US embassy cable - 04TAIPEI4005

UNCLAS SECTION 01 OF 02 TAIPEI 004005 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EAP/TC AND EB/CIP/BA 
DEPT PLEASE PASS AIT/W 
 
E.O. 12958: N/A 
TAGS: ECPS, ECON, EINV, PREL, CH, TW, Cross Strait Politics, Cross Strait Economics 
SUBJECT: CROSS-STRAIT TELECOMMUNICATIONS - INDUSTRY 
COOPERATION, GOVERNMENT RESTRICTION 
 
 
Summary 
------- 
 
1. (SBU) Cross-Strait telecommunications thrive with over 50 
million direct dial calls placed across the Strait every 
month that account for 35 percent of Taiwan's outgoing 
international calls.  Many Taiwan telecom firms have 
partnered with PRC counterparts to provide special 
cross-Strait services aimed at Taiwan businesses with 
investment in the Mainland.  However, Taiwan prohibits 
investment in the PRC telecom sector.  Many firms have 
concerns about the investment environment in the Mainland, 
but some are looking into future investment opportunities. 
The Taiwan government should move out of the way and allow 
cross-Strait telecommunications commerce to grow.  End 
summary. 
 
Industry Thriving 
----------------- 
 
2. (U) Cross-Strait telecommunications is a thriving 
industry.  Over 50 million telephone calls totaling more than 
190 million minutes were placed across the Taiwan Strait in 
September.  Calls to Mainland China accounted for 35 percent 
of Taiwan's outgoing international direct dial calls in 
number of calls and 44 percent in total minutes.  China has 
been the number one destination for international calls from 
Taiwan since 1995.  Furthermore, these figures only take into 
account traditional fixed-line and mobile phone telephone 
calls.  Voice-over-internet protocol (VOIP) calls, which 
offer cost and privacy advantages, are not counted.  China is 
also the largest source of roaming charge revenue for 
Taiwan's mobile phone service providers. 
 
3. (U) Phone calls across the Strait are easy to place and 
fairly inexpensive.  Charges for a direct dial call to the 
Mainland are as low as USD 0.10 per minute.  Fierce 
competition has pushed prices down substantially in recent 
years and continues to benefit consumers.  As with 
international direct dial calls and mobile phone calls in 
other parts of the world, connecting charges for calls placed 
across the Strait are processed through international 
clearinghouses.  Officially, Taiwan and the PRC have not yet 
implemented direct cross-Strait telecommunications.  All of 
this traffic takes place under the fiction that because the 
calls traverse submarine cables that are owned by 
international consortia or are transmitted by satellites, the 
connections are indirect. 
 
Commercial Partnerships Expanding 
--------------------------------- 
 
4. (U) After international direct dial service to the PRC was 
established in 1989, the majority of cross-Strait calls was 
to family members.  In recent years, Taiwan's massive 
investment in the PRC and the sizable community of Taiwan 
businessmen who live in the Mainland to oversee these 
investments have driven most of the demand for cross-Strait 
telecommunications.  Targeting these business customers, 
several Taiwan telecom firms have entered agreements with PRC 
firms to provide various cross-Strait telecom services. 
Under these agreements, the PRC and Taiwan firm each provide 
half of the circuit for specialized telecom services such as 
international private leased circuit (IPLC), internet 
protocol virtual private network (IPVPN), and 
video-conferencing.  The firms offer one-stop shopping for 
billing and service.  So for example, a Taiwan firm with a 
factory in the PRC and headquarters in Taiwan might request 
service from a Taiwan telecom firm, have equipment installed 
and maintained in both Taiwan and the Mainland, and then 
receive a single bill from the Taiwan telecom provider. 
 
5. (U) Major Taiwan fixed-line service providers, such as 
state-owned Chunghwa Telecom (CHT) and private Taiwan Fixed 
Network (TFN), have partnered with multiple PRC firms to 
offer these services.  CHT's Mainland partners include China 
Telecom, China Netcom, China Unicom, and China Mobile.  In 
addition, some Taiwan telecom firms that lack their own 
circuit facilities but lease the circuits of other firms also 
offer similar services.  Chief Telecom, a firm that focuses 
on international data services, offers cross-Strait data 
transmission using the networks of firms like CHT and TFN. 
Data transmission applications include many of the same 
services offered by fixed-line service providers such as IPLC 
and video-conferencing. 
 
Investment Prohibited 
--------------------- 
 
6. (SBU) While China has become the primary destination for 
investment among Taiwan's manufacturing firms, Taiwan telecom 
industry investment in the PRC is virtually non-existent. 
The Taiwan government prohibits any investment that falls 
under the category of telecommunications but is in the 
process of reviewing the prohibition for possible 
liberalization.  Other factors also limit interest in 
Mainland investment among Taiwan telecommunications firms. 
Many firms are concerned about the investment environment in 
the Mainland.  Taiwan Telecommunication Industry Development 
Association Chief of Public Affairs Rachel Liu told AIT/T 
that excessive restrictions and lack of regulatory 
transparency discourage telecommunications investment in the 
PRC.   In addition, as CHT Vice President of the 
International Business Group T.F. Leng explained, CHT is 
prohibited as a state-owned enterprise from investing 
anywhere overseas.  On the other hand, Charles Hsiung, Senior 
Vice President at Chief Telecom told us that his firm is 
looking into investing in an international data center in the 
PRC after such investment is legalized in the PRC under WTO 
accession commitments in 2005.  TFN Executive Vice President 
Feng Chian also indicated that TFN is looking into PRC 
telecommunications licensing regulations to see how they can 
expand Mainland operations. 
 
Comment - Taiwan Government Standing in the Way 
--------------------------------------------- -- 
 
7. (SBU) In some key industries such as semiconductors and 
flat-panel displays, Taiwan prohibitions are the only things 
holding back investment in the Mainland.  PRC regulations and 
its investment environment are also contributing factors in 
the telecommunications sector.  However, if liberalization in 
the Mainland continues to outpaces liberalization in Taiwan, 
the Taiwan government alone will shoulder the blame for 
limiting the opportunities available to Taiwan 
telecommunications businesses.  In some ways, this is already 
the case.  Philby Lee Chen Executive Vice President of Far 
EasTone, a Taiwan cellular phone company, complained to AIT/T 
about Taiwan government regulations that prohibit open 
solicitation on behalf of PRC firms.  Aiming at Taiwan 
travelers to the Mainland, Far EasTone would like to sell SIM 
cards and calling cards for PRC firm networks at its own 
stores in Taiwan.  Under current regulations, this is not 
allowed.  This is exactly the kind of counterproductive 
restriction that does not protect Taiwan's security, public 
health or businesses and needs to be eliminated to keep 
Taiwan competitive.  End comment. 
PAAL