The telecommunications sector is regulated by the National Communications Commission (NCC), established in early 2006 as an independent body to replace the former regulatory authority, which came under the Ministry of Transport and Communications.
The NCC overseas some 50 companies active in Taiwan’s telecommunications sector, providing a wide range of services running through fixed and mobile telephony, internet – fixed line, broadband and WiMax – and cable information provision.
Leader of the pack is Chunghwa Telecom. The former state-owned services provider controls around 95% of the fixed line operations in the country, has a 41% share of the wireless market share and more than 80% of the broadband market.
While newcomers to the sector have invested heavily, they have had difficulties eroding Chunghwa’s strong position in the market, especially in fixed line services, with most concentrating their efforts in the burgeoning cellular phone segment.
The people of Taiwan have strongly embraced mobile phone technology, with some estimates putting total subscriber numbers at around 25.1m, giving a SIM card penetration rate of above 100%. This makes it difficult for overall subscriber levels to expand, which means competing firms can only increase their customer base at the expense of others companies in the market, by offering improved services and lower costs. .
This strategy was evidenced at the end of November 2008 when Chunghwa began selling the new Apple’s iPhone, having beaten out Taiwan Mobile and Far EasTone for the rights to market the touch-screen handset. As a result, Chunghwa added 122,000 subscribers to its cellular phone lists in December. Shih Mu-piao, Chunghwa’s vice president, commented on the outcome on January 23, saying, “Apple’s iPhone was definitely a big boost, helping us increase users”.
It is not just Taiwan’s cellular phone market that has been expanding. Over the past decade, there has been a steep climb in the number of internet connections, and service providers, in Taiwan. According to a study conducted by the Taiwan Network Information Centre, the country had an internet penetration rate of 68.94% as of the end of 2008. The report, released in mid-February, said that of the 5.64m households with internet access, 72.99% used ADSL, while 8.69% used cable mode, highlighting the shift to newer technology.
While subscriber numbers across the board are up and profits for most remain strong, Taiwan’s main telecommunications operators have been hit by the world’s economic crisis. On January 27 Chunghwa reported a net income of $1.37bn for 2008, down 6% on the previous year’s performance. This trend extended into the New Year, with the company’s revenue slipping 3.3% in January 2009 compared to the same period last year.
“Due to the global downturn, revenue from calls have clearly dropped, causing this fall,” Chunghwa was reported as saying on February 10
Meanwhile, Taiwan Mobile Corporation can look back on 2008 as a year of success, having increased its subscriber base to 6.27m, adding 47,000 new customers in the three months ending December 31. It replaced rival Far EasTone as the number two mobile phone service provider and posted a net profit of $91m for the last quarter of 2008. Though this compares to a $147m loss for the last quarter of 2007, it represents a strong showing in a tight market.
Though still reporting relatively good results, the financial squeeze is pushing companies to scale back spending as they seek to consolidate. According to local media reports, based on statements from the top three telecom services providers, capital expenditure in the sector will be down this year, which could be bad news for the domestic technology industry, already buffeted by falling export sales.
Both Chunghwa Telecom and Taiwan Mobile Corporation have confirmed they would reduce spending in 2009, by 8% to $882m and 18% to $202m respectively. Far EasTone is expected to follow suit when it releases its expenditure programme for the year at the end of February. The company and its affiliates outlayed $305m for capital projects in 2008, having said this year’s spending would focus on expansions of third-generation network and optic-fiber network.
While the immediate prospects for the Taiwanese economy look a little grim, with investment firm Morgan Stanley issuing a report on February 10 predicting a 6% contraction this year and a fall in exports of 23%, telecoms could be one bright light amidst the gloom.
The Morgan Stanley report recommended investors should increase their holdings of telecommunications shares, along with blue chip technology companies and firms focusing on meeting domestic consumption demands.
