Taiwan Cellular to create three new companies

Taiwan Cellular Corp (台灣大哥大), the nation's largest mobile telecom service operator in terms of customer base, decided to go ahead with investments totaling NT$2.3 billion to create three new companies from its internal operations and passed a resolution to begin preparations for an overseas listing of depository receipts, officials from the firm confirmed yesterday.

According to analysts, the three new companies help create business opportunities for Taiwan Cellular needed to offset the decline in new customer sign-ups. Taiwan's mobile telecom market has already reached a saturation point with over 18 million cellular phone subscriptions in a nation of only 22 million people.

"In each case of these three companies, we're taking existing capabilities within Taiwan Cellular and spinning them off, so to speak ... so it's looking to expand the revenue base and profitability of the company," said William Newton, vice president at Taiwan Cellular.

The companies are not being spun-off for listing on the local bourse, but instead to be grown as separate firms under a Taiwan Cellular "family" of companies. The three new firms will come from TCC's call center operations, billing and information technology division and the network construction and maintenance engineering services operations.

The firm will invest NT$520 million and maintain a 65 percent stake in newly established Taiwan Tele-Services & Technologies Co (台灣客服科技). This new company will provide call center services including customer service, telemarketing, and market research to companies in Taiwan.

An additional NT$325 million will be invested in Elitec Technology Co (台灣精碩科技) for a 65 percent stake of the new billing and IT services company. This spin-off will specialize in billing and collections services, systems integration, and systems support services.

Finally, Taiwan Cellular will invest NT$1.5 billion and keep a 25 percent stake in Howin Technologies Co, Ltd (弘運科技) a telecom network engineering, construction and maintenance firm.

The company will also firm up its position in Pacom Co (太信電店), Taiwan Cellular's wholly-owned mobile phone distribution subsidiary by increasing its paid in capital by NT$1 billion.

Last year, Pacom took in revenue of NT$16.86 billion and a pretax profit of NT$1.35 billion and earnings per share of NT$16.4 on total mobile phone sales of 2.254 million handsets, through its investments in Taiwan Teleshop. The profit figure represents a 67 percent increase over the previous year.

China Securities' (中信證券) investment analyst Alex Wu called the decision to create three new business from Taiwan Cellular's existing operations a good business move, but said all mobile phone companies in Taiwan need to seek new revenue streams since the nation's penetration rate is already so high. Revenue from new customer sign-ups has dwindled substantially.

"[Taiwan Cellular] estimates that the collection rate will become increasingly worse in the future because a lot of people already own more than two SIMM cards [cell phone subscriptions]. ... About 25 percent of mobile phone users have more than two SIMM cards," said Wu.

Taiwan Cellular is also looking to list on an overseas capital market within the coming year, planning to list 330 million shares as depository receipts (DR), or stocks listed on a foreign exchange. The company did not set a specific time for the listing, saying it would depend on market conditions.