TAIWAN'S FIXED NETWORK LICENSING: AGAIN, NO BIDDERS

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