Chunghwa retains unfair advantage

Taiwan's largest phone company, state-run Chunghwa Telecom Co (中華電信), continues to benefit from government ties to the detriment of the rest of the wireless and fixed line phone companies in Taiwan, the head of Far EasTone Telecommunications Ltd (遠傳電信) said yesterday.

"You can walk into any one of their shops today ... and how are they allocating the costs of that shop?" Joseph O'Konek, president of Far EasTone, said.

"Is the wireless company paying the market price for [space in stores]? Come on -- they have some of the best real estate in Taiwan and it's government subsidized because [the government] owns it. Some of those cost advantages are still unclear," he said.

Far EasTone is the third-largest mobile phone service provider, based on revenue, in Taiwan.

The role of the Ministry of Transportation and Communications, the owner of Chunghwa and head of the government bureau in charge of creating and implementing policy in the telecom sector as well as at the Directorate General of Telecommunications, "is still a conflict that isn't resolved," O'Konek said.

The government has only sold about 5 percent of its holdings in Chunghwa since it began trying to offload the state-run giant in September 2000 -- despite originally planning to lower its stake to a total of 34 percent by December 2001 as part of a plan to open the industry to market competition. It still owns 95 percent of the company, after three attempts to sell shares.

Last week, the government failed again to find a single qualified buyer for a 5.7 percent stake of Chunghwa. It plans to make a fourth attempt on July 1 to sell the same stake for the same price of NT$50.8 each.

Analysts have said the government will need to make a steep discount in order to garner buying interest, and some are beginning to question the government's resolve in selling off the cash cow.

One analyst, who requested anonymity, said most of Chunghwa's income goes directly into state coffers, helping offset the growing NT$327 billion (US$9.7 billion) budget deficit. The July share sale is intended to raise NT$28 billion (US$830 million).

The unwillingness to release its grip on the company is compounded by the lack of an objective government agency to make and implement rules in the telecom sector -- the role intended for the directorate. The government had agreed to spin it off years ago to aid in the industry privatization and separate it from the transportation ministry, which controls Chunghwa. But the office remains under the control of the ministry.

"The directorate doesn't have the independence, legal authority, or all of the resources needed to effectively enforce telecom regulatory policies," the American Chamber of Commerce in Taipei said in its annual "White Paper" earlier this year.

Despite repeated share sale flops, Chunghwa chairman Mao Chi-kuo (毛治國), a former vice minister of telecommunications, will keep his job as head of the state-run firm. Analysts say he has done much to streamline the company, including paring the work force by nearly a third and building up its dominance in ADSL broadband Internet lines, which bring in higher margins for the company.

Critics argue that Chunghwa's dominates the ADSL market because it controls the nation's telephone network.

Mao was re-elected for a three year term. During the two years he has led the company, it has sold only 4.3 percent of all shares offered in three separate public share auctions.