LUKEWARM RESPONSE FOR TAIWAN FIXED NETWORK LICENSES

UNCLAS TAIPEI 003748

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: LUKEWARM RESPONSE FOR TAIWAN FIXED NETWORK LICENSES

REF: TAIPEI 2900


1. (U) According to the Directorate General of
Telecommunications (DGT),applications for fixed network
licenses closed October 28, 2004. DGT received no
applications for comprehensive network service and only one
for the local and long-distance land cable leased-circuit
business from a cable television provider. Despite the
industry's lukewarm response, DGT repeated its commitment to
offer licenses on a biannual schedule in March and September
and to lower capital requirements for local, long-distance
and international business licenses. The next open season
for fixed network license applications will be in March

2005.


2. (U) There may be more interest in licenses for local,
long-distance and international services in March.
According to a DGT plan, a new formula will be used to
calculate the minimum paid-in capital for the local call
business. For example, the minimum paid-in capital
requirement for a local call license for Taipei city would,
based on the population of the city, be just 1.2 billion NT
dollars (USD 36.3 million). Currently, companies interested
in entering the Taiwan market must have paid-in capital of
16 billion NT dollars (USD 484.8 million) and must serve the
entire island. For long-distance and international
services, the minimum paid-in capital would be lowered to a
flat standard of 2 billion NT dollars (USD 60.6 million).


3. (U) Comment: Liberalization of fixed network licensing
requirements was a condition of Taiwan's WTO accession.
Industry has criticized the biannual application process and
Taiwan's lower, but still restrictive paid-in capital
requirements. The failure of this September's open season
to generate any bids may in part be a reflection of an
industry waiting for lower requirements. But more likely,
Taiwan's relatively small fixed network service market is
not considered attractive to investors facing an
overwhelmingly dominant state-owned competitor in Chunghwa
Telecom (CHT). The long awaited privatization of CHT, now
predicted for early 2005, may alter the equation
sufficiently to encourage more competition in the fixed
network market in 2005. End Comment.

PAAL