`New' Chunghwa Telecom braces for competition

Privatization has freed Chunghwa Telecom Co (中華電信) from some political constraints, but the nation's largest telecom operator still has to show it can use its freedom effectively in an increasingly competitive market.

The five-year privatization process was completed last month with the sale of a 17 percent stake to local and foreign investors, helping trim the government shareholding to 44 percent. A company is considered privatized when the state's shareholding falls below 50 percent.

As a state-controlled company, Chunghwa had to submit its annual budget to the legislature for approval, a process that could take a year or longer. Also, it was the subject of intense political battles over tariff increases and talk of job cuts. The company's labor union and opposition parties repeatedly tried to derail the privatization process.

"Certainly privatization will make things easier" for Chunghwa, says Macquarie Securities analyst Dominic Grant.

The privatization, part of efforts to open Taiwan's telecommunications sector, began in 2000 with the initial public offering of a small stake in the former monopoly.

But analysts say they will need to see Chunghwa deliver on its promised cost cuts and prove it can make money on its new third-generation mobile services before they will turn bullish about the company's prospects.

Early last month, Chunghwa chairman Hochen Tan (賀陳旦) said the company plans to cut 3,000 jobs over three years to help save NT$4.5 billion (US$137.31 million) annually, though he was vague on how this would be accomplished.

Senior vice president Hank Wang (王漢朝) said details of an early retirement plan haven't been completed and he can't say how much it will cost.

"We shall begin discussing it before the end of this year, though," he said.

The company's net profit for the first half of the year fell 7.8 percent from the same period a year earlier to NT$24.33 billion. Revenue for the first half declined to NT$89.72 billion from NT$90.82 billion.

For the full year, Chunghwa projects a net profit of NT$42.34 billion, a drop of 15 percent from the NT$49.87 billion reported for all of last year.

The privatization move comes as growth in the nation's telecom market is slowing, and competition is increasing. Standard & Poor's said Tuesday it expects Taiwan's telecom industry to record growth in the low single digits over the next few years, because the market is highly saturated.

Price competition is expected to intensify further after the entry of Vibo Telecom Inc (威寶電信), a 3G operator, in the fourth quarter. Analysts agree that the only way for Vibo to gain market share is to offer substantially lower rates.