The government's plan to privatize Chunghwa Telecom (中華電信) will take another step forward this week when the Ministry of Transportation and Communications sells a 17 percent stake in the company through a planned American Depositary Receipt (ADRs) offering in the US, and a public auction here in Taiwan.
This step doesn't come easily, however, as the sale has already been put off three times since 2003 following months of union opposition and political clashes. When the sale is completed, Chunghwa will gain a more flexible management structure and a larger investment base. And importantly, the government will earn funds needed to reduce its public debt.
The telecommunications liberalization is one of the biggest business issues facing governments worldwide, and countries such as China, France, Germany, Singapore and Finland each undertook privatization programs last year.
In Taiwan, the release of Chunghwa shares is crucial, because the issue will affect not only government revenue -- the sale is estimated to bring in nearly NT$100 billion (US$3.14 billion) to help the government plug its rising budget shortfall -- but also the development of the domestic telecom market, the rights of common investors and the benefits of Chunghwa employees.
As a state-run enterprise, Chunghwa is subject to extensive regulations in accordance with the nation's laws and rules. The company's autonomy is limited by government regulations and legislative oversight, which company executives contend has handicapped the firm's ability to compete with up-and-coming rivals.
Without these limitations, once the company is privatized, Chunghwa said it will increase its management and operational flexibility to more rapidly and efficiently develop its business amid fierce competition that is hurting profits. It is hoped the company can implement cost reduction initiatives in response to changing market conditions.
But this is exactly what the 28,000 workers at Chunghwa are worried about -- the possible losses of jobs and generous pension rights. Meanwhile, critics have also expressed deep reservations about how the government's bid to turn its majority stake into private hands will negatively affect telephone and Internet users in rural areas, where such services are generally deemed unprofitable for private telecom operators.
The legislature also feared privatization would take away its powers of control, and has passed four resolutions since May 2003 to ban the sale of Chunghwa shares, with some lawmakers even petitioning the New York Stock Exchange and the Securities and Exchange Commission in the US to stop it.
It is in this enviornment that Chunghwa has moved back and forth along its privatization course since the government started offloading its shares of the company in 2000. While signs of recovering equity markets have helped boost the government's enthusiasm for pressing on with privatization of Chunghwa -- it has announced it will complete this task by the end of the year -- political squabbling is always a hindrance.
Workers in the union are entitled to bargain for what they want with the management, because that is their right. Critics are justified to air their concerns over the future telecom development in this nation. Lawmakers also have good reasons to worry about possible unfair competition between Chunghwa Telecom -- which already enjoys unparalleled leadership in fixed-line, wireless and Internet services due to its state-run, dominant role -- and other telecom operators as a result of a lack of legislative supervision.
But these people should be reminded that any deal will work better than continued government control of Chunghwa. The company's union has, predictably, threatened strikes protesting the upcoming share sales.
These parties need to calm down. What Taiwan needs is to allow the sale to proceed as scheduled, and the government must work to monitor it to ensure that privatization turns out for the best.
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