US embassy cable - 05TAIPEI1975

UNCLAS SECTION 01 OF 02 TAIPEI 001975 
 
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, WTRO 
SUBJECT: TAIWAN GOVERNMENT HEARS INDUSTRY'S VOICE OVER 
INTERNET PROTOCOL 
 
 
1.  Summary: Given the economic and consumer advantages 
offered by Voice over Internet Protocol (VoIP), the 
Directorate General of Telecommunications (DGT) announced 
April 15, 2005 that it would opt for a light-touch policy 
that will embrace innovation, competition and consumer 
interests.  DGT has held two public consultations concerning 
numbering, interconnection, voice quality, network security 
and public safety, but has yet to publish draft regulations 
for further comment.  Despite resistance by incumbent fixed- 
line and mobile operators, DGT appears determined to create 
a flexible regulatory environment that will help Taiwan 
build an advanced broadband infrastructure that could 
resolve the so-called "last mile" problems.  Nevertheless, 
law enforcement authorities have expressed concerns over a 
potential surge of telecom fraud in IP networks.  End 
Summary. 
 
2.  Since Taiwan opened its telecom market to VoIP service 
providers in July 2001, there has been very little oversight 
from the telecom regulator, DGT.  State-owned Chunghwa 
Telecom (CHT) and three private fixed-line operators have 
already begun to carry their international voice traffic 
over IP networks, an outcome welcomed by DGT.  DGT believes 
that this development was a result of its decision in 2000 
to award fixed-line licenses to companies willing to build 
advanced broadband networks.  As of September 2004, 73 
companies in Taiwan were providing VoIP services to 270,000 
subscribers and generating total revenues of 250 million NT 
dollars (USD 7.9 million). 
 
3.  DGT began to look into monitoring VoIP industry in 2004 
as IP technology and services improved.  After two open 
public consultations in June and November of 2004, DGT 
announced April 15, 2005 that it will adopt a light 
regulatory approach that will avoid unnecessary intervention 
in the market but promote "social obligations," such as 
assisting law enforcement authorities in combating online 
fraud. 
 
4.  Based on these principles, DGT is planning to draft a 
five-article regulation before inviting further public 
comments.  Most likely, DGT will allow telephone numbers to 
be allocated to VoIP services and will consider number 
portability when it is technically feasible.  DGT will 
propose that providers with paid-in capital exceeding one 
billion NT dollars (USD 32 million) may receive numbering 
directly from DGT; others may lease from the primary 
operators.  Six of incumbent VoIP providers have capital 
investments exceeding two billion NT dollars (USD 63 
million), nine between one and two billion NT dollars (USD 
32-63 million), and 25 between 100 million and one billion 
NT dollars (USD 3.2-32 million).  Meanwhile, a total of 206 
existing telecom operators are capable of engaging in VoIP 
business - 21 have capital investments exceeding two billion 
NT dollars, 28 between one and two billion NT dollars, and 
157 between 100 million and one billion NT dollars.  DGT is 
also leaning toward mandating interconnectivity between VoIP 
providers and fixed-line and wireless operators and has no 
plans to set voice quality standards, allowing consumers to 
select between different voice quality services. 
 
5.  Consumers appear to be embracing this IP technology. 
According to PChome Online, Skype's Taiwan partner, within 
nine months of its introduction to Taiwan last July, Skype 
has solicited 1.5 million subscribers from the island's 22 
million population and will likely celebrate two million 
members on the first anniversary.  In contrast to enthusiasm 
from DGT, IP service providers and consumers, traditional 
telecom operators are increasingly nervous about this new 
trend.  Chunghwa Telecom relied on fixed-line services for 
38 percent of its 2004 revenues.  In particular, Chunghwa's 
local call services accounted for 61 percent of its 2004 
fixed-line revenues, domestic long distance services for 17 
percent and international call services for 22 percent. 
Some have speculated that CHT is actively seeking a way to 
degrade the quality of VoIP services, specifically Skype, 
carried over CHT networks in an attempt to protect its 
lucrative voice business. 
 
6.  CHT ex-chairman and professor at National Chiao Tung 
University, Mao Chi-kuo, boldly predicted at an IP 
conference in March that VoIP will "evaporate" all voice 
income by traditional operators.  This would come as a major 
setback for CHT, as it would no longer enjoy market monopoly 
through its control over the "last mile" - fixed-line access 
to business and residential buildings.  However, due to 
lingering consumer concerns over the effectiveness of 
network security measures, there is unlikely to be an 
immediate move from traditional telephone to VoIP services. 
Taiwan law enforcement authorities have also expressed 
uneasiness that a trend toward use of VoIP communications 
would undermine recent efforts to combat telephone fraud. 
 
PAAL