Providing Quality of Service ( QoS ) Information to Consumers of Residential Broadband Internet Access Services

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Providing Quality of Service (“QoS”) Information to Consumers of Residential Broadband Internet Access Services

Statement of the Telecommunications Authority 31 January 2005

EXECUTIVE SUMMARY

With all sectors of the telecommunications industry in Hong Kong liberalised and open to competition, consumers and businesses can now enjoy the outcome of market liberalisation and competition: more choices of service providers, a wide range of innovative services as well as competitive prices. In such a competitive market, service providers are expected to compete on both price and quality. Service providers failing to meet consumers’ requirements or expectations in price or service quality would be forced out of market. However, to get the full benefit of competition, consumers need to be well informed, particularly on the non-price aspects of the service to be provided, for example, QoS of different service providers in the market. To enable consumers to make better-informed purchasing decisions, the Telecommunications Authority (“TA”) has issued a public consultation paper on 23 July 2004 (“Consultation Paper”) to propose a framework for providing QoS information to consumers whereby the QoS of service providers in the market will be measured, reported and published, based on definitions and measurement methodology uniformly applied across the industry. The QoS framework would first focus on the residential broadband Internet access service market.

2. The objective of the QoS framework is to increase the transparency of the QoS in the broadband Internet access service market. A significant number of complaints received by OFTA are attributable to the lower-than-expected performance, or misunderstanding of the QoS pledges, of service providers. Furthermore, customers are usually bound by fixed-term contracts. Even if a customer finds the service quality unsatisfactory or different from expectations during the commitment period, many of them would have to continue to subscribe to the service reluctantly to avoid losses resulted from penalty charges. One of the effective ways to address consumers’ concerns is to enhance the transparency of QoS and service

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information of different service providers in the market so that consumers have sufficient comparable QoS and service information for making informed choices. It is hoped that with ready access to information on the non-price aspects of the various competitive residential broadband services on offer in the market, market forces can work effectively and QoS can be upheld. Under the framework, QoS information (based on both technical and service performance indicators) as well as service information (i.e. helpline numbers, information of billing and service termination) of the residential broadband Internet access service providers will be made available to the public. The scheme will not set any minimum service standards for the service providers because consistent with the light-handed regulatory philosophy that he has all along adopted, the TA considers that the service standards in a competitive market should be determined by the market itself.

3. All stakeholders (including the industry, consumer interest groups, end users and the public) have been invited to comment on all aspects of the proposal put forward in the Consultation Paper. By the closing of the consultation period, the TA received a total of thirteen submissions from the following respondents:

China Resources Peoples Telephone Company Limited (“Peoples”)

Consumer Council (“CC”)

Hong Kong Broadband Network Limited (“HKBN”)

Hong Kong Telecommunications Users Group (“HKTUG”) Hutchison Global Communications Limited (“HGC”) i-Cable WebServe Limited (“i-Cable”)

Liberal Party

New World Telecommunications Limited (“NWT”) Pacific Supernet Limited (“Supernet”)

PCCW IMS Limited (“IMS”)

The Law Society of Hong Kong (“Law Society”) Two members of the public

4. The submissions can be downloaded from OFTA’s website. Having duly considered the submissions, the TA sets out in this Statement his final views on the QoS framework for residential broadband Internet access services. The TA’s final views are summarised as follows:

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a. The QoS framework should be implemented on a mandatory basis for the top four residential broadband Internet access service providers based on the number of residential broadband service subscribers. Based on the market share information of the period of September – November 2004, the top four residential broadband service providers (in alphabetical order) are HGC, HKBN, i-Cable and IMS. The new list of the top four residential broadband Internet access service providers for the second year of implementation will be announced by OFTA by end of December 2005. Residential broadband Internet access service providers other than the top four as well as the business broadband service providers are encouraged to participate in the scheme on a voluntary basis. For more details of voluntary participation, please refer to Section IV of this Statement.

b. Under the QoS framework, three types of information of the service providers will be published by the TA: (i) performance statistics of five technical key performance indicators (“KPIs”); (ii) information of helpline numbers, billing and service termination; and (iii) performance pledges and statistics of two service KPIs.

c. For the five technical KPIs, OFTA will commission an independent institution to develop the detailed definition and measurement methodology, as well as to conduct the measurement. Under this arrangement, service providers will not need to expend resources in the development and measurement processes. The proposed technical KPIs are

(i) download time from the service provider’s website, (ii) download time from a local website,

(iii) download time from overseas websites,

(iv) upload time to the service provider’s file transfer protocol (“FTP”) server and

(v) network latency.

For details of the technical KPIs, please refer to Section III(A) and Appendix I of this Statement. The performance statistics of the five technical KPIs for the month of July 2005 will be

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published on OFTA’s website in August 2005 and will thereafter be updated on a monthly basis.

d. The top four residential broadband Internet access service providers shall on a mandatory basis submit to OFTA their

(i) helpline numbers, (ii) billing information, and

(iii) information on service termination.

For details of information to be submitted, please refer to Section III(B) and Appendix II of this Statement. The service information will be published on OFTA’s website beginning August 2005. The service providers are required to submit the updated information to OFTA for amending the website whenever there are changes to the information. Residential broadband Internet access service providers other than the top four as well as business broadband service providers are encouraged to participate on a voluntary basis and disclose the service information to the public.

e. The top four residential broadband Internet access service providers shall on a mandatory basis submit to OFTA

(i) their performance pledges of the QoS standard of the two service KPIs (i.e. complaint handling time and enquiry call answering time) and

(ii) their quarterly performance statistics of the two service KPIs, signed off by the chief executive officer, directors or company secretary of the company, certifying the statistical information provided is “true and fair”.

For details of the two service KPIs, please refer to Section III(C) as well as Appendix III and IV of this Statement. The pledges and performance statistics of the two service KPIs for the quarter of April – June 2005 will be published on OFTA’s website in August 2005 and will be updated quarterly thereafter. Residential broadband Internet access service providers other than the top four as well as business broadband service providers are encouraged to participate on a voluntary basis and disclose the service information to the public.

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f. As explained above, the three types of information to be disclosed under the QoS framework (as set out in point b of this paragraph) will first be published on OFTA’s website in August 2005 and will be updated regularly by OFTA.

g. The QoS framework will be reviewed biennially.

5. The following sections of this Statement will give the TA’s preliminary views, the summary of submissions, the TA’s responses to submissions as well as his final views on the following aspects of the QoS framework.

I. Why we need a QoS scheme?

II. Who will participate in the QoS scheme on a mandatory basis? III. What kind of information will be disclosed under the QoS

scheme?

A. Technical KPIs

B. Service information of Helpline Numbers, Billing and Service Termination

C. Service KPIs i) Approach ii) Legal basis

iii) What are the two service KPIs and why are they selected?

iv) How to ensure the truthfulness of the Performance Statistics?

v) Enforcement of Performance Pledges IV. Participation on a voluntary basis

V. Review of the QoS framework VI. Business market segment VII. Other issues

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(I) WHY WE NEED A QoS SCHEME?

Summary of Submissions and the TA’s Responses

6. CC and HKTUG supported the initiative in implementing the QoS scheme. CC strongly believed that consumers need to be well informed of the QoS of different service providers in the market. HKTUG considered that, in a fully liberalised telecommunications market, QoS information among other pricing and service feature information, should be made transparent to end users such that they can make an informed choice.

7. i-Cable doubted whether a QoS scheme was necessary. It suggested the TA to take into account the availability and effectiveness of market-based solutions, in lieu of regulatory intervention. The company submitted that information asymmetry possibly existed in every market and this should not be a cause for regulatory intervention unless there was evidence establishing the existence of market failure. i-Cable further commented that if operators and regulator were to invest in the scheme, the need of the scheme and the actual benefit had to be first proved and quantified. However, in the Consultation Paper, the actual benefits for consumers to have comparable QoS information in making informed decisions were not proven or quantified, the need for the proposed KPIs was not proven, whether the proposed KPIs could succeed in measuring what really mattered to consumers was not established, consumers’ likely take-up of this QoS scheme was not established or quantified, whether and how consumers would suffer from the lack of comparable QoS information was not proven, and the likely positive influence of the QoS framework on the overall performance of service providers was not established.

8. The TA does not subscribe to i-Cable’s views. As mentioned in the Executive Summary, customers are usually bound by fixed-term contracts. Even if a customer finds the service quality provided by the service provider unsatisfactory during the commitment period, many of them would have to continue to subscribe to the service reluctantly to avoid losses resulted from penalty charges. One of the effective ways to address consumers’ concerns is to enhance the transparency of QoS and service information of different service providers in the market. There is an obvious need for consumers to have access to sufficient comparable QoS and service information for making informed choices, and needless to say, the QoS framework will bring benefits

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to consumers by enhancing the transparency in the market. CC took a similar view in its submission and supported that information asymmetry between service providers and consumers was a cause of market imperfection, and the market could achieve better levels of efficiency if sufficient information was available to consumers. As a matter of fact, there are many economic researches and empirical examples showing the problems brought about by asymmetric information between sellers and buyers in the market (e.g. adverse selection) as well as the benefits brought to consumers when they have sufficient information to make informed choices.

9. Lack of transparency and asymmetric information between sellers and buyers in the market may lead to consumers’ misunderstanding of the QoS pledges and performance of service providers, which may possibly result in consumers’ dissatisfaction and complaints. According to the consumer complaint statistics published by CC on 10 January 2005, 29% of the total consumer complaints received by CC in the past year were related to telecommunications services, among which Internet services topped the list and accounted for 45% of the total telecommunications-related complaints. Internet services also accounted for the largest number (i.e. 43%) of consumer complaints received by OFTA in 2004. While it is an undeniable fact that consumers are getting good value for money from telecommunications services in Hong Kong, there is an urgent need for all parties concerned, including the industry and the regulator, to face the challenge of ensuring that service quality will be upheld in the face of intense competition. The QoS framework will not only address the issue of lack of transparency of QoS level in the market, but also stimulate healthy competition among service providers on non-price aspects and improve the QoS in the market ultimately.

10. The TA does not agree with i-Cable that the proposed QoS framework to publish pledges and performance statistics of service KPIs is too interventionist. It is a very light-handed regulatory initiative which aims at providing a unified mechanism for service providers to report their QoS level of the service KPIs. Having duly considered the submissions received during the consultation exercise as well as the statistics of consumer complaints received by both the CC and OFTA in 2004, the TA decides to adopt, at this initial stage, only the “complaint handling time” and “enquiry call answering time” as service KPIs, as compared to the original proposal of five service KPIs (please refer to Section III(C)(iii) for more details). The technical KPIs are to

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be measured by an independent institution and therefore service providers do not need to expend resources in collecting the statistics of technical KPIs. Furthermore, the ultimate level of QoS to be pledged by individual operators is determined by market forces, not by the regulator.

11. The TA takes note of i-Cable’s concern that the proposed KPIs may not be able to address consumers’ need. As explained below in paragraphs 19 – 21, the major four types of consumer complaints received by OFTA can be largely addressed by the three types of information to be disclosed under the QoS framework. The TA is of the view the QoS framework as a whole can address the genuine concerns of consumers in the residential Internet access service market. The KPIs as well as the service information to be disclosed under the framework are not only meaningful to consumers, they are also easy for consumers to understand. HKTUG, who represents the interests of business users, fully supported the proposed KPIs and submitted that these were the industry best practice parameters. Regarding the comments on quantification of benefits, it is indeed very difficult, if not impossible, to quantify the benefits and other effects/influences at this point in time but it is expected that, as the consumers become more aware of the QoS scheme, the direct and indirect benefits brought to them will gradually increase. After implementing the QoS framework for a reasonable period of time, the industry and the regulator may then be in a better position to gauge the consumers’ actual take-up of the scheme, the actual benefits to be gained by consumers, as well as the actual positive impact of the QoS framework on the overall performance of service providers. As mentioned earlier in this paper, there will be a biennial review on the proposed KPIs. OFTA will take that opportunity to review the effectiveness of the QoS framework.

(II) WHO WILL PARTICIPATE IN THE QoS SCHEME ON A MANDATORY BASIS?

The TA’s Preliminary Views

12. To determine who will be required to participate in the QoS scheme, the TA proposed two possible approaches in the Consultation Paper. One approach was to include only the top five residential broadband service providers (based on the number of residential broadband Internet access service

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subscribers) on a mandatory basis in the QoS framework. Residential broadband Internet access service providers that are not among the top five providers would be exempt from the QoS monitoring scheme. However, voluntary participation from these service providers as well as business broadband service providers would be welcomed. Another approach proposed in the Consultation Paper was to implement the scheme on a completely voluntary basis.

13. CC and HKTUG supported the TA’s proposal that the QoS framework should apply to the top five residential broadband Internet access service providers. On the other hand, HKBN and IMS submitted that the QoS framework should be applied to all residential broadband Internet access service providers. IMS was concerned that those service providers who were not covered by the QoS framework would be free to do whatever they wanted although they were in fact bound by the same licence conditions as the top five service providers. The Law Society was concerned that applying the QoS framework on only some of the service providers might disturb the level playing field. HGC also argued that consumers might want to subscribe services from smaller service providers.

14. HGC, i-Cable, NWT, Peoples and the Liberal Party supported the proposal for implementing the QoS framework on a voluntary basis. HGC explained that, with intense market competition, service providers would be expected to provide QoS information to consumers upon request and consumers would differentiate those service providers who provide QoS information from those who do not, and therefore would be able to make informed choices in the market. On the other hand, HKBN and HKTUG were concerned that reliance on voluntary participation would make the QoS framework incomplete and meaningless.

15. The TA is rather sceptical about HGC’s claim that service providers will provide QoS information to consumers upon request due to intense market competition. While it may be true that some service providers have published their performance pledges on their websites, the TA is not aware that any service providers have published their statistics of KPIs of QoS albeit the competition on price has been intense. Even if some of the service providers

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do take the initiative to publish their QoS pledges and statistics, there is a need for a unified framework to ensure that comparable and meaningful QoS information of the major service providers is made available to consumers so that they can make comparison among the service providers. Majority of the consumers would still be unable to make an informed choice if none of the major service providers participate in the voluntary QoS scheme. As such, the objective of the QoS framework cannot be achieved if this is to be implemented on a voluntary basis. Based on the statistics of residential broadband Internet access service subscribers in the period from September to November 2004, the top four residential service providers have already accounted for over 95% of total market share. The market share of the 5th largest service provider is significantly lower than that of the 4th largest service provider. The benefits to be brought to the consumers by including the 5th largest service provider into the QoS framework may not justify the administration costs. In fact, the market shares of the 5th, 6th and 7th largest service providers are very close. In view of the market dynamics, it is possible that the 5th largest service provider participating in the QoS framework might change every year. Having considered that consumers would almost have the full picture of the QoS of residential broadband services in Hong Kong if the top four service providers are covered by in the QoS framework, the TA decides to mandate only the top four service providers to participate in the QoS framework. Other service providers may volunteer to participate. Having said that, OFTA will monitor the market situation closely after its implementation in the first year.

16. Based on the market share information for the period of September – November 2004, the top four residential broadband service providers (in alphabetical order) are HGC, HKBN, i-Cable and IMS. Three types of information (i.e. (i) performance statistics of five technical KPIs; (ii) information of helpline numbers, billing and service termination; as well as (iii) pledges and performance statistics of two service KPIs) of these four service providers will first be published on OFTA’s website in August 2005 and will be updated regularly during the first year of implementation.

17. The TA takes note of IMS’s concern that service providers which were not covered by the QoS framework would be free to do whatever they wanted. All licensees are obliged to comply with the licence conditions and provisions in the Telecommunications Ordinance (the “Ordinance”). That some of the licensees would not be obliged to submit QoS pledges and statistics to the TA

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does not mean that these licensees would not be subject to their licence conditions and the Ordinance. As such, the TA does not subscribe to the view that the level playing field would be disturbed. Based on the statistics of November 2004, the remaining ISPs (over 180 in number) only accounted for less than 5% of the residential broadband service market. Consumers’ benefits from the QoS information of these ISPs may not justify the heavy administrative burden brought about by mandating all these remaining ISPs to participate in the QoS scheme. Accordingly, mandating the top four residential broadband service providers to participate in the QoS scheme is a more efficient and economical way to achieve the objective of enabling consumers to have sufficient comparable QoS information to make informed choices.

18. However, residential broadband Internet access service providers other than the top four as well as business broadband service providers are welcome to participate in the QoS scheme on voluntary basis. Although the technical KPIs of these voluntary participants will not be measured by the institution commissioned by the TA under the QoS scheme, they are welcome to disclose information of their helpline numbers, billing and service termination, as well as pledges and performance statistics of the two service KPIs. For more details of voluntary participation, please refer to Section IV of this Statement.

(III) WHAT KIND OF INFORMATION WILL BE DISCLOSED

UNDER THE QoS SCHEME?

19. According to the statistics of consumer complaints received by OFTA from January to November 2004, the complaints against residential Internet access services accounted for 76% of the total number of consumer complaints received by OFTA during the said period. There were four major categories of complaints, namely:

technical aspects of the Internet access services; disputes on billing;

disputes on service termination; and quality of customer services

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Major Category of Complaint Nature

Examples % of Total Cases

(Jan – Nov 2004)

I. Technical aspects of the Internet access service

Downloading speed, network stability, etc.

29%

II. Disputes on billing Disputes on traffic volume, service charges

and service plans 15%

III. Disputes on service termination

Arrangement for terminating service

provision, notice period, penalty charges for early service termination, etc.

17%

IV. Quality of customer services

Complaint handling procedures/time, enquiry call answering time, after-sales customer services, etc.

14% V. Others Email spamming, appointment of agents for

collection of debt 25%

TOTAL _100%

20. The TA considers that complaints related to technical aspects of the Internet access service (i.e. category I of the above table) should be largely covered by the technical KPIs under the QoS framework. Information on billing and service termination (i.e. categories II and III of the above table) is important service information which should be disclosed to consumers to enhance transparency in the market. The quality of customer services (i.e. category IV of the above table) should be largely covered by the service KPIs. 21. Accordingly, three types of information should be made available to consumers under the QoS framework, namely:

performance statistics of technical KPIs (please refer to subsection (A) under this section);

service information related to helpline contact information, billing and service termination (please refer to subsection (B)); and

performance pledges and statistics of service KPIs (please refer to subsection (C)).

With these three types of information made available to consumers, the QoS framework should be able to address the genuine concerns of consumers in the residential broadband Internet access service market and can provide the most

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meaningful information from the consumers’ perspectives when they are considering whether to sign up for a service with a particular service provider. The TA is of the view that it is prudent to start the QoS framework with a manageable number of KPIs and progressively increase the number of indicators later as more operational experience is gained.

(A) Technical KPIs

22. In the Consultation Paper, the TA proposed that the definitions and measurement methodology of technical KPIs should be carried out by an independent institution since these KPIs were more complicated and would take longer time to formulate the measurement details. Five technical performance indicators were proposed, namely (i) download time from the service provider’s website, (ii) download time from a local website, (iii) download time from overseas websites, (iv) upload time to the service provider’s FTP server and (v) network latency.

23. There were no adverse comments on the proposal of commissioning an independent institution to conduct the measurement of technical performance indicators. HKTUG considered that the five proposed KPIs were industry best practice parameters and should be adopted when the QoS framework commenced. CC and IMS supported the TA’s proposal of commissioning an independent institution for the measurement exercise.

24. Although the proposal on the technical KPIs may not address each and every aspect, it will give an indication of the technical performances associated with a range of applications that are commonly used by the public. Making the performance statistics of service providers on these KPIs available to consumers would help consumers to make informed choices.

25. Since the TA receives no adverse comments on the proposal of commissioning an independent institution to conduct the measurement of technical performance indicators, he decides to adopt such an approach. The

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institution to be commissioned will be responsible to develop the detailed definitions and measurement methodology of the technical KPIs, as well as to carry out the measurement process. The institution will take into account the views and comments received in response to the consultation. Details of the comments on the technical performance indicators and the TA’s responses may be found in Appendix I of this Statement.

26. Subject to the progress of the measurement exercise, the publication of measurement result for the month of July 2005 is scheduled for August 2005 and will thereafter be updated on a monthly basis.

(B) Service Information of Helpline Numbers, Billing and Service Termination

27. As explained in paragraph 19, a large number of consumer complaints are related to disputes on billing and service termination. Accordingly, the TA considers that there is a need to disclose detailed information on billing (e.g. methods of delivering the bills to customers, payment options, deadline for disputing the bill, etc.) and service termination (e.g. what the customers need to do in order to terminate the service, penalty charges for early service termination, notice period, etc.) to consumers in order to address their genuine concerns when they subscribe to a service. In addition to information on billing and service termination, the TA also considers helpline number(s) to be very useful service information for consumers.

28. Information of helpline number(s), billing and service termination is readily available. Service providers do not need to incur costs or resources in collecting and reporting such information to OFTA and the public, yet the consumers will find the information very useful for them to make informed purchasing decisions. For details of information to be disclosed, please refer to Appendix II of this Statement.

29. Service providers are required to submit the relevant information to the TA by 31 July 2005. The service information will first be published on OFTA’s website in August 2005. Service providers are required to submit the updated information to OFTA for amending the website whenever there are any changes to the published information.

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(C) Service KPIs

(i) Approach

30. In the Consultation Paper, the TA proposed that there would not be any universal minimum QoS level. Residential broadband Internet access service providers themselves could make pledges of their own QoS standard of service KPIs and the QoS level would then be determined by the market. To enable consumers to make informed choices in the market, service providers should submit their performance pledges and quarterly statistics of the five service KPIs to the TA, who would collate the returns and publish the pledges and performance statistics of the service providers. In this way, consumers would have ready access to information regarding comparable non-price performance of the service providers.

31. CC, HKBN, IMS, NWT and the Liberal Party agreed with the TA that any universal minimum QoS standard, set either by the TA or the industry, would not be meaningful for service providers or consumers. The service level should be determined by market forces.

32. IMS agreed that the approach of reporting whether the licensee has “passed or failed” the universal minimum standard would not be able to make distinctions for various levels of substandard and superior service. On the other hand, Supernet supported the “pass or fail” approach since it would be easier for consumers to understand. While it may be true that the “pass or fail” approach may be easier for consumers to understand, the TA is concerned that this approach may fail to make distinctions for various levels of substandard and superior service. The TA considers that a mere indication of “pass or fail” would not provide sufficient QoS information for the consumers to make an informed choice.

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ultimately benefit from the QoS information and would not be confused or misled by the information. As such, all KPIs should be clearly defined to avoid ambiguities, different or conflicting interpretations or even manipulations. The TA agrees with HKBN on the importance of clear definitions of the KPIs. The TA has duly considered the comments received on the KPIs and has made appropriate amendments to the definition and/or calculation methodology of the KPIs. The TA has also studied the statistics of complaints received by OFTA in 2004 and has made some changes to the choice of service KPIs such that the type of information to be disclosed under the QoS framework can better address the genuine concerns of the consumers in the market.

34. i-Cable submitted that the information submitted by service providers to OFTA should be for OFTA’s monitoring purpose only. Publication of such information might invite unhealthy competition among service providers. The TA rejects i-Cable’s view. The objective of the proposed framework is to provide QoS information of the residential broadband Internet access service providers to consumers such that they can make informed choices. Without publishing the QoS information, the objective of the framework simply cannot be achieved. As explained in the Consultation Paper, publication of comparable performance statistics will encourage service providers to strive for higher level of QoS and stimulate healthy competition in the market on non-price aspects. Pressure from public scrutiny of the performance figures will also motivate the service providers to address substandard performance. The TA does not agree with i-Cable that publication of QoS information would invite unhealthy competition. On the contrary, the TA is of the view that such publication would encourage healthy competition among the service providers on aspects other than pricing.

35. Having considered the comments received during the consultation exercise, the TA maintains his view that service providers should submit their performance pledges and quarterly statistics of the service KPIs (please refer to subsection (iii) for the details of the service KPIs) to the TA, who will collate the returns and publish the pledges and performance statistics of the service providers. The QoS level should be determined by the market. The pledges and statistics of service providers on service KPIs for the quarter of April – June 2005 will first be published on OFTA’s website in August 2005 and will be updated on a quarterly basis. For the detailed implementation timetable for publishing the performance pledges and statistics of service KPIs on OFTA’s

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website, please refer to Appendix V of this Statement.

(ii) Legal Basis

36. General Condition (“GC ”) 18(1) of the Fixed Telecommunications Network Services (“FTNS”) Licence, Special Condition (“SC”) 6(1) of the Fixed Carrier Licence as well as SC 5(1) of the Public Non-exclusive Telecommunications Service (“PNETS”) Licence for International Value-added Network Services1 (“IVANS”) require the licensee to furnish the TA with such information related to the business run by the licensee under the licence, as the TA may reasonably require in order to perform his functions under the licence. GC 10(1) of the FTNS Licence, SC 5(1) of the Fixed Carrier Licence as well as GC 1 of the PNETS Licence for IVANS require the licensee to operate, maintain and provide the service in a manner satisfactory to the TA. The information required to be submitted and published pursuant to this Statement is, where appropriate, of relevance to the obligations to provide a satisfactory services as prescribed under GC 10(1) of the FTNS Licence, SC 5(1) of the Fixed Carrier Licence or GC 1 of the PNETS Licence for IVANS. As such, the performance pledges made by the licensee as well as the performance statistics of the licensee are considered as information that “the TA may reasonably require in order to perform his functions under the […] licence”, and should be furnished to the TA under GC 18(1) of the FTNS Licence, SC 6(1) of the Fixed Carrier Licence or SC 5(1) of the PNETS Licence for IVANS. A 2-month consultation period had duly offered an opportunity to all concerned licensees to make representations to the TA on the proposed disclosure of QoS pledges and performance statistics.

37. IMS argued that none of the conditions in the licence or the Ordinance required information on QoS pledges and performance statistics of a licensee and that the TA did not need this information for performing his functions under the licence and the Ordinance. As such, IMS doubted whether the TA was legally empowered to mandate the concerned licensees to furnish him with

1

Under the current licensing regime, Internet service provider is issued with a PNETS licence for IVANS.

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the information on QoS pledges and performance statistics.

38. As explained in the Consultation Paper, under GC 10(1) of the FTNS Licence, SC 5(1) of the Fixed Carrier Licence or GC 1 of the PNETS Licence for IVANS, the licensee has the obligation of providing the service in a manner satisfactory to the TA. The TA considers that in order to ensure that the service is being provided in a satisfactory manner, the licensee should take adequate steps to measure and monitor its service performance and to take corrective actions if the performance falls below targets set by the licensee. In particular, answering enquiries and handling complaints from consumers are two important aspects of satisfactory service performance. Past statistics of OFTA have shown that these two aspects were significant sources of consumer dissatisfaction. Therefore the licensee should reasonably be expected to set targets for these two aspects of service performance, pledge such targets to its customers, and regularly monitor actual performance to ascertain whether it is meeting the pledged targets. The TA needs to have access to such targets established, and statistics collected, by the licensee in order to ascertain whether the licensed service is provided satisfactorily by the licensee. Thus the performance pledges made by the licensee as well as the performance statistics of the licence are considered as information that “the TA may reasonably require in order to perform his functions under the […] licence”, and should be furnished to the TA under GC 18(1) of the FTNS Licence, SC 6(1) of the Fixed Carrier Licence or SC 5(1) of the PNETS Licence for IVANS. The TA therefore does not agree with IMS’s position.

39. Having considered the submissions received during the consultation period, the TA has duly revised the parameters for publication to address the industry’s concern. It is appreciated that licensees might be concerned that the limited disclosure as prescribed by this Statement could arguably, in some circumstances, adversely affect the licensee’s financial and commercial position, as inferior service performance might be exposed. Nevertheless, given the competitiveness of the market, it is reasonable to expect that poor QoS should naturally lead to poor market performance. The TA is satisfied that the disclosure by the TA would not reasonably be expected to adversely affect the licensee’s lawful business or commercial or financial affairs. Meanwhile, disclosure of service performance pledges and statistics is in the public interest as the disclosure would enable the consumers to make informed choice and the market mechanisms to work effectively to uphold and improve QoS. After

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having due deliberations upon the submissions received, the TA is satisfied that the parameters for disclosure of service performance pledges and statistics prescribed by Statement has struck a right balance between protecting the public interest and preserving licensees’ legitimate commercial interests within the ambit as envisaged by GC18 of the FTNS Licence, SC 6 of the Fixed Carrier Licence or SC 5 of the PNETS Licence for IVANS. Accordingly, the TA decides to publish, on OFTA’s website, the information of service performance pledges and statistics of residential broadband Internet access service providers.

(iii) What are the Two Service KPIs and Why?

40. Five service performance indicators were proposed in the Consultation Paper, namely (i) service provisioning time, (ii) service restoration time, (iii) customer-reported faults per 1000 customer lines, (iv) complaint handling time and (v) enquiry call answering time.

41. HKTUG considered that the five proposed KPIs were industry best practice parameters and should be adopted when the QoS framework commenced. On the other hand, HKBN questioned the basis of how the TA decided which particular aspects of QoS shall be of the greatest concern to the consumers and how the TA defined the various KPIs. It elaborated that QoS was basically a subjective matter and no single measure could satisfactorily capture all aspects of QoS that were of concern to consumers. Furthermore, defining KPIs would involve a great deal of details which might not be easily understood by the general public and might even bring complexity and potential confusion to consumers. i-Cable opined that apple-to-apple comparison would drive operators to compete along narrow aspects of quality and might fossilise quality competition at the expense of other important dimensions of differentiation and innovation.

42. As explained in paragraph 19, one of the major categories of consumer complaints received by OFTA is “quality of customer services” which mainly refers to complaint handling procedures/time, enquiry call

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answering time, after-sales customer services, etc. While “service provisioning time”, “service restoration time” and “number of customer-reported faults” are widely adopted by other developed economies for monitoring QoS of their public telecommunications services, it seems that the consumers in the residential broadband Internet access service market in Hong Kong do have not particular concerns over these three aspects. Having balanced the costs and benefits, the TA considers that it is more appropriate to adopt “complaint handling time” and “enquiry call answering time” as the service KPIs under the QoS framework at this initial stage. However, the number and choice of service KPIs will be reviewed after two years of implementation of the QoS framework. More importantly, service providers are free to disclose QoS pledges and performance statistics for indicators which are not covered in the QoS framework. As such, the TA does not subscribe to i-Cable’s argument that the QoS framework would drive service providers to compete along narrow aspects of QoS.

43. Some broadband service providers are offering other telecommunications services under the same licence and using a unified customer service platform, including the customer hotlines and complaint handling mechanisms. Examples are fixed carrier licensees who operate their residential broadband Internet access services under their fixed carrier licences. These fixed carriers may already be capturing the two service KPIs without further classifying the acquired data according to their service types. To ensure minimal disruption to the day-to-day operation of service providers, it will not be necessary for these service providers to modify their service platforms in order to capture the data specifically for residential broadband Internet access services for the sake of conforming to the current QoS Scheme. These service providers will though need to inform the TA that the figures that they report under the QoS Scheme apply to other services as well.

44. The TA takes note of HKBN’s concern that defining KPIs would involve a great deal of details which may not be easily understood by the general public. At this initial stage, service KPIs only include “complaint handling time” and “enquiry call answering time”. The definition of these two KPIs should be easy for consumers to understand yet meaningful for them. As a matter of fact, no submissions received during the consultation exercise considered that definition of these two KPIs would be difficult for consumers to understand or would bring complexity or potential confusion to consumers.

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45. Comments on the two service KPIs and the TA’s responses can be found in Appendix III of this Statement. Having considered the comments received, the TA has finalised the definitions and calculation methodology of the KPIs, which can be found in Appendix IV of this Statement.

(iv) How to Ensure the Truthfulness of the Performance Statistics?

46. In order to ensure that service providers submit “true” performance statistics of the service KPIs, the TA proposed in the Consultation Paper that service providers should submit audited performance statistics once a year. The TA also invited views and comments on whether section 7M of the Ordinance would be a sufficient safeguard against incorrect information on QoS reported by service providers.

47. i-Cable, IMS and NWT submitted that section 7M should be a sufficient safeguard against incorrect information on QoS reported by service providers. On the other hand, the Law Society took an opposite view and considered that external auditing should be set as a mandatory requirement. IMS and Peoples considered that external auditing would not only impose financial burden on service providers, but also create additional administrative work. Furthermore, the auditing result might not be timely for the purpose of statistics publication. Supernet suggested OFTA to fund an external auditor to audit the information submitted by all participating service providers. As an alternative to external auditing, IMS suggested to have the performance statistics endorsed by a senior officer of the service providers.

48. The TA is of the view that section 7M of the Ordinance and external auditing are two separate and distinct means of ensuring truthful and reliable reporting of performance statistics by service providers. The difference is that section 7M may be considered as a more “passive” means of regulation (i.e. the TA may start investigation under section 7M upon receiving a complaint), whereas external auditing is a more “proactive” means (i.e. an annual examination exercise to ensure the submitted statistics are true and accurate).

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However, it should be emphasised that the requirement of external auditing does not preclude enforcement actions under section 7M.

49. The service KPIs will be meaningful only if service providers submit true performance statistics. If consumers do not have any confidence in the statistics submitted by service providers, the service KPIs would become meaningless at all. While external auditing may be the most effective and efficient way to ensure that the service providers submit reliable statistics, the TA takes note of the concern that external auditing might impose financial burden on service providers. Having considered that this is a new scheme and the service providers may be occupied during the initial years of implementation in making and further improving the arrangements for collecting the performance statistics of the service KPIs, the TA is of the view that in the first two years of implementation the top four residential broadband Internet access service providers should have the discretion to decide whether or not to submit an external auditor’s report for their performance statistics of the two service KPIs. If the service providers choose not to submit the external auditor’s report, they are required to submit the quarterly statistics together with a letter signed by the chief executive officer, directors or company secretary of the company, certifying that the performance statistics submitted are “true and fair”. Whether service providers would be required to submit external auditor’s report for their performance statistics will be reviewed by the TA two years after the implementation of the QoS framework.

(v) Enforcement of Performance Pledges

50. The Law Society requested OFTA to clarify the sanctions it intended to impose on service providers which failed to meet the performance pledges and the rights their customers would have in relation to such failure. On the contrary, IMS submitted that failure to meet the performance pledges should not be taken as a breach of GC 10 of the FTNS Licence, SC 5 of the Fixed Carrier Licence or GC 1 of the PNETS Licence for IVANS, which required the licensee to operate, maintain and provide service in a manner satisfactory to the TA. IMS submitted that the frequency of failure to meet the pledges should be taken into consideration when the TA formed his view on breach of licence condition. NWT also submitted that, in case of severe weather and emergency

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situations, service providers might not be able to meet the QoS pledges.

51. The TA takes note of the service providers’ view that failure to fulfill their performance pledges should not be considered as a breach of licence condition. The TA understands that failure to achieve the level of pledges is sometimes caused by factors which are beyond the service providers’ reasonable control. In handling complaints against service providers for failing to meet performance pledges, the TA would look into the circumstances of individual cases and would take into account whether reasonable steps or measures to rectify or avoid the faults have been put in place.

52. IMS mentioned that some small service providers might like to gain credibility by voluntarily participating in the QoS monitoring scheme but choosing to falsely report the performance statistics. OFTA would require all service providers, whether they participate on a mandatory or voluntary basis, to verify and sign off the performance statistics of the two service KPIs by chief executive officer, directors or company secretary of the company.

(IV) PARTICIPATION ON A VOLUNTARY BASIS

53. As explained in Section II of this Statement, the TA will mandate only the top four residential broadband Internet access service providers to participate in the QoS scheme. However, the TA welcomes residential broadband service providers other than the top four as well as business broadband service providers to participate on a voluntary basis. Participation in the QoS scheme on either mandatory or voluntary basis will bring benefits to the service providers.

54. With a view to prioritizing resources, the institution commissioned by the TA to measure the technical KPIs will only conduct measurement of the top four residential broadband service providers who will be required to participate in the QoS scheme on a mandatory basis. In other words, at the initial stage, the technical KPIs of the voluntary participants will not be available to consumers under the QoS framework. As more experience is gained, OFTA may review the arrangement and may consider extending the scope to cover the voluntary participants. However, for those voluntary participants who are really keen to have their performance statistics of technical KPIs measured and

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published on OFTA’s website, they are welcome to approach the TA to discuss the arrangement on the understanding that they will have to deploy their own resources for the exercise.

55. Under the QoS framework, service providers participating on the voluntary basis will submit to the TA two types of information, namely:

service information of helpline numbers, billing and service termination (please refer to Section III(B) of this Statement); and performance pledges and statistics of service KPIs (please refer to Section III(C)).

56. Voluntary participants who wish to have their service information (i.e. information of helpline numbers, billing and service termination) published on OFTA’s website in August 2005 are required to inform OFTA of the intention by 15 March 2004 and provide the information to OFTA by 31 July 2005. Updated information should be submitted to OFTA whenever there are changes to the information. Some voluntary participants may join the QoS scheme later. They may provide their service information to OFTA at any time on the understanding that OFTA will need sufficient lead-time to upload the information to the website.

57. Since the measurement exercise of the service KPIs will commence in April 2005 (i.e. the first measurement quarter is April – June 2005), voluntary participants who wish to publish service KPIs on OFTA’s website in August 2005 are required to notify the TA by 15 March 2005. Voluntary participants may of course join the QoS scheme later. They are required to notify the TA two weeks before the commencement of the measurement exercise. They are also required to follow the implementation timetable in Appendix V for the publication of their performance pledges and statistics of the service KPIs. For example, the deadlines for them to submit the pledges and statistics of service KPIs to OFTA are 31 January, 30 April, 31 July and 31 October every year.

(V) REVIEW OF THE QoS FRAMEWORK

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market, the TA proposed in the Consultation Paper reviewing the QoS regulatory framework biennially, including but not limited to the criteria for defining the targets of the QoS framework as well as the choice of KPIs. A public consultation might be initiated for the review exercise to solicit views and comments from the industry, consumer interest groups and the general public.

59. IMS agreed with the TA’s proposal and submitted that any amendments or modifications of the QoS framework should be consulted prior to implementation. HKBN questioned the justification for setting a timeframe of 2 years.

60. The broadband Internet access service market is changing fast and the QoS framework should be reviewed frequently in order to keep pace with the market. On the other hand, a review exercise of a framework might not be meaningful if the framework has not been implemented for a reasonable period of time. Having taken into account the time required to enhance consumers’ awareness of the QoS framework and educate the consumers about the KPIs, as well as the time required by service providers to gradually improve the level of their QoS through healthy competition, the TA maintains his view that the proposed 2-year timeframe is reasonable.

(VI) BUSINESS MARKET SEGMENT

61. In view of the fact that business users were generally protected by the service level agreements signed with the broadband service providers and that business users usually had stronger power to bargain with the service providers than residential consumers do, the TA proposed in the Consultation Paper to focus the QoS framework on residential market segment first. The TA might consider monitoring the business market segment at a later stage.

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62. Since the TA has not received any opposing view against his proposal, he maintains his view that he may consider monitoring the business market segment at a later stage. However, he welcomes participation in the QoS scheme by the business broadband service providers on a voluntary basis.

(VII) OTHER ISSUES

63. CC suggested that OFTA should conduct a customer satisfaction survey to identify the crucial elements (apart from price) which were most relevant to the purchasing decision concerning telecommunications services. The result of the survey would help to define the KPIs and help service providers to focus on areas which were concerned by consumers the most. The TA takes note of CC’s suggestion of conducting customer satisfaction survey. OFTA may consider this in the review exercise which will be held two years after the implementation of the QoS framework.

64. The Liberal Party submitted that the sales and marketing tactics as well as the contractual issues were not discussed in the Consultation Paper although consumers were generally very concerned about these issues. A member of the public also raised his concern that customers were subject to a penalty if they terminated the service before end of the commitment period even though the service provider was unable to provide satisfactory service to the customers. The TA is well aware of the consumers’ concern about the service providers’ sales and marketing tactics as well as the contractual issues. In fact, OFTA has been working closely with the industry to ensure that the sales and marketing activities are conducted in a satisfactory manner. For example, OFTA has issued on 12 November 2004 the Code of Practice for the Service Contracts for the Provision of Public Telecommunications Services, which covers the service contracts of broadband Internet access services. Section 7M of the Ordinance also prevents licensees from engaging in conduct which is misleading or deceptive.

Office of the Telecommunications Authority 31 January 2005

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Appendix I

Comments Received on Technical Performance Indicators and the TA’s Responses

(1) General Comments Proposal in the Consultation Paper

Comments Received The TA’s Responses

The TA will consider commission an independent institution to measure the technical indicators for residential broadband service providers.

CC: supports the Government commissioning an independent institution to measure the technical indicators for residential broadband service providers. CC urges the Government to publish the technical performance statistics as soon as possible and make effort to ensure that the indicators and statistics are easily comprehensible to consumers.

Noted.

HKTUG: technical performance indicators are industry best practice parameters and HKTUG is in agreement that these to be used initially. The same set of performance indicators for business services should be included in later phases for Small and Medium Enterprises (SMSs) and corporate users.

Noted.

IMS: Agrees that the TA should commission an independent institution with the necessary technical expertise to work out the measurements of the technical indicators.

Noted.

HGC: The public Internet is an uncontrolled environment, so it is impossible to have a set of meaningful technical

performance indicators as there are countless reasons giving rise to service unavailability.

The set of technical

performance indicators will not gauge the performances of individual ISPs under all possible circumstances, but it will give an indication of the technical parameters

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associated with a range of applications that are

commonly used by the public. The TA considers that

availability of these indicators should foster a more

conducive environment for customers making informed choice.

Supernet: OFTA should verify

with the service providers before publishing the figures. It will be unfair to the service

providers if the figures are not correct.

The 2-month consultation period provided an

opportunity to all concerned licensees to make

representations on the proposed disclosure of information. However, OFTA may consider giving advance notice to the service providers about their own technical performance before the actual release of the figures if the circumstances so warrant. i-Cable: Technical indicators

cannot be truly objective because there are many variables in the measurement process that cannot be controlled by the service providers, e.g. customer’s computer hardware and software configuration.

We will strive to minimize uncertainties which might happen during the

measurement process.

HGC: Alternative indicators such as bandwidth to HKIX and overseas Internet service providers would provide useful information to the consumers.

Noted.

(2) Download Time from the Service Provider’s Web-site Proposal in the

Consultation Paper

It refers to the time required for downloading a file from the service provider’s web-site to the customer’s computer.

HGC: Only those indicators involving transmission between end user and the service

provider (i.e. download time from service provider's web

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site and upload time to service provider's FTP server) can be given by HGC. All other suggested indicators involve third party network and equipment, and are uncontrollable.

i-Cable: A dedicated server should be developed and used in the download test so as to reflect the network

performance in a fair and correct manner.

The objective of the

measurement is not to reflect the optimal network

performance of individual service providers but the general performance

perceived by the consumers during their normal use. The TA does not see how the use of a dedicated server is conducive to attaining this objective.

(3) Download Time from a Local Web-site Proposal in the

Consultation Paper

It refers to the time required for downloading a file from a local web-site other than the service provider’s to the customer side. In order to measure the

download time, a

representative web-site in Hong Kong should be selected to facilitate the measurement. Since most of the major service providers have direct

connections with the Hong Kong Internet Exchange (HKIX) for routing their local Internet traffic, OFTA proposes to designate the web-site of the HKIX (www.hkix.net) as the “local web-site” in the measurement.

HGC: Only those involving transmission between end user and the service provider (i.e. download time from service provider's web site and upload time to service provider's FTP server) can be given by HGC. All other suggested indicators involve third party network and equipment, and are

uncontrollable.

As the leased lines connecting the service providers and HKIX should not involve any third party network,

measurement of the indicator should be effective and objective.

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Proposal in the Consultation Paper

It refers to the time required for downloading a file from a group of overseas web-sites to the customer’s computer. Three representative overseas web-sites that are popular with users of Hong Kong in respect of browsing activities would be selected.

uncontrollable.

Noted. The institution to be commissioned will consider the comment.

i-Cable: Upstream providers of the overseas websites, cache servers of some service providers and the file size for downloading may affect the correctness of the measurement results.

(5) Upload Time to the Service Provider’s FTP Server Proposal in the

Consultation Paper

It refers to the time required for uploading a file using FTP from the customer’s computer to the service provider’s FTP server.

uncontrollable.

Noted.

i-Cable: A dedicated server should be developed and used in the upload test so as to reflect the network performance in a fair and correct manner.

The objective of the

measurement is not to reflect the optimal network

performance of individual service provider but the general performance perceived by the consumers during their normal

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use. The TA does not see how the use of a dedicated server is conducive to attaining this objective.

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(6) Network Latency Proposal in the Consultation Paper

It refers to the time required for a network to respond to a customer command. This indicator serves as a

quantitative figure to reflect the round trip delay which is crucial to real-time interactive applications such as on-line games. Three representative overseas servers that are popular with users of Hong Kong in respect of real-time interactive applications would be selected.

i-Cable: The measurement of the network latency may not be possible because some of the upstream providers may block ‘ping’ or ICMP protocol.

(7) Measurement Methodology Proposal in the

Consultation Paper

File size: Taking into account the typical size of multimedia files (e.g. JPEG photos) and the need to avoid overloading the network during the

measurement, the file to be used in the download and upload process should be approximately 2 M bytes in size.

i-Cable: In order to achieve the highest download speed, a file size of 2M bytes is not large enough to give the testing computer and server sufficient time to achieve their highest performance.

The institution to be

commissioned will take this into consideration.

However, it should be pointed out that the measurement is not intended to reflect the optimal network performance of individual service provider but the general performance perceived by the consumers during their normal use. Peak hour: 23:00-24:00 hour,

based on the switching statistics of the HKIX.

i-Cable: A measurement during non-peak hours is needed as a comparison to that obtained during peak hours to give a more representative picture on the network performance of the operator using IBCCDS based facilities.

It is noted that “peak-hour” is commonly used as a reference time window to compare network performance. Taking into account the difficulty in reaching an industry consensus on the reference time window outside “peak hour” and the resources required in the measurement, the TA considers