CPC taps into telecom industry

The petrochemical product market is poised to open up in July to unfettered free competition, and the current state monopoly Chinese Petroleum Corp (CPC, 中油公司), in anticipation of a revenue decline, yesterday officially established a new telecom department (電信事業部) to broaden its business base.

The CPC plans to lease out its 462-kilometer optical fiber backbone system that runs alongside its pipelines between Keelung (基隆) and Kaohsiung (高雄).

Companies in the telecom industry hungry for transmission capacity as the nation deregulates phone and fixed network telecommunication services are expected to be CPC's major customers.

A Directorate General of Telecommunications (電信總局) official said that the first set of licenses granting leases for the use of its fiber optic cables will be announced by the end of this month.

"This year the Chinese Petroleum Corp will face the biggest challenge in its 53 years of operation," said company president Pan Wenent (潘文炎). "It [the setting up of telecom department] marks the first milestone of CPC's determination to widen its business. We will invest NT$1.1 billion this year to increase the current fiber optic carrying capacity threefold, and to upgrade the current Plesiochronous Digital Hierarchy (PDH, 近似同步數位傳輸階層) to the Synchronous Digital Hierarchy (SDH, 近似同步數位傳輸階層) system," Pan said.

"The rate of return is estimated to be between 15 percent and 20 percent," Pan said.

Wang Kuo-ting (王國定), chief executive of the telecom department, said it would take approximately six to eight months for the system to be established, and the company expects to begin operation by the end of this year.

According to Wang, it is reasonable to say the company would break even within four years.

"We have been negotiating with several major telecom companies," Wang said.

Establishing its telecom business will not only help generate income, but it may also reduce costs for the company.

"We expect to save NT$70 million in long-distance communication costs by utilizing the optical fiber line more efficiently," Pan said.

According to Chen Chao-wei (陳朝威), chairman of the CPC, as of November, the company is suffering a NT$4.6 billion shortfall in its legislated revenue contribution (monies the government expects to receive from CPC).

Pan said that gas prices domestically have risen by just 15 percent, while internationally gas prices have gone up 130 percent since February of last year.

"The cost of gas or unrefined petroleum is not fully reflected in our prices," Pan said.

CPC prices are government controlled, and cannot be raised or reduced by more than 6 percent for three consecutive months without legislative permission.

As far as generating more income is concerned, the company will also consider going into the real estate business to generate more profit, Pan said.