Despite the possibility of creating a major rival for the telecom industry's two major players, the proposed merger on Thursday between Far EasTone Telecom-munications Co (遠傳電信) and KG Telecommunications Co (和信電訊) must overcome many obstacles, analysts said.
"The proposed partnership will certainly help strengthen Far EasTone's market position, lower its operating costs and boost its sales," said Gary Lai (賴晴風), an analyst at Insight Pacific Investment Research (月涵證券) in Taipei.
"But these benefits won't surface until the new company cuts redundant staff and rearranges its services," Lai said.
Far EasTone announced on Thursday that it would spend about NT$30 billion in a cash-and-stock swap to take over smaller rival KG Telecom.
"Currently, investors are still conservative [about buying Far EasTone shares] as they understand it may take a while for Far EasTone to profit from the merger," Lai said.
Far EasTone now faces a challenge after the merger -- the largest in the nation's telecom industry -- in terms of restructuring, another market watcher said.
"Management realignment and resource integration are not easy tasks for the new company," said Andy Chang (張書評), a telecom analyst at Yuanta Core Pacific Securities Corp (元大京華證券). "In addition, laying off employees is a must for the company if it wants to enhance efficiency."
Far EasTone has 2,500 employees, while KG Telecom employs nearly 1,300 people. Chang said that surplus equipment maintenance staff, customer service representatives and administrative officials are likely to be given pink slips.
Meanwhile, Chang said KG Telecom's well-known "i-mode" multimedia mobile data service may continue to operate while Far EasTone's "i-style" may become history, as the new company need not offer redundant services to customers.
In addition, "i-mode" enjoys a good global reputation, and Japan-based NTT DoCoMo remains highly interested in Taiwan's market, he said. The Japanese telecom giant owns 21 percent of KG Telecom's shares, and is expected to hold 4.8 percent of Far EasTone's shares after the merger.
Shares of Far EasTone closed at NT$0.2, or 0.8 percent to NT$22.4 on the Gre Tai Securities Market (櫃台買賣中心) yesterday.