Chunghwa eyes bid for 3G licenses in China

12 Feb 2007
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Taiwan's top telecom carrier Chunghwa Telecom plans to make a historically unprecedented bid to enter China's new 3G market, if it can find a way around the daunting legal obstacles.

China will raise the ceiling of foreign ownership in its telecom companies to 49% this year in a move to honor its commitment to the World Trade Organization, a change which Chunghwa hopes will provide an opening to expand across the Taiwan Strait.

Chairman Ho Chen Tan said in a recent public appearance that his company plans to bid for a 3G license when the mainland offers up the licenses for auction.

Legal obstacles

There's one big problem, however. The government of Taiwan, which holds a 35.4% stake in Chunghwa Telecom, a formerly state-owned monopoly, legally prohibits the island's telecom carriers from investing in China.

Ho Chen did not elaborate on how his company would get around the legal obstacle, but analysts said that Chunghwa is planning to partner with the mainland's leading players like China Telecom or China Netcom to bid for a license.

Chunghwa has already put its toe in the waters of the Chinese market, by offering mobile roaming and VPN services to Taiwan firms operating on the mainland. The benefits of expanding into China may not be a luxury but rather a necessity for Chunghwa.

Once the monopolistic giant of Taiwan's telecom industry, Chunghwa now faces the challenges of competitors in a liberalized and mature market.

The small island of Taiwan has become quite crowded for the aging giant, and so it is crucial for Chunghwa to expand into the huge Chinese market, some analysts said.

Chunghwa's recent performance fits the profile of a company in need of new avenues for growth. The company's 2006 net profit dropped 5.8% to NT$44.89 billion ($1.36 billion) from a year ago, and revenues grew only 0.5% to NT$184.4 billion.

This company's profitability faces the threat of further erosion as a result of regulatory action. Taiwan's telecom regulators asked Chunghwa to cut its rates on ADSL and cellphones by as much as 5.35% starting in April.

Facing an unfriendly environment at home, it is no wonder that Chunghwa is looking westward for a friendlier frontier with fresh opportunities.

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