Chunghwa Telecom awards ADSL contract

Chunghwa Telecom Co Ltd (中華電信) has tapped Alcatel and partner Ambit Microsystems Corp (國電) to supply 1.26 million high-speed asymmetrical digital signal line (ADSL) Internet modem hook-ups yesterday, in order to feed the growing demand for broadband Internet access in Taiwan.

The state-run telecommunications giant awarded the NT$7.1 billion (US$218.3 million) for telecommunications equipment for use with the ADSL system. Each of the 1.26 million hook-ups represents a new high speed Internet subscriber.

ADSL is a technology for transmitting digital information at a high bandwidth on existing phone lines to private homes as well as businesses.

"Chunghwa chose the Alcatel consortium because they gave us the best price, NT$5,600 per subscriber setup," said Chen Chun-ming (陳俊明), vice president at Ambit.

Alcatel, a French telecommunications powerhouse, will supply back office infrastructure equipment and Taiwan's Ambit will supply ADSL modems and routers for the contract.

"With this contract, [Ambit] could be the largest ADSL modem supplier in Taiwan and probably in the whole of Asia," said Sharon Su, analyst at ABN AMRO Securities.

Shares in Ambit rose NT$11 on the Taiwan Stock Exchange to end the day at NT$179 in response to news of the deal, limit up. Shares in Tecom Co (東訊), the company investors expected to win the contract with partner Lucent Technologies Inc, however, dropped NT$2.7 to end the day at NT$40.5 per share.

Not all analysts agreed on how profitable the deal would be for the Taiwanese firm. At NT$5,600 per ADSL modem system, the profit margin is very low. The only chance the company will have to eke out a profit is by squeezing component suppliers when sourcing for parts.

By comparison, Chunghwa paid about NT$7,000 per ADSL system when it awarded a contract for 1.2 million ADSL connections to a consortium of Lucent and local firm Zyxel Communications Corp (合勤科技) for NT$8.9 billion. Even at that time, a number of bidders dropped out of the deal due to the low profit margin.

This year the tandem of Ericsson and Zyxel dropped out of bidding over concerns there was no money to be made in the deal.

"NT$5,600 is a really low price ... extremely low," said Frank Lee, senior analyst at Indosuez W.I. Carr. "In terms of revenue, however, this will be very significant for Ambit."

Ambit, which manufactures a number of electronics components -- predominantly notebook computer power modules -- had total sales last year of around NT$11 billion.

The added NT$7.1 billion revenue from the Chunghwa deal will provide a significant boost to their revenue, Lee said.