Taiwan Cellular Corp's (TCC,
"The cost of the share purchase is high while the immediate help to Taiwan Cellular is very limited," said Gary Lai (
Another market watcher agreed, saying "rather than increase its investment in other competitors, we expect the company can use its money more efficiently to provide more data services," said Nathan Lin (林宗賢), an analyst at SinoPac Securities Corp. (建華證券)
Taiwan Cellular bought 575 million shares on Tuesday as part of a government sell-off of an NT$65.6 billion stake in the state-run telecom giant, Chunghwa. A group comprised of Taiwan Cellular, Cathay Life Insurance Co (
Based on the deal, Cathay Life will become Chunghwa's largest private investor, holding 650 million shares -- or 6.5 percent. Taiwan Cellular and Fubon will control 575 million and 75 million shares, respectively.
This is the fourth time the Ministry of Transportation and Communications (MOTC) tried to unload Chunghwa shares and on Tuesday the government completed the deal at NT$50.3 per share -- less than half the NT$104-per-share price MOTC asked in its first auction in 2000.
Yesterday, Taiwan Cellular shares fell 2.9 percent to NT$27.1, after the debt rating of the nation's biggest mobile-phone operator was placed under review for a possible downgrade by Taiwan Ratings Corp.
The ratings company said the bank loans needed to finance the purchase may adversely affect Taiwan Cellular's finances.
According to George Wu (吳裕良), an IT-industry watcher at Primasia Securities Co in Taipei, many foreign investors sold off their Taiwan Cellular shares yesterday.
"They think the deal doesn't make sense, because Taiwan Cellular can't really boost sales from it," Wu added.
He explained that even if Taiwan Cellular can get a seat on Chunghwa's board and gain some insight into its top competitor, that will do little to help the company's bottom line.
According to the MOTC, the government has said that only companies that own more than 700 million shares can take a seat on Chunghwa's board of directors.
"Taiwan Cellular still has the chance to get a seat once they link up with other groups," said Wang Ting-chun (
An executive at Taiwan Cellular said yesterday that the company is currently in talks on the topic. But gaining a seat was a key part of the purchase.
"Since we've spent money on Chunghwa, of course we hope to get involved more in its management," he said.
Meanwhile, Primasia's Wu said that if Taiwan Cellular continues to increase its stake in Chunghwa, the long-term benefit will be significant.
"Once the nation's No. 1 and No. 2 telecom-service providers fully cooperate, the combined market power would be considerable," Wu said.
Currently, Chunghwa is Tai-wan's largest mobile-phone-service operator, controlling 30 percent of the market, with Taiwan Cellular weighing in second at 26 percent.
Wu added that the relationship will mostly benefit Taiwan Cellular when the company begins to roll out the third-generation (3G) mobile-phone services.
Since Chunghwa controls the nation's major phone networks, a TCC share in future interconnection access bodes well for the company's 3G plans, Wu explained.
"The real benefit may become apparent as early as 2005, or when 3G services is expected to take off."
In accordance with the government's privatization plan regarding state-run companies, the MOTC must reduce its holdings of Chunghwa shares to under 49 percent by the end of next year.
The MOTC plans to hold several local and overseas auctions next year to off-load the stake.
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