US embassy cable - 05TAIPEI1890

UNCLAS TAIPEI 001890 
 
SIPDIS 
 
STATE FOR EAP/RSP/TC AND EAP/EP 
 
STATE PLEASE PASS AIT/W AND USTR 
 
USTR FOR SCOTT KI 
USDOC FOR 4430/ITA/MAC/AP/OPD/JKELLY 
 
E.O. 12958: N/A 
TAGS: EINV, ECON, TW 
SUBJECT: TAIWAN'S FIXED NETWORK LICENSING: AGAIN, NO BIDDERS 
 
REF: (A) TAIPEI 3748, (B) TAIPEI 2900, (C) TAIPEI 1998 
 
1.  Summary: In two consecutive open seasons, Taiwan's 
Directorate General of Telecommunications (DGT) has received 
no interested applications for fixed network licenses.  The 
2005 spring open season for applications closed on March 31, 
2005.  Industry watchers are pessimistic about the prospect 
of further interest as long as Chunghwa Telecom (CHT), the 
dominant player in the sector, remains state-owned.  Despite 
DGT's relaxation of the licensing criteria last September, 
new players do not yet see sufficient incentives to enter 
Taiwan's already competitive market.  End Summary. 
 
2.  On February 24, 2005 DGT announced open seasons during 
the months of March and September 2005 to accept 
applications and issue comprehensive fixed network licenses 
to those interested in the local, long-distance and 
international call businesses.  As was the case in September 
2004, no bidders applied to DGT in March 2005. 
 
3.  Industry watchers were not surprised that newcomers 
expressed little interest in making a substantial financial 
commitment in a market dominated by government-owned CHT. 
Three private telecom operators invested nearly 200 billion 
NT dollars (USD 5.7 billion) in 2000 when DGT first issued 
fixed network licenses.  Four years later, these "new" 
entrants remain marginal players in the sector.  In 2004, 
CHT continued to lead the local, long-distance and 
international call market shares with 96.8 percent, 78.1 
percent and 55.5 percent, respectively, in terms of total 
revenues.  For the same year, CHT's total fixed network and 
ADSL subscriber market share stood at 97.9 percent and 99 
percent, respectively. 
 
4.  Comment: DGT remains reluctant to further lower the paid- 
in capital requirement that was set to thwart unqualified 
speculators from entering the market.  However, the real 
barrier for new entrants is CHT's reluctance to loosen its 
grip on the "last mile" - fixed network access to business 
and residential buildings.  Both foreign and domestic 
operators, newcomers as well incumbents, have avoided 
entering competition with Chunghwa Telecom, because it has 
been slow to enter into reasonable leasing agreements with 
competitors.  One industry analyst told AIT that unless the 
Taiwan government spins off its majority stake in CHT 
foreign companies will continue to avoid the market.  The 
same analyst, however, noted that several European companies 
are exploring Taiwan as a potential target as they diversify 
away from saturated home bases into growing markets in Asia. 
End Comment. 
 
PAAL