Mon, Nov 13, 2006 - Page 12 News List

Telecom operators lash out at price cap scheme

MARKET COMPETITION Major local players said that the proposed price ceiling would further cut into their profitability and affect investment into service upgrades


The nation's major telecommunications companies said that the government's planned price cap would further squeeze their already thin profits and hamper the industry's progress toward next-generation technologies.

In a renewed effort to call on the government to scrap its proposal, local telecom operators, led by Chunghwa Telecom Co (中華電信), said on Friday that the telecom regulator's retail price control measures would wreak havoc in the market.

The operators also questioned the National Communications Commission's (NCC) price-control mechanism, saying it would not contribute to improving free competition in the market.

"We think it is improper for the NCC to implement the price cap measures," said Chang Feng-hsiung (張豐雄), a vice president of Chung-hwa Telecom, in a public hearing held by the NCC on Friday.

To provide quality services, local telecom companies need to continuously invest huge amounts of capital into equipment and facilities, but generating returns from these investments would take time, Chang said.

Last year alone, the nation's major mobile carriers poured in NT$20 billion (US$609.4 million) each to build up third-generation (3G) technology deployment, but "not a single company is making money [in the 3G business] now," he said.

"The NCC's move will negatively impact on the survival of telecom companies," Chang said.

Operators claimed that prices should be decided by the market. If the NCC were to stick to its price-control plan, Chunghwa Telecom, which offers mobile, landline services and local loop leasing, would suffer the most because the proposed price cuts would cover these three areas, Chang said.

Chang declined to comment, however, on how the new price control rules would erode the company's profitability.

Late last month, the NCC, which was established early this year, said it planned to revise the formula on calculating the price ceiling for telecom services, including mobile, fixed-line and local loops, to safeguard consumers' interest and promote free competition.

Local phone rates, it added, were much higher compared to those of neighboring countries'.

The regulator's planned price formula would lead to an annual price reduction of up to 4.88 percent in mobile rates over a three-year period beginning next year at the earliest.

Annual price cuts for fixed-line carriers and the nation's sole local loop provider Chunghwa Telecom could be 2.63 percent and 5.35 percent, respectively.

Telecom companies questioned, however, whether government intervention was needed to prompt price reductions to boost market competition.

"Stiff competition has already prompted about a 25 percent price drop over the past five years, although usage is dropping," Benny Chen (陳邦仁), chief business officer of Taiwan Mobile Co (台灣大哥大), the country's third-biggest mobile operator, said in the public hearing.

In response, the NCC admitted that it did not implement an objective tool in assessing the market competition. The regulator pledgeddto seek alternative approaches to better evaluate the market.

The NCC's proposed rates also drew fire from a foreign investor, Elliott Advisors Ltd, which said it has invested in the nation's telecom companies.

"We are worried that the government's price control measures could cause a setback in the nation's telecom industry and trigger capital flight," said Kenneth Ng (吳志強), an investment director at Elliott, in the public hearing.

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