KG Telecom pulls out of 3G auction

Taiwan's fourth-largest mobile phone service provider poured cold water on the government's 3G license auction yesterday by withdrawing from the process before bidding even began.

KG Telecommunications Co (和信電訊) said a combination of too many bidders and the faltering local economy led to the decision.

"We will continue to provide 2.5G and I-mode [Internet mode] services, and in the future may cooperate with other companies on 3G," said Claire Lin (林靜雯), a spokesperson at KG Telecom.

KG belonged to one of the seven business groups vying for five 3G licenses, with floor prices ranging from NT$4.2 billion to NT$7.6 billion depending on the amount of bandwidth. The auction is expected to commence next month.

The company said in a statement that five licenses are too many for Taiwan, where "excessive competition" is "likely in the foreseeable future."

Intense marketing among the four nationwide carriers has led to near market saturation in terms of subscribers. Nearly 21 million mobile phone accounts are already in use in this nation of 23 million people.

The decision to pull out was unanimously supported by KG's board of directors. The firm said withdrawing from the 3G auction will allow it to better focus on the launch of I-mode services in Taiwan during the second quarter of next year, with the help of its Japanese partner, NTT DoCoMo.

Over 30 million people in Japan have already signed up for NTT DoCoMo's popular I-mode services, which allow people to send and receive messages and pictures across the airwaves on their cellphones. The firm owns 21.4 percent of KG Telecom.

Government regulators in charge of the auction were surprised by KG's decision.

"We were shocked that KG Telecom decided to drop out," said Vivian Wang, general manager of the Directorate General of Telecommunications. But she added that the minimum bidding prices "will not change."

She said the US securities firm Merrill Lynch told her bureau in October that the license floor prices were quite reasonable.

KG Telecom will forfeit its NT$200,000 application fee, but an NT$1 billion deposit will be returned to the firm, according to Wang. Analysts speculate that KG will seek one of the license winners as a future partner.

"Far EasTone (遠傳) is the most likely candidate," said Charles Yang (楊孝元), an analyst at Entrust Securities (永昌綜合證券) in Taipei.

The combination would make them the largest mobile phone services provider in Taiwan with around 7.6 million customers. They already have distant ties through a series of investments.

NTT DoCoMo holds a minority stake in both KG Telecom and AT&T Wireless. AT&T Wireless owns 21 percent of Far EasTone's stock. The lead investor in KG Telecom, the Koo's Group (和信集團), also holds a minority stake in the new fixed line telecom firm Sparq (速博). Sparq and Far EasTone share a majority shareholder in the Far Eastern Group (遠東).