COMMUNICATIONS MARKET

102.  Mr Beresford argues that HKT’s legitimate expectation arises (i) prior to 2007, (ii) from the SPF, and (iii) from the continuing licence.  This complaint can be disposed of shortly.

103.  In so far as it is contended that HKT has a legitimate expectation regarding renewal based on practices prior to 2007, such expectation (if any) could not have survived the publication of the SPF in April 2007.  As earlier noted, the legality of the SPF is not being challenged by HKT in this application.  In any event, as stated in the SPF Consultation Paper in the section titled “Spectrum rights at the end of assignment” –

“46. We do not consider that there is a strong need to change the current arrangement (i.e. no legitimate expectation for spectrum right after the end of a spectrum assignment) and do not propose any change in this regard. However, for licences (in particular carrier licences) where substantial investment in the underlying infrastructure is required, we accept the consultant’s recommendation that a sufficiently long notice period should be given before the expiry of the spectrum assignment, if the TA intends to change or not to renew the spectrum assignment. This should be stated explicitly under the spectrum policy framework. The TA should have regard to the practices in other jurisdictions and the duration of the service licences and draw up the appropriate notice periods for different types of spectrum assignments” [underlining added].

104.  HKT’s reliance on the observation at p 84 of the Ovum Report, namely, “There is an unwritten presumption by licensees in many countries that if they are behaving lawfully then their rights to use radio frequency will be renewed unless there are good reasons not to” (see §200 of the Form 86), is misplaced.  This is because Ovum went on to state at p 85 of the same report that “government may wish to have the discretion at the end of the licence term to reallocate/reassign the spectrum.  While it is our view that for economic reasons it is desirable that licences are renewable unless there are good reasons to do otherwise, in the end this is a political decision and we note that countries differ in the approach taken”.

105.  In so far as HKT’s case of legitimate expectation is based on the SPF, §4.2 thereof makes it clear that there is “no legitimate expectation that there will be any right of renewal or right of first refusal of any licence or spectrum assignment upon the expiry of a licence or spectrum assignment”.  The only legitimate expectation arising under that paragraph is that the decision whether a new spectrum assignment, with the same or varied radio frequencies, would be given to the spectrum assignee would be made and notified to the spectrum assignee within a reasonable time before the expiry of its spectrum assignment or after receipt of its application by the Authority as it is applicable in the circumstances.

106.  Lastly, in so far as HKT’s case of legitimate expectation is based on its continuing licence, there is simply nothing in the licence to suggest that HKT would be entitled to any renewal after the expiry of an assignment.

XI.   GROUND 8 – THE AUTHORITY MISCHARACTERISED OPTION 1 AS A “PERPETUAL” ASSIGNMENT

107.  Under this ground, HKT alleges that the Authority erred in law in mischaracterising Option 1 as a “perpetual” assignment.  It will be recalled that under Option 1, the MNOs would be offered a right of first refusal to acquire (or renew) 100% of their respective current holdings of spectrum in the 900/1800 MHz bands after the expiry of the existing assignments in 2020/21.  The foundation of HKT’s complaint is the following statement in §3.7 of Annex 2 to the Joint Statement:

“CEG and HKT suggest that defragmentation of the band plans for the 900/1800 MHz Spectrum can be implemented through administrative re-assignment. Option 1 involves re-assignment of each of the MNOs’ existing spectrum holdings on the basis of the offer of a right of first refusal. The CA has made it clear in this Statement and the Annex that its assessment is that a perpetual assignment of spectrum as in Option 1 is not the option that can best meet the multiple objectives of spectrum re-assignment and the reasoning would not be repeated here. With the above reservation clearly restated here, the CA sets out, for the sake of completeness, its assessment of the proposal of CEG and HKT. The upshot is, after the re-organisation of the band plans, it would not be feasible for the incumbent MNOs to be re-assigned amounts of the 900/1800 MHz Spectrum which are exactly the same as their current holdings with the re-organised band plans comprising frequency slots of 2 x 5 MHz and/or 2 x 10 MHz. Any attempt of the CA to administratively assign the re-organised frequency slots to the incumbent MNOs under Option 1 would invariably lead to spectrum holdings among MNOs which are different from those they currently hold, and it is likely that they would not be considered by all to be fair and reasonable. Also, any re-assignment, involving variation of frequency ranges, to the incumbent assignees might necessarily involve reconfiguration of their networks and possible service disruptions, not to mention the fact that the costs of reconfiguration would not necessarily fall evenly among all MNOs.”

108.  It is, in my view, important to read §3.7 of Annex 2 of the Joint Statement in its proper context, namely, the Authority’s responses to the views and comments on the issue of “Efficient Spectrum Utilisation” received during the Second Consultation[35].  In particular, at §3.7 of the Joint Statement, the Authority was addressing HKT/CEG’s suggestion that defragmentation of the band plans for the 900/1800 MHz bands could be implemented through administrative re-assignment (ie Option 1), that being the preferred option of HKT and CEG.  In this regard, it is of note that §3 of the CEG Response stated that “international best practice is for spectrum licences to be automatically renewed or granted perpetually.  Specifically, we identify best practice in international markets as the automatic renewal of spectrum licences (or equivalently granting perpetual licences) as the default position, with re-auctioning of the spectrum only occurring in exceptional circumstances”.  Similarly, Section 3.3.1 of the CEG Response contained a discussion of “Automatic renewal and perpetual licence terms”, and §52 under that section stated that “[a] right of first refusal can also be considered equivalent to automatic renewal as in all cases operators have the option to relinquish spectrum”.  In other words, CEG treated “automatic renewal”, “perpetual assignment” and “right of first refusal” as equivalent concepts, and advocated for such an approach to be adopted in Hong Kong (see §4 of the CEG Response, “we find that automatic renewal is likely to best meet the CA’s duties”, and §177 of the CEG Response, “[w]e recommend that the CA should instead provide for the full renewal of the licences of the relevant spectrum to the existing spectrum holders”).  In my view, the description of Option 1 as involving a perpetual assignment of spectrum in §3.7 of Annex 2 to the Joint Statement, when that passage is read in its proper context, is not incorrect.

109.  In any event, it is clear from the Joint Statement that the Authority adopted the revised Option 3 and rejected Options 1 and 2 after considering each of the options against the four policy objectives for spectrum reassignment, namely, (i) ensuring customer service continuity, (ii) efficient spectrum utilisation, (iii) promotion of effective competition, and (iv) encouragement of investment and promotion of innovative services[36]. The characterization or, as HKT would have it, mischaracterization, of Option 1 as involving a perpetual assignment of spectrum in §3.7 of Annex 2 to the Joint Statement is of little moment in the overall context of the Decision.  It is certainly not something which could lead to a quashing of the Decision.  The insignificance of this ground is recognized by Mr Beresford, who describes it as a “subsidiary” matter[37]. In short, Ground 8 is unmeritorious and rejected.

XII.   GROUND 9 - SPECIAL CONDITION 10.4 IS ULTRA VIRES SECTION 7A OF THE TELECOMMUNICATIONS ORDINANCE

110.  In §96 of the Joint Statement, it is stated that the Authority has decided to impose a new Special Condition (“SC”) 10.4 in the Unified Carrier Licences of all licensees authorized to provide public mobile telecommunications services, as follows –

“PROVISION OF SERVICE

10.4 The licensee shall seek the prior written consent of the Authority and make proper and appropriate arrangements for the affected customers to the satisfaction of the Authority before ceasing to provide a generation of mobile service.”

111.  The Authority’s reason for the imposition of SC 10.4, as explained in §96 of the Joint Statement, is “[i]n view of the need to maintain the satisfactory provision of 2G services which are supported solely by the 900/1800 MHz Spectrum until they are naturally phased out by market forces, and having regard to the feedback received in response to the Second Consultation Paper”.  This is further explained in Annex 2 to the Joint Statement, as follows:

“8.7   HKT and Hutchison regard the proposed SC as a regulatory restriction on the shutting down of legacy networks which is unnecessary and inconsistent with the technology-neutral and market-led approach advocated by the CA. HKT considers that the CA has exaggerated the concern about 2G services and that General Condition (“GC”) 5 on Provision of Service already provides sufficient safeguards on service provision. GSMA holds the same view as HKT with regard to the relevance of GC 5 in the present context, and is concerned about the proposed SC creating additional impediments to further innovations in mobile services. HKT does not find it appropriate to introduce through the present consultation exercise a requirement which would apply across the board to other generations of mobile services. Hutchison points to the practice in some other economies that 3G services would be shut down before 2G services.

Responses of the CA

8.9   As explained by the CA in the Second Consultation Paper, pursuant to the proposed new SC, an MNO may decide whether or not and if so, when to phase out its provision of 2G services based on its own commercial considerations, provided that before doing so it has put in place reasonable and appropriate arrangements for the affected customers to the satisfaction of the CA. It may migrate its 2G service subscribers to 3G or 4G services, or continue the provision of 2G services using the networks of other MNOs by entering into relevant wholesale or other forms of commercial arrangements. As these are all market-led decisions to be made by the MNOs, the proposed SC should not be regarded as a regulatory restriction on the shutting down of legacy mobile networks. Also, with the 900/1800 MHz Spectrum continuing to be assigned on a technology-neutral basis, coupled with the flexibility MNOs have in service provision, the CA does not consider that the new SC will impede the introduction of innovative services by MNOs.

8.10   On the applicability of the new SC to the phasing out of any generation of mobile services, the CA considers it appropriate to construct the new SC in a general manner, as the phasing out of any generation of mobile services in future would likely give rise to similar consumer concerns and should therefore be subject to similar regulatory oversight. As pointed out by Hutchison in its submission, some economies are planning to phase out the provision of 3G services before that of 2G services. The CA nevertheless considers it necessary to safeguard the interest of mobile service subscribers in general. Further, according to section 7A of the TO, the CA may attach SCs, which are consistent with the TO and not inconsistent with the prescribed GCs, to a licence that it is empowered to issue, including a UCL. For details about the new SC to be incorporated into the UCLs of the incumbent MNOs and any new entrants, please see paragraphs 96 – 97 of the Statement.

8.11 On the relevance of GC 5 in the context of phasing out of legacy mobile services by MNOs, please refer to paragraph 98 of the Statement. Basically, as GC 5 is ex post in nature, it may not be adequate to safeguard a satisfactory phasing out of a generation of mobile services by MNOs in a well planned manner. The new SC will ensure that reasonable and appropriate arrangements have been put in place in an ex ante manner for the affected customers before the relevant networks are shut down by the MNOs.”

112.  Two features of SC 10.4 are of note.  First, it operates only in the situation where an MNO intends to cease (or “shut down”) the provision of a particular generation of mobile service.  Second, it enables the Authority in such circumstances to address, through a prior consent mechanism, issues relating to service continuity in the interests of the consumers who may be affected by the proposed cessation of service.  This is done by requiring the MNO to put in place reasonable and appropriate arrangements for its subscribers to the satisfaction of the Authority.  As stated in paragraph 99 of the Joint Statement:

“At present, there remain 1.5 million of 2G service subscribers, representing 8% of the total number of mobile subscribers. When the new SC is put into effect, an MNO may decide out of its own commercial consideration when to phase out its provision of 2G services. However, before it implements a total shut down of the 2G network and terminates the provision of all 2G services, it must put in place reasonable and appropriate arrangements for its subscribers to the satisfaction of the CA, such as migration of 2G subscribers to 3G or 4G services, or continued provision of 2G services using the networks of other MNOs by entering into relevant wholesale or other forms of commercial arrangements. Similar arrangements should be made for phasing out of other generations of mobile services in future.”

113.  It is readily apparent that SC 10.4 is directed at consumer protection, which is a legitimate concern that the Authority, when exercising its powers and functions, is required to have regard to under Section 4(4)(a) and (c) of the Communications Authority Ordinance (namely, “the fostering of an environment that supports a vibrant communications sector to enhance Hong Kong’s position as a communications hub in the region”, and “the … adoption of best practices in the communications market for the benefit of the industry and consumers”).

114.  HKT argues, nevertheless, that SC 10.4 is ultra vires Section 7A, as being inconsistent with:

(1)   The Authority’s duty to promote the efficient use of the radio spectrum under Section 32G(1);

(2)   the general conditions (“GC”) of carrier licences prescribed by the Secretary, in particular GC 5 which, so far as relevant, states as follows:

“The licensee shall … at all times during the validity period of this licence operate, maintain and provide a good, efficient and continuous service in a manner satisfactory to the Authority”;

(3)   the market-based approach identified as being the preferred option in the SPF; and

(4)   the Authority’s own technology–neutral policy [38].

115.  The question of whether SC 10.4 is ultra vires Section 7A is a question of law, not a question of reasonableness.  Section 7A states as follow:

“The Authority may attach special conditions, consistent with this Ordinance and not inconsistent with the prescribed general conditions, to a licence it is empowered to issue, including special conditions on a carrier licence in addition to the prescribed general conditions and which special conditions are to be interpreted subject to the prescribed general conditions.”

116.  Two preliminary observations should be noted.  First, there is no express restriction on the type, nature or contents of special conditions which may be imposed by the Authority under Section 7A, so long as they are not inconsistent with the Ordinance or the general conditions prescribed by the Secretary under Section 7.

117.  Second, there is a distinction between (a) the Authority exercising its powers in a manner in breach of the provisions of the Ordinance or its own policy, whether procedurally or substantively, resulting in the imposition of the special condition in question, and (b) the special condition being inconsistent with the Ordinance.  The mere fact that the Authority may have acted contrary to the provisions of the Ordinance or its policy does not necessarily mean that the special condition itself is inconsistent with the Ordinance.  In other words, it is not proof that SC 10.4 is inconsistent with the Ordinance merely because the Authority may have failed to observe the duty to promote the efficient use of the radio spectrum under Section 32G(1), or have acted contrary to the market-based approach stipulated in the SPF, or other policy such as the technology–neutral policy.  Whether SC 10.4 is inconsistent with the Ordinance or the prescribed general conditions of carrier licences should be judged by firstly ascertaining the true meaning and effect of SC 10.4 and secondly determining whether it is incompatible with the relevant provisions of the Ordinance or general conditions relied upon.  Subject to this consideration, I shall now deal with the specific arguments raised by HKT mentioned in paragraph 114 above.

118.  In relation to HKT’s argument that SC 10.4 is inconsistent with the Authority’s duty to promote the efficient use of the radio spectrum under Section 32G(1) mentioned in paragraph 114(1) above, this is based on an unduly narrow view of the meaning of “efficient … use” in that section.  Efficiency here does not mean efficiency just from the point of view of the MNOs, and is not confined only to economic or technological considerations.  What is encompassed in the phase “efficient allocation and use” should be understood in a broader sense as including also efficiency form the point of view of the general consumers, in particular whether the spectrum is being used effectively for their benefit, having regard to the Authority’s functions and duties as public regulator of the telecommunications industry in Hong Kong and its specific duties under Section 4(4)(a) and (c) of the Communications Authority Ordinance mentioned above.  Where a generation of mobile service is withdrawn by an MNO from the telecommunications market without there being put in place proper and appropriate arrangements for the affected consumers, it can, I consider, properly be said that there is a failure of efficient allocation and use of the relevant radio spectrum which has been allocated to that MNO.  Within the broad and multi-dimensional concept of “efficient allocation and use” in Section 32G(1), it is up to the Authority to decide what weight should be given to specific aspects of that concept and how they should be prioritised.

119.  In relation to HKT’s argument that SC 10.4 is inconsistent with GC 5 mentioned in paragraph 114(2) above, I consider the analysis in paragraph 98 of the Joint Statement to be correct:

“As regards the view of some respondents that the existing General Condition (‘GC’) 5 of the UCL already requires a licensee to operate, maintain and provide a good, efficient and continuous service at all times during the validity of a licence, the CA considers that the requirement and enforcement of GC 5 are ex post in nature, while the new SC imposes an ex ante requirement which enables the CA to ensure that satisfactory arrangements have been put in place for protection of consumer interests before MNOs may terminate a particular generation of mobile services entirely.”

120.  SC 10.4 is, in my view, complementary to, and not inconsistent with, GC 5.

121.  In relation to HKT’s argument that SC 10.4 is inconsistent with the market-based approach identified as being the preferred option in the SPF mentioned in paragraph 114(3) above, this is based on the obviously untenable basis that no regulatory interference whatsoever is permissible under such approach, even where the interference is for the protection and benefit of the consumers.

122.  Lastly, in relation to HKT’s argument that SC 10.4 is inconsistent with the Authority’s own technology–neutral policymentioned in paragraph 114(4) above, it should be noted that the relevant policy is to the effect that “licensees are allowed to select the technology and standard to be used” for the spectrum that it has been assigned, but they “cannot change the specified use of the spectrum assigned under the licence”[39]. SC 10.4 does not require any MNO to use any particular technology or standard for its spectrum.  It only requires an MNO intending to cease the provision of a generation of mobile service to seek the prior written consent of the Authority and make proper and appropriate arrangements for the affected customers to the satisfaction of the Authority.  I do not see that SC 10.4 is inconsistent with the Authority’s technology–neutral policy.

123.  In all, Ground 9 is rejected.  I should add that even if SC 10.4 is found to be ultra vires Section 7, that would lead to the striking down of SC 10.4, but there is no good reason to quash the Decision altogether.

XIII.   GROUND 10 – PROCEDURAL UNFAIRNESS: REDACTION OF THE PLUM REPORT

124.  HKT’s complaint is that by reason of the redaction of the Plum Report, it was impossible for its consultants to assess Plum’s conclusion that concerns about customer service continuity could be adequately addressed by the renewal of 40% of the existing assigned spectrum in the 900/1800 MHz bands upon the expiry of the relevant assignments in 2020/21, or make a meaningful response to such conclusion, thus giving rise to a risk of prejudice to HKT[40].

125.  This complaint is effectively answered by the following passages in the judgment of Kwan JA (as she then was and with whom Yuen JA agreed) in Hong Kong Telecommunications (HKT) Limited v Secretary for Commerce and Economic Development and Another [2019] HKCA 44 (CACV 532/2018 and CAMP 155/2018):

[62] The entire Consultancy Brief was issued to the MNOs. I am not persuaded that disclosure of all communications to the Consultants sought in the disclosure application is necessary for a proper understanding of the Plum Report. The MNOs were extensively involved in the Study. The Consultant conducted extensive information gathering and consultation with each of the MNOs. There were three rounds of meetings with each of them prior to the publication of the Plum Report: the first covered the general assessment approach, the key considerations in the Study and the inputs and outputs of the assessment mode; the second involved clarification of the data provided by each MNO and the Consultant’s update on the assessment model; the third was for the Consultant to brief each MNO on the results of its preliminary assessment and the key assumptions it had used for the assessment model. Following the publication of the Plum Report, there was another round of individual meetings with each MNO to obtain feedback on the report.

[63] Hence, in the individual meetings, the applicant (with the involvement of its external consultants) was informed about the traffic forecasts adopted, assumptions used in the model, the assumptions for the various spectrum scenarios (including assumptions as to the range of spectrum holding that the applicant may have), the maximum amount of spectrum that the applicant was assumed to lose if there was a new entrant, the general results of the Study and those related specifically to the applicant. The same applied to the other MNOs. Each was informed about how the network information it provided to the Consultant had been deployed in the assessment model and was provided with findings specific to each of them under the different scenarios referred to in the Study. But none of them was given corresponding information and specific findings in respect of the other MNOs, so none was privy to the confidential information provided by other MNOs.

[69] In my view, the disclosure sought was made in the hope of obtaining information to enable the applicant to fashion further grounds of challenge that have not occurred to its legal advisers. This is a fishing expedition and is not permissible.

126.  In other words, the Court of Appeal is satisfied that adequate information was provided to HKT (and other MNOs), including the traffic forecasts adopted, the assumptions used in the model, the assumptions for the various spectrum scenarios (including assumptions as to the range of spectrum holding that HKT may have), the maximum amount of spectrum that HKT was assumed to lose if there was a new entrant, the general results of the Study and those related specifically to HKT, to enable it to properly understand the Plum Report and assess its conclusions.  HKT has provided no cogent basis, or evidence, for its assertion that it was not able to understand the Plum report or assess its findings and conclusions.  On the contrary, in HKT’s letter to Plum dated 12 September 2016 (after having had a meeting with Plum to discuss the Plum model for the Study), the following was stated:

“As we recall, five pre-set scenarios (as provided by OFCA) were run on the Plum model and the impact on the mobile operators’ network as a whole, as well as the impact on HKT’s network, were examined from 2016 to 2023. Congestion was defined as mobile data traffic exceeding 80% of network capacity. The first four scenarios involved a reallocation of existing spectrum amongst the incumbent spectrum holders. The fifth scenario involved a new entrant acquiring spectrum. In these scenarios, HKT’s spectrum holding ranged from 40 MHz to 90 MHz. In all cases, except for the fifth scenario (whereby HKT only retained 40MHz of its spectrum), the results of the Plum model showed that network capacity could be able to accommodate the level mobile data traffic for the period being examined, 2016 to 2023.

However, as we discussed at the meeting, these results are only possible if we assume certain technological advances and mitigations measures can successfully be applied to compensate for the overall shortage of spectrum arising from the growing demand for mobile data services.”

HKT went on, in that letter, to discuss the technological advances and mitigation measures required to achieve those results.

127.  HKT and its consultant (CEG) also extensively commented on the traffic forecasts and other assumptions used by Plum in their responses to the Second Consultation Paper dated 24 May 2017 and 19 May 2017 respectively.  It seems clear from the aforesaid letter and responses that HKT had no difficulty in understanding and responding to the contents and conclusions of the Plum Report.

128.  In passing, I would add that from HKT’s point of view, it ought to be most concerned about whether continuity of its own services will be adversely affected by the limited renewal of 40% of the existing assigned spectrum in the 900/1800 MHz bands, and it should have no difficulty in putting forward evidence that its services will be so affected (if that is indeed the position).  HKT has not, however, put forward any such evidence, or sought to challenge Plum’s conclusion in this judicial review based on its own analysis.  On the contrary, in its public announcement dated 19 December 2018 following the conclusion of the Auction, HKT stated that, having achieved its strategic objective of securing 40 MHz of spectrum from the Auction, it could “continue to provide the best mobile experience for customers” and would “enable HKT to continue to provide the fastest mobile connectivity for customers”.  The clear implication is that continuity and quality of its services will not be adversely affected by the implementation of the Decision.  Likewise, none of the other MNOs has suggested that continuity or quality of their services will be adversely affected after the commencement of the new assignments in 2021.  For this reason, I would not be prepared to grant any relief in this application for judicial review even if HKT can make good the ground that due to the redaction of the Plum Report, it could not adequately assess Plum’s conclusion that concerns about customer service continuity could be adequately addressed by the renewal of 40% of the existing assigned spectrum in the 900/1800 MHz bands upon the expiry of the relevant assignments in 2020/21.

XIV.   IRRATIONALITY CHALLENGES

129.  The principles mentioned in paragraphs 89 to 94 above are relevant and applicable when considering HKT’s irrationality challenges under Grounds 11, 12 and 13.

(i)   Ground 11 - it is irrational, unfair and unlawful to set aside the same amount of spectrum for each incumbent’s right of first refusal

130.  HKT argues that the Decision unfairly favours the smaller operators at the expense of the larger operators.  In particular, HKT says that it is unfair for the Authority to offer the same amount of RFR Spectrum (2 x 10 MHz) to each of the 4 incumbent MNOs when currently (i) it has the largest holding of the spectrum in the 900/1800 MHz bands (89.4 MHz out of a total of 198.6 MHz currently assigned, translating to some 45%), (ii) it has the highest percentage of spectrum due to expire in 2020/21 (89.4 MHz out of a total of 194 MHz currently held by it, translating to some 46%), and (iii) it has the largest share of subscribers, amongst the 4 MNOs, and thus HKT is:

(1)   more exposed to the risk of losing its existing share of the spectrum[41], and

(2)   more likely to be adversely affected in respect of service quality, with resultant adverse effects on goodwill and market share in due course[42].

131.  HKT also complains about the fact that the RFR Spectrum only comes from the 1800 MHz band, but not the 900 MHz band, and this (it is said) favours CMHK at the expense of HKT (and the other operators) because it affords CMHK, which currently does not hold any spectrum in the 900 MHz band, the opportunity to bid for frequencies in that band and exposes HKT (and the other operators) to the risk of loss of frequencies in that band[43].  Lastly, HKT contends that the decision is manifestly unequal in its operation between different MNOs and amounts to a differential treatment without good reason[44].

132.  In relation to HKT’s complaint that it would be at a higher risk of losing its existing share of the spectrum (mentioned in paragraph 130(1) above), HKT has neither the right, nor any legitimate expectation, that it will be able to maintain its share of the spectrum after the expiry of the existing assignments.  That it may not be able to retain its current holding, or any particular portion of its current holding, of spectrum in the 900/1800 MHz bands upon the expiry of the assignments in 2020/21 is inherent in the fact that the assignments are for a fixed term with no right, or legitimate expectation, of renewal.  It is no part of the functions of the Authority to assist HKT to maintain its share of the spectrum.  On the contrary, the Authority is under a duty, inter alia, to promote the efficient allocation and use of the radio spectrum as a public resource of Hong Kong under Section 32G(1) and, in performing its public functions, is required to have regard to the promotion of competition under Section 4(4)(c) of the Communications Authority Ordinance.

133.  The Authority is quite rightly concerned about the issue of service quality and continuity.  Its rationale for setting aside 80 MHz of spectrum in the 1800 MHz band and offering 2 x 10 MHz as RFR Spectrum to each of the incumbent MNOs is explained in §47 of the Joint Statement, as follows:

“The offer of a right of first refusal to each of the incumbent spectrum assignees of 2 x 10 MHz of spectrum in the 1800 MHz band will provide the spectrum required for safeguarding the provision of 4G services in the Remaining MTR Stations and the provision of territory-wide 2G services. From the CA’s perspective, the sole premise for the offer to re-assign a certain amount of RFR Spectrum to each incumbent spectrum assignee is to address the need to preserve continuity of customer services, and the amount should be aligned at the same minimum level to achieve the purpose. Those MNOs which possess a larger number of customers with heavy demand for data services may bid for additional spectrum in the auction or implement necessary measures to ensure the offer of quality services to their customers.” [emphasis added]

134.  Since a minimum of 80 MHz of spectrum is required to address the issue of service quality and continuity, and only 50 MHz of spectrum in the 900 MHz band will become available for re-assignment, it is obvious that the RFR Spectrum will have to come from the 1800 MHz band. There are also technical reasons why it is preferable for the FRF Spectrum to come from the 1800 MHz band instead of from the 900 MHz band[45].

135.  HKT has, currently, a total holding of 89.4 MHz of spectrum in the 900/1800 bands.  The Decision in fact permits HKT to acquire a maximum of 90 MHz of spectrum (overall spectrum cap), made up of (i) 20 MHz of the RFR Spectrum, (ii) 20 MHz of the Auctioned Spectrum in the 900 MHz band (sub-spectrum cap), and (iii) 50 MHz of the Auctioned Spectrum in the 1800 MHz band.  For the sake of completeness, I should mention that HKT, for its own strategic reasons (as explained in the 4^th Affirmation of Veronica Lockyer which it is not necessary to set out here), only bid for 20 MHz of spectrum in 90 MHz band (successfully) and 40 MHz of spectrum in the 1800 MHz band (and succeeded in getting 20 MHz).  Together with the 20 MHz of the RFR Spectrum, HKT will end up with 60 MHz of spectrum in the 900/1800 MHz bands upon the commencement of the new assignments in 2021.

136.  In relation to HKT’s complaint that it would be at a higher risk of adverse impact on service quality (mentioned in paragraph 130(2) above), as stated in Annex 2 to the Joint Statement:

“2.7 When considering customer service continuity, an important factor is that 2G services are provided with the use of the 900/1800 MHz Spectrum only. In contrast, spectrum used by MNOs for the provision of 3G services is mainly in the 1.9 – 2.2 GHz band. Besides, the provision of 4G services is supported not only by the 900/1800 MHz Spectrum, but also by spectrum in the 1.9 – 2.2 GHz, 2.3 GHz and 2.5/2.6 GHz bands. These other frequency bands taken together account for almost 60% of the spectrum deployed for the provision of 4G services, and they will not be affected at all by the present spectrum re-assignment exercise. According to the findings of the Consultant, the continuity of 4G services is only a concern in the Remaining MTR Stations which are expected to continue to rely primarily on the 120 MHz of spectrum in the 1800 MHz band by the time of the spectrum re-assignment in 2021. To address the problem, the CA has decided to adopt the hybrid approach for spectrum re-assignment and to re-assign a total of 80 MHz, or 67% of the spectrum currently deployed for the provision of 4G services in the Remaining MTR Stations, to the incumbent spectrum assignees through the offer of a right of first refusal, such that the provision of 4G services will be maintained throughout all the MTR premises.

2.8 As pointed out by the CA in the First Consultation Paper, 2G service continuity could be a potential concern as 2G services are provided with the use of the 900/1800 MHz Spectrum only. Nevertheless, based on the carrier bandwidth of 2 x 0.2 MHz supported by the Global System for Mobile Communications or GSM technology used for 2G services in Hong Kong and a standard re-use factor of 12 for network planning, it is estimated that only a small portion, namely 2 x 2.4 MHz of the 900/1800 MHz Spectrum, would be required to support the territory-wide 2G voice services. The decision of the CA to offer for re-assignment to each of the four incumbent spectrum assignees 2 x 10 MHz of spectrum in the 1800 MHz band as the RFR Spectrum under the hybrid approach, apart from safeguarding the continuity of 4G services in the Remaining MTR Stations, will also provide the capacity required for serving the existing 1.5 million of 2G service subscribers in Hong Kong as well as inbound roamers.

2.9 As regards the amount of RFR Spectrum needed to ensure service continuity, while SmarTone supports the CA’s proposal of making available 2 x 10 MHz in the 1800 MHz band for each incumbent spectrum assignee for that purpose, there are comments that more spectrum should be offered, including spectrum in the 900 MHz band, for re-assignment to the incumbent spectrum assignees through the offer of a right first refusal. The CA has already explained in the above that the 2 x 10 MHz of spectrum in the 1800 MHz band to be re-assigned as RFR Spectrum would serve to safeguard the continuity of 4G services at the MTR premises and 2G services on a territory-wide basis. As for the provision of 4G services outside MTR premises and 3G services on a territory-wide basis, since they are supported also by other frequency bands, the provision of these services is not affected by the present spectrum re-assignment exercise and hence there is no service continuity issue.

2.10   It should also be pointed out that ensuring service continuity is not equivalent to guaranteeing the existing level of service quality for individual MNOs. It is incumbent upon the MNOs themselves to take the necessary actions such as bidding for the necessary amount of 900/1800 MHz Spectrum in the auction, after making their decisions on whether to exercise their right of first refusal to acquire the RFR Spectrum, and/or to invest further in their networks for the provision of quality mobile services to their own customers.”

137.  In short, the Authority is advised by its consultant (Plum) that concerns relating to the quality and continuity of 2G and 4G services can be satisfactorily addressed with reasonable and proper effort being taken by the MNOs[46]. HKT has not produced evidence to show that it will likely encounter problems in relation to the quality or continuity of its services after the commencement of the new assignments in 2021, or made any such suggestion in its public announcement on 19 December 2018.

138.  Mr Reynolds’ opinion on the economic implications of an equal set aside of the RFR Spectrum for each MNO[47], and his view that it is not necessary for each MNO to be offered the same absolute amount of the RFR Spectrum to ensure service continuity[48], even if technically correct, do not take the matter any further in view of the fact that the Authority is under a duty to take into account and balance a host of different and competing demands and interests when making its decision on spectrum management, and is not confined to a consideration of one or more specific economic or technical issues.  When assessing the rationality of the Authority’s decision of this nature, the court ought to approach the question broadly, and should not “become bogged down in minutiae or led into the error of taking over the role of a fact finding tribunal” (in the same way that McCullough J approached the question, admittedly a different one, before him in Cran v Camden LBC [1995] RTR 346 at 365).

139.  In relation to HKT’s complaint of “differential treatment”, it should be noted that the 4 incumbent MNOs are given the same treatment, each being offered 2 x 10 MHz of the RFR Spectrum.  The fact that the decision may operate differently on different MNOs due to their own individual circumstances is not a reason to find the decision to be irrational.  The Authority is under no duty to see that its Decision to re-assign the Available Spectrum upon the expiry of the existing assignments, including the decision to offer 2 x 10 MHz of the RFR Spectrum to each of the 4 MNOs, would have exactly the same consequence or impact on each of them, or tailor its Decision such that each MNO would be able to retain its existing spectrum share or market position.

140.  In all, I consider the Authority’s decision to offer the same amount of the RFR Spectrum (2 x 10 MHz) to each of the 4 MNOs from the 1800 MHz band is well within the broad discretionary area of judgment of the Authority which the court should not interfere with.  This decision is neither irrational in the public law sense, nor unfair nor unlawful as contended by HKT.  Also, the Authority made the decision based on reasonable grounds having regard to relevant circumstances, in conformity with Section 6A(3)(a).

(ii)   Ground 12 – it is irrational, unfair and unlawful to impose a spectrum cap that denied HKT the opportunity of increasing its holding

141.  HKT’s grievance under this ground is that the overall spectrum cap of 90 MHz means that it is denied the opportunity of increasing its existing spectrum holding (89.4 MHz) (see §259 of the Form 86), and it complains that the Authority made the decision to impose the spectrum cap without having carried out any cost-benefit analysis of the imposition or level of a spectrum cap, or considered whether there could be benefits from allowing HKT to acquire more spectrum or the likelihood of whether there could be any adverse impacts on competition from HKT acquiring additional spectrum[49].  There is also a complaint that the decision is unequal in its operation amongst the different MNOs, and hence irrational, unfair and unlawful[50].

142.  The Authority’s rationale for imposing the spectrum cap is explained in §§88 to 90 of the Joint Statement, as follows:

“88. The CA notes that although the mobile telecommunications market in Hong Kong is intensively competitive, distribution of spectrum among MNOs is not even. As such, and given the large quantum of spectrum to be put out for auction (at least 120 MHz), unless the total amount of the 900/1800 MHz Spectrum that may be acquired by bidders is subject to a cap, auction could possibly result in an undue concentration of spectrum in the hands of certain MNOs which may have the effect of restricting competition.

89. Accordingly, given the sizeable proportion of spectrum subject to the current re-assignment, having considered the current market situation and the feedback received in the two rounds of public consultation, and with the aim of avoiding unduly high concentration of spectrum holdings in the hands of any single spectrum assignee, the CA has decided to impose a cap of 90 MHz on the amount of the 900/1800 MHz Spectrum, with a sub-cap of 20 MHz in the 900 MHz band, that may be acquired by a single bidder in the auction. With such a level of spectrum cap, any incumbent MNO may acquire no less than the amount of the 900/1800 MHz Spectrum that it currently holds.

90. The spectrum cap will apply to all bidders alike, including the incumbent MNOs and new entrants, and cover both the RFR Spectrum and the Auctioned Spectrum. Thus, if an incumbent spectrum assignee has exercised its right of first refusal to acquire the 20 MHz of RFR Spectrum it is offered, it will be eligible to bid for at most 70 MHz of the 900/1800 MHz Spectrum in auction…”

143.  In short, the Authority’s reason for imposing the spectrum cap is to prevent “an undue concentration of spectrum” in the hands of any single spectrum assignee which may have the effect of restricting competition”.  This is a legitimate reason and in line with the Authority’s duty to promote competition in the telecommunications market under Section 4(4)(c) of the Communications Authority Ordinance.  There is no duty on the part of the Authority to carry out any cost-benefit analysis as suggested by Mr Reynolds in §§47 to 50 of Reynolds 1.  The Authority is entitled to apply its general knowledge and expertise to come to the view that an undue concentration of spectrum in the hands of a single MNO would be contrary to the promotion of competition in the telecommunications market.  At §§8.16 and 8.17 of Annex 2 to the Joint Statement, the following is stated:

“8.16 On the issue of imposition of a spectrum cap in the auction to be conducted, the CA is of the view that, with at least 120 MHz of spectrum (or one-fifth of the total spectrum assigned) to be offered in a single auction, competition concerns could arise if the auction results in possible concentration of a substantial share of spectrum in the hand of a single MNO, hence the need for the cap.

8.17  Although HKT does not support the imposition of a spectrum cap, it strongly advocates Option 1 (administrative re-assignment) in its submissions to the two rounds of public consultation, under which it would be entitled to nothing more than re-assignment of its current holding (of 89.4 MHz) of the 900/1800 MHz Spectrum. Against the above, the CA’s considered view is that the overall cap of 90 MHz will provide the opportunity for the incumbent MNOs to acquire at least the same amount of the 900/1800 MHz Spectrum that it currently holds, thereby striking a balance between guarding against undue concentration of spectrum in the hands of some MNOs and the likely spectrum needs of each of the incumbent MNOs. In the event of entry of new players to the mobile telecommunications market, such a level of spectrum will also enable them to acquire an amount of spectrum necessary for the provision of a territory-wide network coverage.”

144.  The Authority is entitled not to accept the suggestion or proposal that HKT, already the leading player in the telecommunications market in Hong Kong with the largest holding of spectrum and largest number of subscribers, should be allowed to acquire even more spectrum, because that would plainly be anti-competitive[51]. I pause to add that, as a matter of fact, HKT only bid for 60 MHz of spectrum in the Auction for its own strategic reasons.

145.  HKT’s complaint about differential or unequal treatment is also without substance, for the same reasons mentioned in paragraph 139 above.  The spectrum cap is not applicable to HKT only.  It is applicable to all MNOs (and any new entrants to the market).

146.  Overall, I do not consider the Authority’s decision to impose the spectrum cap to be irrational, unlawful or unfair such as would entitle the court to interfere in this application for judicial review.

(iii)   Ground 13 – it is irrational, unfair and unlawful to link the spectrum utilisation fee for the RFR Spectrum to the outcome of the Auction, particular so under the conditions imposed by the Decision

147.  By Section 32I(2), the Secretary has the power to prescribe, by regulation, the level of, as well as the method for determining, the spectrum utilisation fees.  As stated in §68 of the Joint Statement, the Secretary decided to propose a regulation under Section 32I(2) to prescribe that the spectrum ultilisation fee per MHz of the RFR Spectrum for the next 15-year assignment term would be the higher of HK$54 million at 2021 price level or the average spectrum ultilisation fee per MHz of the Auctioned Spectrum in the 1800 MHz band as determined by the Auction, subject to a cap of HK$70 million.

148.  The Secretary’s rationale for this decision is explained in §§62-64 of the Joint Statement, as follows:

“62. The Spectrum Policy Framework states that for spectrum not released through auction or other market mechanisms, without affecting any of the powers of [the Secretary], the SUF may be set to reflect the opportunity costs of the spectrum. The 2 x 40 MHz of spectrum in the 1800 MHz band, which constitutes the RFR Spectrum that will be re-assigned to the incumbent spectrum assignees if they exercise the right of first refusal, falls squarely within the category of spectrum not released through market mechanism.

64. To ensure efficient spectrum utilisation, [the Secretary] is of the view that SUF of the RFR Spectrum should be set as close as possible to its full market value. In this respect, the outcome of the auction of the 70 MHz of Auctioned Spectrum in the 1800 MHz band should naturally be the best available indicator of the full market value of the RFR Spectrum for the next assignment term. This is so as the market value of different parts of the spectrum in the same frequency band should be very close to, if not the same as, each other. [The Secretary] accordingly considers it appropriate to set the SUF of the RFR Spectrum at the average SUF of the Auctioned Spectrum in the 1800 MHz band, subject to a minimum price and a cap.

65. The minimum price for the RFR Spectrum is the minimum fee an incumbent spectrum assignee has to pay to be entitled, and to be able to exercise the right of first refusal to be re-assigned part of its current spectrum holdings. [The Secretary] has elaborated in the Second Consultation Paper that the estimated market value of spectrum in the 1800 MHz band should be close to the value of spectrum in frequency bands with similar propagation characteristics as determined in assignments conducted in recent years, and therefore, in setting the minimum price, reference should be made to the level of SUF for spectrum in the 2.5/2.6 GHz band as determined by auction conducted in March 2013, and that for 3G Spectrum (including spectrum assigned through the offer of a right of first refusal and by way of auction) as determined in the re-assignment exercise in 2014, i.e. $30.8 million and $59 million per MHz respectively then, and equivalent to $38 million and $67 million per MHz respectively at 2021 price level having adjusted for inflation. Similar to the auction reserve price, SCED proposed then that the minimum price for the RFR Spectrum may be set between the two reference values, i.e. $38 million and $67 million per MHz, and his inclination was that the final value would be closer to the higher end.

66. For the same reasons as mentioned in paragraph 60 above, in view of the substantial investment commitments MNOs are facing in constructing the infrastructure in preparation for the launch of 5G services, [the Secretary] has decided that the minimum price for RFR Spectrum should be set above, but closer to the average of the two reference values of $38 million and $67 million per MHz, rather than closer to the higher end. After careful consideration, he considers it appropriate to set the minimum price at $54 million per MHz.

67.   Regarding the cap for the RFR Spectrum, having considered the relevant factors, including the estimated market value of spectrum in the 1800 MHz band, the need to provide a level playing field for the incumbent spectrum assignees and the successful bidders of the Auctioned Spectrum, as well as the need to address the concern of the incumbent spectrum assignees over the lack of certainty by the dependence of the SUF of the RFR Spectrum on that of the Auctioned Spectrum, [the Secretary] considers it appropriate to set the cap at $70 million per MHz.”

149.  The Auction took place on 17 and 18 December 2019.  The successful bids in the Auction for the spectrum in the 1800 MHz band were between HK$38 million and HK$56 million per MHz, and the spectrum utilisation fee for the RFR Spectrum was eventually fixed at HK$54 million per MHz (ie, at the minimum price).

150.  HKT complains that it is irrational, unfair and unlawful for the Secretary to decide to link the spectrum utilisation fee for the RFR Spectrum to the outcome of the Auction, for the following reasons:

(1)   the incumbents would not know, at the time that they were called upon to make an election whether or not to exercise the right of first refusal, the cost of doing so[52];

(2)   linking the spectrum utilisation fee for the RFR Spectrum to the auction price of the Auctioned Spectrum was internally inconsistent with the basis upon which the Secretary decided to set a minimum price for the RFR Spectrum, in that –

(a)   by setting a minimum price of HK$54 million per MHs derived from prices achieved in two previous auctions, the Secretary recognised that it was possible in principle to derive the market value from market benchmarks and this contradicted the suggestion that it was necessary to link the spectrum utilisation fee to the (uncertain) outcome of the auction in order to ensure that market value was paid;

(b)   on the other hand, if an auction was necessary in order to determine the market value of the RFR Spectrum, or a market-based approach to spectrum management under the SPF generally required an auction, it was irrational and unfair for the Secretary to select a “minimum price” to be paid by the incumbent MNOs for the RFR Spectrum; instead the price should be set by market forces in the auction[53];

(3)   linking the spectrum utilisation fee for the RFR Spectrum to the auction price of the Auctioned Spectrum would distort the bidding process because it would penalize the MNOs for bidding up to a price that represented the value that they could generate from the use of the spectrum, in that (i) the higher they bid the greater the additional cost to them in the amount that they would have to pay for the RFR Spectrum, and (ii) it would also create an incentive for new entrants to bid up the value of spectrum to hurt incumbents who would thereby face higher costs for the RFR Spectrum[54];

(4)   the selection of a minimum price of HK$54 million per MHz for the RFR Spectrum, in circumstances where the reserve price for the Auctioned Spectrum was set at HK$38 million, was irrational and unjustifiably discriminated between the incumbent MNOs and potential new entrants bidding for the Auctioned Spectrum[55].

151.  As a starting point, the Secretary’s decision to link the spectrum utilisation fee for the RFR Spectrum to the outcome of the Auction is consistent with §7.2 of the SPF, which states that –

“For spectrum not released through auction or other market mechanisms prescribed by [the Secretary], SUF will be set by [the Secretary] under section 32I(2) of the [Ordinance]. Without affecting any of the powers of [the Secretary], such SUF may be set to reflect the opportunity costs of the spectrum.”

152.  The reference to the “opportunity costs of the spectrum” in §7.2 of the SPF is further explained in the SPF Consultation Paper, as follows:

“77. We are inclined to propose for consultation that users of spectrum should be required to pay SUF irrespective of whether there is competing commercial demand for the spectrum unless there are public policy considerations…

78.   For spectrum without competing commercial demand, since the market value is zero, SUF could be set administratively at a relatively low level so that valuable uses of spectrum would not be deterred. For spectrum with competing commercial demands, auction should generally be used to determine the appropriate SUF. However, in situations where it may not be appropriate to use auction (e.g. when a mobile service licence with large customer base is due for renewal), the SUF would still need to be determined administratively. In the UK, this fee is called the Administered Incentive Pricing. We accept the consultant’s recommendation and propose that in the case where spectrum is not auctioned, under the spectrum policy framework, the SUF should be set to reflect the opportunity cost of the spectrum. Such opportunity cost may be determined by taking reference from outcome of a similar spectrum auction in Hong Kong or elsewhere conducted recently, or by considering the least cost alternative method to the use of spectrum.” [emphasis added]

153.  In relation to the complaint mentioned in paragraph 150(1) above, it is, I consider, a commercial decision for HKT, with its depth of knowledge and experience in the telecommunications market in Hong Kong (including previous auction results, the value or potential value of the spectrum, the market conditions, and the likely or probable range of results of the Auction), whether to accept the offer in respect of the RFR Spectrum notwithstanding the uncertainty on the pricing of the RFR Spectrum.  The uncertainty is, in any event, mitigated by the minimum price (HK$54 million per MHz) and the cap (HK$70 million per MHz) mentioned in §§66 to 67 of the Joint Statement.

154.  HKT’s complaint mentioned in paragraph 150(2) above is based on a misreading of the relevant passages in the Joint Statement, or misunderstanding of the Secretary’s decision.

(1)   The decision to link the spectrum utilisation fee for the RFR Spectrum to the outcome of the Auction is not a matter of “necessity”, but a matter of policy choice which it is open to the Secretary to adopt having regard to the published policy in the SPF.  The Secretary takes the view that the spectrum utilisation fee for RFR Spectrum should be set as close as possible to its full market value, and the outcome of the auction of the 70 MHz of the Auctioned Spectrum in the 1800 MHz band should be the best available indicator of the full market value of the RFR Spectrum for the next assignment term.  This view seems to me to be reasonable and rational.

(2)   While it is, in theory, open to the Secretary to set the spectrum utilisation fee for the RFR Spectrum entirely by reference to the outcome of the Auction without providing for any minimum price, it is, I consider, equally open to the Secretary to stipulate an appropriate minimum price (in this case by reference to the spectrum utilisation fee for spectrum with similar propagation characteristics as determined in assignments conducted in recent years) to reflect the opportunity cost of the right enjoyed by the existing MNOs to acquire a scarce but valuable public resource without having to compete for the same at an auction[56].

155.  In relation to HKT’s complaint mentioned in paragraph 150(3) above, each MNO will have to balance (i) bidding up to a price that it finds acceptable at the Auction having regard to its own needs and circumstances, against (ii) having to pay more for the RFR Spectrum.  The dynamics of the bidding strategies adopted by the MNOs maybe multi-factorial, but it is, in my view, incorrect to describe the bidding or bidding process as being “distorted”.  It is also incorrect to describe the MNOs as being “penalised” for bidding up to a price that represents the value that they could generate from the use of the spectrum.  It is, ultimately, a commercial decision which each MNO has to made as to how much it is prepared to pay to acquire the spectrum that it wants.  The imposition of a cap also limits the exposure of the MNOs arising from any overly aggressive biddings by the auction participants.

156.  The suggestion that new entrants may bid up the value of the spectrum in order to hurt the incumbents is purely theoretical and entirely speculative.  There is no evidence that this ever happened, and no evidential basis to suggest that this is likely to happen.  Anyone who wishes to participate in the Auction has to pay a substantial deposit, the amount of which depends on the number of “Eligibility Points” that it wishes to acquire[57].  In the case of HKT, it paid a deposit of HK$2,280 million to acquire 6 Eligibility Points, which entitled it to bid for 60 MHz of the Auctioned Spectrum.  In addition, there is the risk of a successful bid, which may result in the bidder coming under a legal obligation to take an assignment of spectrum and pay the amount of spectrum utilisation fee based on the successful bid, or a forfeiture of the deposit paid.  I would add that, as a matter of fact, there was no new entrant at the Auction.  Although this fact cannot be used retrospectively to justify the lawfulness or rationality of the decision, it is relevant to the issue of prejudice and the question of relief.  Thus, even if this particular complaint is made out (which it is not), I would not be prepared to grant any relief as a matter of discretion.

157.  HKT’s complaint mentioned in paragraph 150(4) above is misguided.  In so far as the reserve price for the Auctioned Spectrum (at HK$38 million per MHz) is concerned, by definition, if the reserved price is not reached at the Auction, no bidder will be able to obtain the spectrum. The reserve price is not set as a pre-estimate of an expected market price. Rather it is set at a level that represents the minimum base value of the spectrum for the purpose of kick-starting the competitive bidding process[58].  The actual price is fixed by the auction process.  On the other hand, the minimum price for the RFR Spectrum (set at HK$54 million per MHz) is the lowest price that each incumbent MNO is committed to pay once it decides to accept the offer of a right of first refusal in respect of the RFR Spectrum, regardless of whether the reserved price is reached at the Auction.  HKT’s attempt to compare the reserve price of the Auctioned Spectrum with the minimum price of the RFR Spectrum is inapt, and involves a confusion of two distinct concepts.  In my view, no question of discrimination against the incumbent MNOs and in favour of new entrants arises from the decision to set a reserve price of HK$38 million per MHz for the Auctioned Spectrum and a minimum price of HK$54 million per MHz for the RFR Spectrum.  On the contrary, it may even be argued that the MNOs have been treated favourably by being given a right of first refusal to acquire the RFR Spectrum (subject to a price cap) without having to compete for the same at an auction.  In any event, the above comment that there was in fact no new entrant at the Auction and thus relief should not be granted as a matter of discretion applies equally to this complaint.

158.  In all, Ground 13 is rejected as being unmeritorious.

XV.   DISPOSITION

159.  The application for judicial review is dismissed, with costs (including all reserved costs, if any) to the Secretary and the Authority, to be taxed if not agreed with certificate for 2 counsel.  I do not consider that there is sufficient justification for those costs to be taxed on an indemnity basis, as suggested by Mr Chan on behalf of the Secretary and the Authority.

160.  Lastly, it remains for me to thank counsel for their assistance rendered to the court.