The government’s decision to suspend reviewing an amendment to the Telecommunications Act (電信法) has brought temporary relief for Chunghwa Telecom Co (中華電信), analysts said.
However, the telecom giant still faces policy overhang in the future, they said.
The analysts’ remarks came after the Cabinet earlier this month again rejected a proposal submitted by the National Communications Commission (NCC) to amend the Telecommunications Act, calling for Chunghwa Telecom to offer its local loop, also known as the “last-mile” access, to rivals at cost or farm out the company’s last mile service to an independent company.
The last mile is the crucial final connection to subscribers’ residences or workplace.
For years, Chunghwa Telecom has been reluctant to give up its last-mile monopoly, given its massive investment in building most of the nation’s telecom infrastructure.
As the Cabinet has requested the commission to submit a draft of the digital convergence act (數位匯流法) early next year that will incorporate the Telecommunications Act with the three existing broadcasting acts — the Radio and Television Act (廣播電視法), Cable Radio and Television Act (有線廣播電視法) and Satellite Broadcasting Act (衛星廣播電視法) — UBS Securities Asia Ltd said the move has reduced risks on Chunghwa Telecom in the short term.
“We see the move as positive for Chunghwa Telecom, indicating less risk of opening its last mile in the short term, and with more room for negotiation under the new law, as cable companies are also last mile owners,” Hong Kong-based UBS analyst Wang Jinjin (王晶晶) said in a note on Friday.
Wang said that if the law did pass, Chunghwa would certainly be the biggest loser and would likely see its share of the fixed-line market cut to between 60 percent and 75 percent, affecting its bottom line.
However, Citigroup Global Markets said it believes it is too soon for Chunghwa to celebrate.
“As long as the NCC’s proposition to promote ‘free and fair’ competition remains unchanged, the proposed digital convergence act is likely to address the issue of Chunghwa’s last mile operation in the future,” Taipei-based Citigroup analyst Timothy Chen (陳建光) said.
Chen said the planned digital convergence act is aimed at providing a clear policy on telecommunications, cable and satellite TV, media and Internet regulation, which will “introduce more competition into the market of converged services,” he said in a research note on July 17.
Shares of Chunghwa were unchanged at NT$95.60 on the Taiwan Stock Exchange on Friday. The stock has underperformed the TAIEX by 4.68 percent year-to-date, the exchange’s data showed.
The company’s operations face headwinds in the near term, such as slower mobile data growth, a mandated tariff cut by the regulator and gross margin and capital expenditure (capex) pressures, analysts said.
Chunghwa’s net profit reached NT$10.55 billion (US$352 million) in the April-to-June period, up 15.36 quarter-on-quarter, but down 8.45 percent year-on-year.
Earnings before interest, tax, depreciation and amortization (EBITDA), which provides a better gauge of big-capex telecom companies’ profitability, was NT$20.55 billion in the quarter, rising 6.69 percent from the previous quarter, but declining 4.74 percent year-on-year, the company’s data showed.
“Despite temporary relief from the Cabinet’s decision, Chunghwa’s cash flow has continued to deteriorate due to increased capex resulting from fiber-to-the-home network build-out and broadband tariff pressure from the NCC,” Chen said.