Taiwan Cellular slows 3G switch

Taiwan Cellular Corp (台灣大), the top mobile service supplier measured by subscribers served, will slow its deployment of data-oriented next-generation technology due to lukewarm demand, a company executive said yesterday.

"As demand from mobile users is still very limited at this stage, we don't think there is the urgency to deliver high-speed cellular services with third-generation (3G) technology," said Cheng Hui-ming (鄭慧明), chief financial officer of Taiwan Cellular.

"Mobile operators around the world are largely providing voice services using 3G technology," Cheng said.

The mobile operator will reduce the number of base stations it hopes to build by year's end to 1,300 from 1,500, Cheng said.

That could result in a possible delay in the commercial launch of 3G services, but will save NT$112 million in cash and NT$394 million total for Taiwan Cellular in the second half, said Shirley Chu (朱顯宜), a Taiwan Cellular investor relations manager.

The deployment delay will not result in a reduction from the initial estimate of NT$3.5 billion to be spent on equipment for 3G deployment, Chu said.

"More than that, the postponement in 3G deployments will leave leeway for Taiwan Cellular to allocate depreciation spending for the equipment, which will help the company sustain its current profitability," said Stevie Chou (周奇賢), an analyst with SinoPac Securities Corp (建華證券).

Taiwan Cellular yesterday posted quarterly net income of NT$3.59 billion, down 23 percent from NT$4.69 billion earned in the first quarter. Earnings per share fell to NT$0.77 from NT$1.02.

The telecom operator earned NT$8.28 billion, or NT$1.79 per share, during the first six months of the year, up 31 percent from a year earlier.

"The second-quarter result may be the best Taiwan Cellular hits, as it will be difficult for the mobile carrier to further improve its operating margin amid mounting retention costs," Chou said.

The company's operating margin rose to 48 percent in the second quarter from 47.9 percent three months ago.

Taiwan Cellular expects its operating margin to fall by 2 percent to 46 percent in the second half due to rising spending on expanding outlets to 100 next year, which will cost the operator up to NT$100 million.

Separately, the Taiwan Cellular board passed a proposal to sign a formal agreement with Teco Electric and Machinery Co (東元) to buy smaller Mobitai Communications Co Ltd, Cheng said.

The acquisition will boost Taiwan Cellular's earnings per share by 3 percent next year, he said. Mobitai has 700,000 subscribers.

Taiwan Cellular signed a memorandum of understanding with Mobitai's biggest shareholder, Teco, to acquire the Taichung-based mobile service provider through a cash and share swap last month.