Taiwan Cellular Corp (台灣大哥大),the nation's No. 3 mobile operator by sign-ups, yesterday showed reluctance to reduce its short-message service rates despite escalating public pressure amid concern increasing restructuring spending could cut into its profits.
"We're still cautiously evaluating [reducing rates]. This is really a formidable issue," said Cheng Hui-ming (
"The rates charged by local mobile-phone carriers are much lower than they are in most countries," Cheng stressed.
Taiwan Cellular's resistance may be justified by weak profitability as Cheng yesterday told investors that the company might not be able to sustain the strong profit growth it showed in the first quarter because of a spike in restructuring spending.
Taiwan Cellular, with 7.2 million sign-ups, posted solid first-quarter earnings of NT$4.69 billion, or NT$1.02 a share, up about 46 percent from the final quarter of last year, or a 44-percent rise from a year ago.
Cheng said this year's profits will remain flat, compared to some NT$13.35 billion, or NT$2.9 a share, earned last year.
Compared to privately-run Taiwan Cellular, state-run Chung-hwa Telecom Co (中華電信) is facing heavy pressure from both regulators and the legislature, which asked the company to slash its short-message service charges by NT$1 per message.
Chunghwa, the nation's biggest phone company, is likely to announce an average 25-percent price reduction before next Friday, the deadline set by the Directorate General of Telecommunications for it to come up with a lower tariff.
Whether the private sector will follow suit is a big question.
"Taiwan Cellular definitely is loath to cut its rates in consideration of possible profit erosion," said Stevie Chou (
Although the short-message service accounted for only 3 percent or so of the company's revenues, Chou said any price reductions will have greater impact on earnings as the margin is as high as 80 percent, compared to average 44-percent margin for other services.
Chou plans to lower his forecast for Taiwan Cellular to NT$3 to NT$3.5 per share from previous NT$3.8, in light of higher-than-expected restructuring spending and capital expenditures.
Taiwan Cellular plans to spend NT$7 billion in equipment expansion, with NT$3.5 billion on advanced third-generation equipment, up from NT$1.5 billion last year.
By the end of the year, the mobile carrier will have 1,600 signal transmitters and receivers for 3G service, Cheng said, adding that the possible launch of such services will be as early as the last quarter of this year.
Taiwan Cellular shares rose NT$0.2 to NT$32.6 on the TAIEX yesterday.
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