TAIWAN GOVERNMENT HEARS INDUSTRY'S VOICE OVER

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