HONG KONG TELECOMMUNICATIONS (HKT) LTD v. THE COMMUNICATIONS AUTHORITY

CACV 144/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 144 OF 2014

(ON APPEAL FROM NO 31 IN THE TELECOMMUNICATIONS

(COMPETITION PROVISIONS) APPEAL BOARD)

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CACV 147/2014

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CACV 147/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 147 OF 2014

(ON APPEAL FROM NO 31 IN THE TELECOMMUNICATIONS

(COMPETITION PROVISIONS) APPEAL BOARD)

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JUDGMENT
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Hon Poon J (giving the Judgment of the Court) :

A. INTRODUCTION

1. There are two appeals before this Court, CACV 144/2014 and CACV 147/2014. They both arose out of the Decision and Ruling of the Telecommunications (Competition Provisions) Appeal Board (“the Appeal Board”) in Appeal No 31 dated 16 April 2014 (“the Decision”).

2. CACV 144/2014 is an appeal by way of case stated dated 14July 2014 under section 32R of the Telecommunications Ordinance (“TO”)[1] for the opinion of the Court of Appeal on four questions of law. The first three questions were raised at the request of Hong Kong Telecommunications (HKT) Ltd (“HKT”).[2] By consent, this part of the appeal concerning those three questions was dismissed on 3 July 2015. The 4^th question was raised by the Telecommunications Authority (“the Authority”). It reads :

“Whether the Appeal Board has the jurisdiction under the TO to order the Authority to reach a decision as regards a complaint of alleged anti-competitive conduct by a specified deadline.” (Question 1)

3. CACV 147/2014 is by way of a notice of motion for statement of case dated 17 July 2014 brought by the Authority under Order 61, rule 2, of the Rules of the High Court.[3] The Authority sought an order that the Appeal Board be required to state a case to the Court of Appeal on the following question :

“Whether the Appeal Board is entitled under section 32O(4) of the TO to allow an appeal in part notwithstanding that it held wholly in favour of the Authority on the ‘appeal subject matter’ before it.” (“Question 2”)[4]

4. The background facts leading to the appeals can be summarized as follows.

B. FACTS

B1. The launch of iPhone 5 in Hong Kong

5. On or about 21 September 2011, Apple Asia Limited (“Apple Asia”),[5] a subsidiary of Apple Inc, launched iPhone 5 in Hong Kong.

6. iPhone 5 supports fourth generation (“4G”) wireless broadband technology (in particular Long Term Evolution (LTE) services utilizing the 1800 MHz frequency band) on top of second generation (2G) and third generation (3G) wireless technologies. Insofar as the deployment of 4G technology in Hong Kong is concerned, SmarTone Mobile Communications Ltd (“SmarTone”) is a mobile network operator operating 1800 MHz LTE network, whereas HKT and the other three Hong Kong mobile network operators at the time initially preferred to develop LTE networks that use the 2.6 GHz spectrum. All four mobile network operators in Hong Kong now operate 1800 MHz LTE networks.

7. Like other smart phones, iPhone 5 used SIM[6] cards for its operation. A SIM card is a uniquely numbered “smart card” containing subscriber specific information which has to be inserted into certain mobile devices to allow them to operate on a mobile network. Its main purpose is to identify the subscriber to the mobile network operator which provided the SIM card for tariff and billing purposes. In practice, the “SIM lock function” in handsets enables them to be “locked” into a particular mobile network by preventing them from being used with a SIM card issued by any other mobile network operator. There are legitimate uses for such a function, such as for protection from theft and fraud and the enforcement of the rental or instalment service contracts. However, in Hong Kong, SIM locking for preventing customers from switching to other mobile network operators is regarded as anti-competitive. According to guidance issued by the Authority, SIM locking is prohibited without the Authority’s prior written approval.

8. On the date when iPhone 5 was launched, representatives of HKT inserted one of their SIM cards into an iPhone 5 and discovered that 4G connectivity was not obtained. In fact, the only Hong Kong mobile network operator whose SIM card was then able to achieve 4G connectivity on an iPhone 5 was SmarTone.

9. In late September and early October 2012, SmarTone commenced an advertising campaign describing itself as the only mobile network operator in Hong Kong able to provide 4G connectivity for iPhone 5. HKT, through its solicitors, engaged in an exchange of correspondence with SmarTone requesting information as to how it was that only SmarTone SIM cards recognised Apple’s functionality of 4G. SmarTone refused to engage in any discussion on the subject and refused to provide any further information to HKT.

10. In the meantime, HKT complained to the Authority.

B2. HKT’s complaints

11.By letters dated 28 September and 19 October 2012, HKT complained to the Office of the Communications Authority (“OFCA”) that Apple Asia had SIM-locked iPhone 5 so that it could be used only with SmarTone’s 4G network. It demanded that immediate action be taken against Apple Asia and SmarTone pursuant to section 36B of the TO to prevent SIM-locked iPhone 5 handsets from being distributed in the Hong Kong market. Initially, HKT called for the Authority to issue an immediate direction under section 36B of the TO. However, by 19 October 2012, HKT was requesting an interim direction pending completion of a full investigation into its complaint.

12. Shortly thereafter, two more mobile carriers, CSL Limited (“CSL”) and Hutchison Telephone Company Limited (“Hutchison”), announced that their 1800 MHz LTE networks would be supported by iPhone 5. On 9 November 2012, HKT extended its complaint to also accuse CSL and Hutchison of being involved in anti-competitive SIM-locking.

13. While OFCA was looking into HKT’s complaint, HKT’s solicitors wrote to OFCA on 16 January 2013 setting a deadline for the Authority to confirm its intention to take immediate action on HKT’s request for an interim direction and for OFCA to provide copies of the minute of meetings at which OFCA, the Telecommunications Affairs Committee or the Authority had discussed HKT’s complaint as well as details of its correspondence with Apple Asia and other licensees regarding HKT’s complaint. The letter also stated that if it did not receive a satisfactory response by 5pm on 28 January 2013, HKT would take legal action against the Authority.

14. On 28 January 2013, OFCA replied by asking HKT to provide a more detailed and well-reasoned submission to support its complaint that Apple Asia, SmarTone, CSL and Hutchison, individually or collectively, were engaged in conduct that was seriously harming competition. In particular, OFCA stated that:

“We [OFCA] have reviewed HKT’s submission in support of its Competition Complaint… and consider that the information provided by HKT is inadequate to enable us to assess whether the complaint raises a genuine competition issue within the scope of the competition provisions of the TO such that… OFCA… may consider it justified to conduct an initial enquiry… let alone to enable [the Authority] to consider any reasonable ground for suspecting a breach and any justification of enforcement action such as by way of issuing an immediate direction under section 36B.

…

… would HKT please confirm whether it has any concern over the disclosure of its identity… in the event that we consider that the complaint raises a genuine competition issue within the scope of the competition provisions of the TO…

We look forward to receiving a full complaint submission from HKT…”

15. HKT did not comply with OFCA’s request for further information. Instead, it filed a notice of appeal to the Appeal Board on 14 February 2013, complaining that there was “no or no sufficient basis upon which the Authority could find that it had insufficient information to deal with [HKT’s] request for an interim direction”.

B3. Jurisdictional issue

16. A preliminary issue arose before the Appeal Board as to whether it had jurisdiction to hear HKT’s appeal.

17. By a decision dated 4 June 2013, the then Chairman of the Appeal Board[7] ruled that it did not have such jurisdiction. On appeal by HKT, the Court of Appeal ruled on 17 December 2013 that the Appeal Board did have jurisdiction to hear HKT’s appeal.[8] The Court of Appeal then ordered the case to be remitted to the Appeal Board for a substantive hearing on HKT’s complaint, as regards the adequacy or otherwise of the material presented to the Authority to enable it to decide whether to make an interim direction.

B4. Substantive hearing

18. The Appeal Board, now under different chairmanship,[9] heard substantive arguments from HKT, the Authority, and Apple Asia (as intervener) on 10 March 2014.

19. On 16 April 2014, the Appeal Board handed down the Decision.

C. THE DECISION

C1. Restriction on connectivity to HKT’s 4G network

20. As identified by the Appeal Board, HKT’s essential complaint concerned the restriction on connectivity to HKT’s 4G network by iPhone 5.[10] Apple Asia’s case was that 4G functionality had not been enabled for HKT’s network because that network had not been tested for compatibility nor optimized for operation with iPhone 5 handsets.[11] But it was pointed out by HKT :[12]

“Although Apple says that ‘LTE [i.e. 4G] functionality ….. has not been enabled for HKT’s network’, it is apparent the customers of approved networks can nevertheless use HKT’s 4G networks in Hong Kong (and that HKT’s customers are being denied access to Apple approved 4G networks overseas).”

21. For the reasons that it gave,[13] the Appeal Board found that the denial of connectivity to HKT’s 4G network by HKT’s customers using a HKT SIM in an iPhone 5, iPhone 5C or iPhone 5S was not justified by any genuine concern on the part of Apple Asia or Apple Inc’s regarding the performance of HKT’s network, nor by any professed need to test and enable that network.[14]

C2. SIM lock and the 1997 SIM Lock Statement

22. The Appeal Board then considered if Apple Asia/Apple Inc’s SIM lock was a breach of the Authority’s 1997 SIM Lock Statement[15] and found that it was not.[16] However, the Appeal Board urged the Authority to update the Statement in light of the rapidly evolving technology at the earliest possible opportunity.[17]

C3. Section 7K(3)

23. The Appeal Board next considered HKT’s complaint that Apple Inc and/or Apple Asia had engaged in anti-competitive practices contrary to section 7K of the TO.

24. Section 7K relevantly provides :

“(1) A licensee shall not engage in conduct which, in the opinion of the Authority, has the purpose or effect of preventing or substantially restricting competition in a telecommunications market.

(2) The Authority in considering whether conduct has the purpose or effect prescribed under subsection (1) is to have regard to relevant matters including, but not limited to—

(a) ……

……

(c) agreements between licensees to share any telecommunications market between them on agreed geographic or customer lines;

……….

(3) Without limiting the general nature of subsection (1), a licensee engages in conduct prescribed under that subsection if he—

(a) enters into an agreement, arrangement or understanding that has the purpose or effect prescribed by that subsection;

(b) without the prior written authorization of the authority, makes the provision of or connection to a telecommunications network, system, installation, customer equipment or service conditional upon the person acquiring it also acquiring or not acquiring a specified telecommunications network, system, installation, customer equipment or service, either from the licensee or from another person;”

25. The Appeal Board identified section 7K(3)(b) as the focus of the appeal.[18] The Appeal Board said :[19]

“The essence of [the prohibition in section 7K(3)(b)] strikes at any attempt to tie the provision of a service or equipment with the licensees (or other persons) equipment, without the prior written authorization of OFCA.”

26. HKT contended that the operation of the SIM lock on HKT’s 4G network implemented by Apple Asia operated in breach of section7K(3)(b).[20]

27. Mr Mok SC (together with Mr Abraham Chan) for the Authority relied on the definition of “customer equipment” in section 2 of the TO :

“Customer equipment’ means equipment acquired by a customer of a carrier licensee intended to be connected to the network of that licensee”

28. He argued that Apple Asia had no network and therefore the provision of Apple Asia’s customer equipment, whatever restriction that equipment might impose, was not intended or capable or being conditional upon the purchaser acquiring a network connection from Apple Asia. Section 7K(3)(b) did not apply.[21]

29. Mr Yu SC for HKT urged the Appeal Board to adopt a boarder reading of “customer equipment” and suggested that the purpose of section 7K(3)(b) was to “broadly prohibit anti-competitive conduct (whether at the wholesale or retail level) including unauthorized bundling. He further urged on the Appeal Board an interpretation of the TO in its social setting, having regard to its long title, history of the telephone and earlier consultation paper discussions.[22]

30. The Appeal Board rejected Mr Yu’s submissions :[23]

“Whatever may have been the original statutory and underlying regulatory intention behind the broad restriction on bundling equipment and services and the original purpose behind the SIM-lock statement, we are not able extend the definition of ‘customer equipment’ to cover a situation where Apple Asia is not the provider of a network. To do so, we believe, would offend against the plain and obvious words of the subsection and the definition employed and would not, in our view, be a ‘proper application of the interpretative process’.”

31. The Appeal Board went on to say :

“76. We reach this conclusion with some reluctance, having regard to the unsatisfactory nature of the evidence adduced by Apple Asia in this Appeal and having regard to the criticism which we have already levelled at OFTA and OFCA for failing to properly update its policy statements in the light of the development of new technology. Nevertheless, and for the reasons set out above, we are of the view that a breach of Section 7K(3) cannot be established by HKT in the circumstances of this case and in the light of the guidance provided by the Court of Appeal as to what is open to us to order by way belief sought by HKT at this juncture.”

C4. Section 7K(1)

32. The Appeal Board had this to say on HKT’s complaint based on section 7K(1) :

“77. We noted above that the Notice of Appeal referred to Section 7K(1) as well as Section 7K(3) as entitling HKT to an interim direction under [Section 36B of the TO] that Apple Asia remove its SIM-lock. We have rejected any automatic application of Section 7K(3) on the grounds that the method of restricting interconnectivity employed in the case of the iPhone 5 handsets here does not fall within either the 1997 SIM-lock statement or the definition of ‘Customer Equipment’ for the purposes of Section 7K(3).

78. Nevertheless we uphold the Appeal to this extent: The material lodged by HKT in its correspondence submitted to OFCA and its predecessor was, in our view plainly sufficient to ‘truly engage’ [Section 7K of the TO] in the sense contemplated by paragraphs 28 to 31 of the Judgment of the Hon. Cheung CJHC in the Court of Appeal. Indeed, in their submission before us (as HKT rightly point out), [the Authority] scarcely appears to defend the approach adopted by OFCA in this correspondence.

79. In the view of the Appeal Board [the Authority] has totally failed to consider paragraph 33 of its Guidelines which provides as follows:-

‘33. Where the conduct being complained about is still on-going and is alleged to be continually causing serious damage to the consumers or other industry players, the CA may consider taking urgent action within such time frames as the circumstances warrant to deal with the complaint. As such, the CA retains the discretion not to adhere to the time frames set out in this guide and will determine a time frame which it deems appropriate in the circumstances. Where circumstances require and if it considers it justifiable to do so, the CA may also depart from all or any part of the procedures set out in this guide.

Far from taking the urgent action that the public interest and the telecommunications industry was entitled to expect under this guideline [the Authority’s] approach was to rely on Appendix B of the Guidelines without any appreciation of the need to take urgent action.

80. The information sought by [the Authority] we believe goes far beyond that which may be necessary for [the Authority] to take a decision whether or not to issue interim direction of the type sought by HKT.

81. We take the point made in [HKT’s submissions] that remission by us to [the Authority] with a direction to make such a substantive decision will likely result in further delay. However, we, as an Appeal Board, are not in a position to investigate all the regulatory, technical commercial and economic issues that would be required for us to form a prima facie view of the merits of the overall complaint. That is the task of [the Authority].

82. Mr. Mok SC on behalf of [the Authority] informs us that an enquiry is underway to deal with HKT’s complaint, although the Appeal Board has seen little evidence that it is proceeding with diligence and dispatch.

83. Despite our dismissal of HKT’s Application for an interim direction under Section 7K(3) we are, nevertheless, concerned that competitive conditions in the rapidly evolving and important telecommunications market for 4G services in Hong Kong might have been adversely affected by the circumstances disclosed in the evidence and documents that have been made available to the Board in the course of these proceedings. The investigation and determination of whether a breach of Section 7K(1) has in fact occurred is of course a matter for the Authority. We noted this issue has been ‘live’ for more than 18 months and that the Authority’s own Complaints Guidelines state that complaint investigation should usually be concluded within four months from its commencement (see paragraph 32 thereof).

84. In these circumstances, the Appeal Board felt it necessary to impose on [the Authority] a sense of urgency that it has not hitherto shown itself able to adopt on its own behalf.”

C5. Orders

33. Accordingly, the Appeal Board made the following orders :

“(1) The Appeal is allowed to the extent that we hold that the Appeal Subject Matter (as defined in the Notice of Appeal) truly engages [Section 7K of the TO].

(2) The Appeal Board refuses to issue or to direct [the Authority] to issue any form of interim relief under [Section 36B of the TO].

(3) [The Authority] is directed to preceed diligently and expeditiously with its enquiries into HKT’s complaints described more fully in the Summary of Facts annexed as Appendix 1 to its Notice of Appeal and as further supplemented by the evidence, submissions and correspondence lodged in the course of this Appeal.

(4) [The Authority] is directed to arrive at a decision, including a decision regarding whether or not to make any interim or final direction under [Section 36B of the TO] by 1^st July 2014.”

34. We now turn to Question 1.

D. QUESTION 1

35. The Appeal Board’s imposition of the deadline on investigations to be carried out by the Authority upon remittance of the case is premised on the proposition that it has the jurisdiction to impose time limits on investigations, and on the making of decisions following such investigations by the Authority under section 32O(4) of the TO as part of its jurisdiction to make such “consequential orders as may be necessary”.[24] Whether that proposition is correct requires a closer examination of those provisions in the TO which are relevant to the Appeal Board’s jurisdiction in hearing appeals relating to section 7K. They are to be found in Part 5C of the TO :

“32L. Interpretation

In this Part—

appeal means an appeal under section 32N(1), …

appeal subject matter—

(a) in relation to an appeal under section 32N(1), means the opinion, determination, direction, decision, sanction or remedy referred to in section 32N(1)—

(i) to the extent to which it relates to section 7K, …

(ii) which is the subject of the appeal;

32N. Appeal to Appeal Board

(1) Any person aggrieved by—

(a) an opinion, determination, direction or decision of the Authority relating to--

(i) section 7K, …

(b) any sanction or remedy imposed or to be imposed under this Ordinance by the Authority in consequence of a breach of any such section or any such licence condition,

may appeal to the Appeal Board against the opinion, determination, direction, decision, sanction or remedy, as the case may be, to the extent to which it relates to any such section or any such licence condition, as the case may be.

…

32O. Procedure and powers of Appeal Board, etc.

…

(4) After hearing an appeal, the Appeal Board shall determine the appeal by upholding, varying or quashing the appeal subject matter and may make such consequential orders as may be necessary.

…”

36. Thus in the context of section 7K, the statutory scheme operates in this way.

(1) A person may bring an appeal to the Appeal Board if he is aggrieved by an opinion, determination, direction or decision of the Authority relating to section 7K; or any sanction or remedy imposed or to be imposed under the TO by the Authority in consequence of a breach of section 7K – section32N.

(2) Such opinion, determination, direction and decision of the Authority or such sanction or remedy by the Authority then forms the appeal subject matter of that aggrieved person’s appeal – section 32L.

(3) After hearing the appeal, the Appeal Board shall determine the appeal by upholding, varying or quashing the appeal subject matter. In long form, the Appeal Board shall determine the appeal by upholding, varying or quashing the opinion, determination, direction and decision of the Authority relating to section 7K or the sanction or remedy imposed or to be imposed by the Authority in consequence of a breach of section 7K, as the case may be – section32O(4). The consequential orders that the Appeal Board may make are consequential upon its upholding, varying or quashing the appeal subject matter, that is, the opinion, determination, direction and decision of the Authority relating to section 7K or the sanction or remedy imposed or to be imposed by the Authority in consequence of a breach of section 7K, as the case may be.

37. In other words, upon a proper construction of the relevant provisions, absent any order upholding, varying or quashing the appeal subject matter, the Appeal Board cannot make any consequential orders as such under section 32O(4).

38. Here, the Appeal Board, in [78] of the Decision, upheld HKT’s appeal to the limited extent that section 7K was truly engaged in the sense contemplated by Cheung CJHC in CACV 190/2013 :

“28. As I said, the fact that OFCA’s letters effectively asked the appellant to try again and come back with further material and details, is really neither here nor there and does not affect the above analysis.

29. In my view, the decision not to issue an immediate direction was a decision relating to, in the sense that it truly engaged, section 7L.”

39. Although it refused to issue or to direct the Authority to issue any form of interim relief under section 36B of the TO, the Appeal Board directed the Authority to do two things.

40. First, the Appeal Board directed the Authority to carry out the investigations into HKT’s complaints diligently and expeditiously. It appears to us that as an order consequential upon allowing HKT’s appeal to the limited extent as explained, this direction falls within the Appeal Board’s jurisdiction under section 32O(4). Mr Mok has not submitted to the contrary.

41. Second, the Appeal Board directed the Authority to arrive at a decision following upon its investigations by a specified deadline, that is, 1 July 2014.

42. Mr Mok submitted that the Appeal Board has no jurisdiction to do so. He argued that nowhere does the TO – the sole source of the Appeal’s Board’s jurisdiction – provide for any express power on the part of the Authority to impose time limits or other such directions in respect of the Authority’s conduct of investigations. Nor can any such power be implied as a matter of law because the established purpose of the Appeal Board is only to uphold, vary or quash decisions of the Authority which truly engage, among other sections concerning competition in the TO, section 7K as required at law under the test explained by Ma CJHC (as the Chief Justice then was) in PCCW-HKT Telephone Ltd v Telecommunications Authority.[25] In short, Mr Mok contended, as a general proposition, that the Appeal Tribunal only has jurisdiction to deal with the substantive merits of the “appeal subject matter” under appeal but it has no supervisory jurisdiction over the conduct of the Authority, which is a matter for the court in judicial review. He place particular reliance on Floe Telecom Ltd v Office of Communications and other.[26]

43. We can see considerable force in Mr Mok’s argument. However, bearing in mind the fact that only the Authority appears before us in these appeals, HKT having been excused from appearance and Apple Asia only having instructed Mr Lam of counsel to hold a watching brief, we do not have the benefit of full arguments on what we consider to be quite an important point about the Appeal Board’s jurisdiction on appeal from the Authority. So as tempting as it may be, we decline to determine Question 1 on the basis of the general proposition as advanced by Mr Mok. We think it is better for us to approach Question 1 as it is now formulated and based on the specific facts before us. We understand that Mr Mok is also content with such an approach.

44. As a matter of law, we do not think the Authority is entitled to impose the deadline. There is no such express enabling provision in the TO. Further, as a matter of general principle, once the Appeal Board directs the Authority to carry out further investigations, it is then a matter to be dealt with by the Authority in accordance with its own statutory duties and functions.[27] In doing so, the Authority will have regard to a host of factors, including the urgency and complexity of the subject matter, the technical commercial and economic issues involved,[28] the relative priority of that subject matter as compared with other cases at hand, and the competing demands on its limited resources at the time. All these considerations would inevitably have an impact on the time required to conduct and finish the investigations. Most, if not all, of these considerations fall within the exclusive purview of the Authority. So subject to the court’s supervision by way of judicial review, the Authority is the only body who can set a reasonable and realistic deadline to complete the further investigations as directed by the Appeal Board. Thus analyzed, it is plain that the Appeal Board cannot, as it did here, impose a specific deadline on the Authority investigations as an order on its own or a consequential order under section 32O(4).

45. What we have said above is sufficient to dispose of Question1. For completeness, we note that according to Mr Mok the Appeal Board had not alluded to the possibility of imposing a deadline before it did so in the Decision. So the Authority had not been given an opportunity to address the Appeal Board on this matter. If that were the case, the Appeal Board would have acted in breach of natural justice.

46. For the above reasons, we answer Question 1 in the negative.

E. QUESTION 2

47. Question 2 can be disposed of shortly.

48. As the matter now stands, the Appeal Board has yet to state a case for Question 2 to be placed before the Court of Appeal for determination. For that to be done, a direction from this Court is necessary. However, at the hearing before us, Mr Mok submitted that as it would not be in the interest to all the parties concerned to drag on any further, he would not press on with the notice of motion in CACV147/2014. He would be content if we were to state in our judgment, as we now do, that this Court in CACV 190/2014 (differently constituted) had already determined that section 7K was engaged.

49. Other than what we have said, we deal no further with Question 2 or the notice of motion in CACV 147/2014 and make no order in relation to them.

F. COSTS

50. The parties agree that there shall be no order as to costs. We therefore make no order as to costs for both CACV 144/2014 and CACV 147/2014.