Hong Kong: What You Need To Know About Hong Kong Competition Law (Part 4) - The Merger Rule And The Telco Rule

The implementation of the new Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (the Competition Ordinance) on 14 December 2015 will mark the first time that Hong Kong has had a general and cross-sector competition law.


The Competition Ordinance was enacted on 14 June 2012 as a general and cross-sector competition law to curb anti-competitive conduct, and will come into full effect on 14 December 2015.

Three major forms of anti-competitive conduct are prohibited under the First Conduct Rule, the Second Conduct Rule (collectively referred to as the Conduct Rules) and the Merger Rule. Come 14 December 2015, the current competition provisions in the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong) (the Telecommunications Ordinance) and the Broadcasting Ordinance (Chapter 562 of the Laws of Hong Kong) (the Broadcasting Ordinance) will be repealed (subject to transitional arrangements) and replaced by the Conduct Rules, and a new section 7Q prohibiting exploitative conduct (the Telco Rule) will be added to the Telecommunications Ordinance.

In this issue, we will discuss the rules that specifically apply to the telecommunications sector, namely the Merger Rule and the Telco Rule.

What is the Merger Rule?

The Merger Rule1 prohibits a merger involving a carrier licensee under the Telecommunications Ordinance that (whether directly or indirectly) creates the effect of substantially lessening competition in Hong Kong. This rule applies even if:

  • the arrangements for the creation of the merger take place outside Hong Kong;
  • the merger takes place outside Hong Kong; or
  • any party to the arrangements for the creation of the merger, or any party involved in the merger is outside Hong Kong.

In general, changes in the control of undertakings which are not of a lasting nature are less likely to have any effect on competition in the relevant market, and the Competition Commission will be less concerned about these changes.

A flowchart illustrating how the Merger Rule works is set out in Appendix 1.

Key terms used in the Merger Rule

  • A merger takes place if:

    • two or more undertakings previously independent of each other cease to be independent;
    • one or more persons or other undertakings acquire direct or indirect control of the whole or part of one or more other undertakings (including creation of a joint venture to perform on a lasting basis one or more of the functions of an autonomous economic entity); or
    • an acquisition by one undertaking of the whole or part of the assets (including goodwill) of another undertaking that results in the former undertaking being in a position to replace (or substantially replace) the latter undertaking in the business (or part thereof) concerned.
Substantially lessening competition
  • Matters that may be taken into consideration include:

    • the extent of competition from competitors outside Hong Kong
    • whether the acquired undertaking, or part of it, has failed or is likely to fail in the near future
    • the extent to which substitutes are available or are likely to be available in the market
    • the existence and extent of any barriers to entry into the market
    • whether the merger would result in the removal of an effective and vigorous competitor
    • the degree of countervailing power in the market
    • the nature and extent of change and innovation in the market

Indicative safe harbours

The Competition Commission has identified two safe harbour measures, which are based on (a) concentration ratios2; and (b) the Herfindahl-Hirschman Index (HHI)3 respectively. In general, for a horizontal merger, if the combined market share of the parties post-merger is 40% or more, it is likely that the merger will raise competition concerns.

If a merger falls outside the safe harbour measures, the Competition Commission may make further inquiries to assess the extent of its potential anti-competitive effects. That said, whilst the Competition Commission is unlikely to further assess any mergers which fall below the thresholds, it does not categorically rule out intervention.

Exclusions and exemptions from the Merger Rule

The Merger Rule does not apply to statutory bodies unless they are specifically brought within the scope of the Rule, nor does it apply to persons or activities specified in a regulation made by the Chief Executive in Council.

Further, the Merger Rule does not apply to a merger if the economic efficiencies that arise or may arise from the merger outweigh the adverse effects caused by any lessening of competition in Hong Kong4, or if there are exceptional and compelling public policy reasons for granting an exemption.5

The Merger Rule is a voluntary regime and it is not compulsory to notify the Competition Commission of a merger which falls within the Merger Rule. The Competition Commission may commence an investigation when it becomes aware (through monitoring the media and/or information or complaints from third parties such as competitors) that a merger has taken place and, if it has reasonable cause to believe that the merger contravenes the Merger Rule, bring proceedings in the Competition Tribunal to unwind/stop the merger. It may therefore be in the interest of the parties concerned to seek informal advice from the Competition Commission on a proposed merger which may fall within the Merger Rule to understand whether the Competition Commission has any concerns about the transaction.

What is the Telco Rule?

In addition to the Merger Rule, holders of licences under the Telecommunications Ordinance will also be subject to the Telco Rule6, which prohibits licensees who are in a dominant position from engaging in conduct which may be exploitative. The exclusions and exemptions under the Competition Ordinance will not apply to this rule.

A flowchart illustrating how the Telco Rule works is set out in Appendix 2.

Key terms used in the Telco Rule

  • A holder of a licence under the Telecommunications Ordinance.
Dominant Position
  • A licensee is in a dominant position if, in the opinion of the Communications Authority, it is able to act without significant competitive restraint from its competitors and customers.
  • Relevant factors for consideration include:

    • the market share of the licensee;
    • the licensee's power to determine pricing and other decisions;
    • any barriers to enter into the relevant telecommunications market;
    • the degree of product differentiation and sales promotion; and
    • any other relevant matters.
  • The Communications Authority may consider the following conduct to be exploitative:

    • fixing and maintaining prices or charges at an excessively high level; and
    • setting unfair trading terms and conditions
    for or in relation to the provision of interconnection of the type referred to in section 36A(3D) of the Telecommunications Ordinance.

Relationship between "substantial degree of market power" and "dominant position"

The relevant factors for determining whether a licensee is in a dominant position under section 7Q(3) of the Telecommunications Ordinance are very similar to those for determining whether an undertaking has a substantial degree of market power under the Second Conduct Rule.

Clarification regarding the relationship between the two thresholds were sought during the consultation process on the Guidelines7. Whilst it is generally understood that a "substantial degree of market power" is a lower threshold than that of the "dominance" test adopted in other jurisdictions, the Competition Commission and the Communications Authority have not so far included any guidance on the interpretation of section 7Q of the Telecommunications Ordinance.

Relationship between "abusive conduct" and "exploitative conduct"

During the consultation process on the Guidelines, there were queries on whether "exploitative conduct" as used in the Telco Rule, such as the imposition of unfair prices or other unfair trading conditions, also falls within the scope of the Second Conduct Rule.

As explained in Part 3 of this series8, the category of abusive conduct is an open one, and any conduct which has the object or effect of preventing, restricting or distorting competition in Hong Kong may be regarded as abusive. Hence, if an exploitative conduct has an anti-competitive object or effect (for instance, the imposition of unfair prices or other unfair terms leading to anti-competitive foreclosure in the market), this may also fall within the scope of the Second Conduct Rule.

Whilst an exploitative conduct may fall within the scope of the Second Conduct Rule, the Competition Commission has clarified that its main enforcement focus under the Second Conduct Rule will be abusive conduct which is exclusionary, i.e., conduct which may result in competitors, actual or potential, being denied access to buyers of their products or to suppliers9.

What next?

The imminent implementation of the Competition Ordinance is a significant step in the evolution of Hong Kong's fledgling antitrust regime and multi-national enterprises doing business in Hong Kong can no longer afford to ignore the Special Administrative Region as one that has no competition regime or antitrust enforcement. Understanding and complying with competition law principles is therefore more important than ever. In the next issue, we will discuss the enforcement of the Competition Ordinance in greater detail.

Appendix 1

Merger Rule – How it works

Appendix 2

Telco Rule – How it works


[1] Section 3 of Schedule 7 to the Competition Ordinance provides that "an undertaking must not, directly or indirectly, carry out a merger that has, or is likely to have, the effect of substantially lessening competition in Hong Kong."

[2] Concentration ratios measure the aggregate market shares of leading firms in the relevant market.

[3] HHI measures market concentration by adding together the squares of the market shares of all firms in a market.

[4] Section 8(1) of Schedule 7 to the Competition Ordinance

[5] Section 9 of Schedule 7 to the Competition Ordinance

[6] Section 7Q of the Telecommunications Ordinance provides that "a licensee in a dominant position in a telecommunications market must not engage in conduct that in the opinion of the Authority is exploitative."

[7] On 27 July 2015, the Competition Commission and the CA jointly issued 6 guidelines to provide guidance on how they intend to interpret and apply the provisions of the Competition Ordinance.

[8] See What you need to know about Hong Kong Competition Law (Part 3): The Second Conduct Rule ( http://www.cadwalader.com/uploads/cfmemos/beb7bfc2b4e997b39c94f711b62ebfbc.pdf) for further details.

[9] See Competition Commission and Communications Authority, Guide to the Revised Draft Guidelines Issued under the Competition Ordinance, paragraph 94.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions