Few 4G bidders viable: analysts

OLIGOPOLY INTACT::Analysts say new entrants face challenges because NCC rules favor incumbents, which can allocate services through a combination of 3G and 4G networks

By Kevin Chen  /  Staff reporter

Wed, Jul 03, 2013 - Page 14

Seven incumbent operators and new entrants will bid for the nation’s 4G spectrum telecommunications licenses, but only a few have the economies of scale to generate decent profits from the new services, analysts say.

While industrial conglomerates Hon Hai Group (鴻海集團), Shin Kong Group (新光集團) and Ting Hsin International Group (頂新集團) have applied to bid for 4G licenses, the rules could still favor incumbent players, with the oligopolistic market structure remaining unchanged, they say.

“The mid and long-term dynamics in the domestic telecom market will not be notably affected [by the entrance of newcomers], except for certain mergers among second-tier operators,” Fubon Securities Investment Services Co (富邦投顧) analyst Lewis Liu (劉立中) said in a client note yesterday.

That is because the telecom market will still face policy uncertainties after the launch of 4G services because of the National Communications Commission’s (NCC) attitude toward the WiMAX licenses and whether the regulator will revoke 2G licenses ahead of schedule, Liu said.

“These potential policy changes will affect new entrants’ merger moves,” he said, adding that Chunghwa Telecom Co (中華電信), Taiwan Mobile Corp (台灣大哥大) and Far EasTone Telecommunications Co (遠傳電信) will remain the nation’s top telecom operators.

Liu’s remarks came after the commission on Monday said it had received applications for 4G long-term evolution (LTE) network licenses from seven bidders.

The commission plans to complete the preliminary review by Aug. 15 and begin accepting bidding on Sept. 3, before awarding four to seven 4G licenses to the bid winners by the end of the year.

In addition to the three existing major carriers, plus Asia Pacific Telecom Co (亞太電信), Hon Hai joins the license auction through Ambit Microsystems Corp (國碁), Ting Hsin International stands behind Star of Taiwan (台灣之星), which is led by ex-Taiwan Mobile management, and Shin Kong expands into the telecom sector via a subsidiary.

Unexpectedly, 3G service operator Vibo Telecom Inc (威寶電信) and local conglomerate Ruentex Group (潤泰集團) did not submit applications by the deadline on Monday.

“We believe Vibo is likely to be merged with another operator as the company has long been unprofitable, and Ruentex Group may play a key third-party role for Hon Hai or Shin Kong Group,” Liu said.

Analysts say newcomers without prior 2G and 3G experience will need massive investment and may have to collaborate with existing second-tier operators to lower the threshold of entry into the oligopolistic industry.

Incumbents also enjoy advantages because they can allocate services via a combination of 3G and 4G networks, and the regulator’s rules also favor them, they say.

Under the regulator’s plan, a total of 270 megahertz (MHz) — 135MHz for upstream and 135MHz for downstream — of frequency band will be opened to bidding in the frequency bands of 700MHz, 900MHz and 1,800 MHz.

However, the 900MHz and 1,800MHz spectrums are allocated to existing 2G operators, such as Chunghwa, Taiwan Mobile and Far EasTone, whose licenses will expire in 2017.

“That means incumbents can launch 4G operations next year [at the earliest], but new entrants may not be able to begin operation until 2017 if they win 900/1,800MHz frequencies,” Citigroup Global Markets Inc analyst Timothy Chen said.

As a result, new entrants are likely to focus on bidding for 700MHz frequencies, because the equipment costs are much lower than those for 1,800MHz, Taishin Securities Investment Advisory Co (台新投顧) analyst Lu Hong-yu (呂宏宇) said in a note released on Monday.

Even so, for both new entrants and incumbents, building a new network and subscriber base are major challenges, Chen said.

On Monday, Chunghwa Telecom president Shih Mu-piao (石木標) said it is likely to cost between NT$20 billion and NT$30 billion (US$667 million and US$1 billion) to build all the infrastructure needed for the 4G network.

Additional reporting by Lisa Wang and Shelley Shan