Wed, Jan 19, 2005 - Page 10 News List

Chunghwa says 3G rollout may crimp earnings

NEW SERVICE Increased operating costs from the launch of the high-speed service next quarter will keep earnings below last year's level, the firm said

By Lisa Wang  /  STAFF REPORTER

Chunghwa Telecom Co (中華電信), Taiwan's largest phone company, yesterday said earnings may shrink for the first time in years due to rising operating costs from the debut of its next-generation wireless service.

The state-run telecom is scheduled to roll out the high-speed third-generation (3G) mobile service next quarter, which will enable its 8.2 million mobile subscribers to download music or streaming video clips from the Internet onto a handset.

"Increased operating costs, mostly from the new 3G operation, will make it difficult for us to boost sales. Likewise, earnings will not exceed that of last year," chairman Hochen Tan (賀陳旦) said.

Chunghwa Telecom will have to allocate roughly NT$2 billion in amortization costs for 3G equipment in the first year of commercial operation, according to the company's initial calculations.

Hochen's remarks apparently herald a slowdown for this year, following last year's robust performance. Chunghwa Telecom yesterday said earnings last year soared to NT$49.9 billion, or NT$5.18 a share, on sales of NT$182.6 billion.

Cash dividends for last year will be around NT$4.66 a share, he said. That represents a respectable 7.3 percent yield, compared to the company's closing share-price of NT$63.5 yesterday.

"Chunghwa Telecom will not be the only company starting to feel the pinch of heavy amortization for 3G operations. 2005 will be a tougher year for local mobile carriers," Stevie Chou (周奇賢), a senior telecom analyst with SinoPac Securities Corp (建華證券), said.

The new spending will shave around 10 percent off the earnings of Taiwan's three major mobile service providers this year, including Taiwan Cellular Corp (台灣大) and Far EasTone Telecommunications Co (遠傳電信), Chou said.

Chunghwa Telecom's earnings may slide to around NT$4.7 per share for this year, he said.

In addition to increased costs from 3G operation, implementation of "number portability" will be another factor eroding the profits of local wireless telecom carriers this year, Chou said.

"Number portability" will allow mobile users to switch operators without needing to change their phone number, as is currently required.

To retain existing users, local phone companies will gradually increase subsidies -- which in the past has meant cheaper handsets -- ahead of the implementation of "number portability" by the end of the year, as requested by the nation's telecom regulator.

Separately, Chunghwa Telecom yesterday announced that it will extend its so-called multimedia-on-demand (MOD) service to three more counties outside the Greater Taipei area, including Hsinchu, Taoyuan and eastern Ilan this month.

MOD refers to the firm's television service delivered over its high-speed Internet links. The company began offering the service to households last March.

By summer, the MOD service will be available to households in central Taichung, as well as Tainan and Kaohsiung, the company said.

As coverage expands, the phone giant expects the number of MOD users to shoot up to 300,000 this year from the current 30,000.

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