Taipei Times: How many customers does your company have now and what is Far Eastone's future direction as a business?
O'Konek: We like to measure our market based on the number of SIM [Subscriber Identity Module] cards, and right now we have 3.8 million revenue producing SIM cards. According to government statistics, the SIM card penetration rate in Taiwan is about 90 percent. When you look at the Taiwan market from November 2000 to November 2001, revenue has been almost flat.
So, even though the number of SIM cards [in use] is up 30 percent, spending on cellular services hasn't increased significantly.
PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES
But for Far EasTone, from 2000 to 2001, we have seen a year-on-year revenue increase of about 15 percent. So, we are growing faster than the market average. We had about a 55 percent net income increase this year.
As for market share of SIM cards, Far Eastone is number four, in terms of revenue we are number three in the industry in Taiwan.
TT: What services will generate higher revenue next year?
O'Konek: The other interesting measure the industry is looking at now is the percentage of revenue coming from wireless data services -- most of it is coming from SMS [Short Message Service]. Today about 3 percent of our revenue comes from data services, and that number is about 40 percent higher than last year. Compared with the company with the largest number of SIM card users -- Chunghwa Telecom -- only about 1.5 percent of their revenue comes from data. So, when we talk about the future business we [believe] it will come from new sources of revenue; not just people talking on their phones, but using mobile phones as messaging devices to access information and download pictures.
TT: Do you think mobile data will be the major revenue driver?
O'Konek: I think it will take a while to become the major source. We should look at what percent of our revenue is coming from products and services that don't exist at this moment. I will say the majority of our revenue growth next year will come from data services and from corporate service business. Taking North America as an example, about 15 percent of cellular companies' revenue come directly from the corporate service [sector]. Europe is about 15 to 20 percent; Hong Kong and Japan are about 10 percent. However, the number in Taiwan is less than 3 percent.
TT: When will Far EasTone launch GPRS services?
O'Konek: We don't plan to launch GPRS soon. There is no customer who would buy anything with GPRS except if they're interested in some unique service. If there is something really compelling, customers will want to go out and buy a new handset. But now we don't see a huge demand for GPRS service.
However, since early 2000 we have been looking at SMS. Everybody's mobile phone can do SMS, so we decided to run our messaging coupon service *147#.
We began to think that what people do with the network on the phone is the driver of their behavior. Just because you get people to buy a WAP [Wireless Application Protocol] handset doesn't mean they will use it for surfing the Internet or doing anything new. The same thing is true today: If you buy a GPRS phone, what are you gonna do with it?
TT: What are the major factors behind a successful wireless Internet service?
O'Konek: The things we actually look at is what we call the eight building blocks of the wireless Internet, including customers, applications, navigation, common service platform, IP network, handsets/devices, sales/services and barriers of entry.
The first thing that customer need is the right "application," the killer application to attract them. The second thing, we call "navigation," which is like the interface. Navigation also links to devices, because devices often have some interactive functions. However on a GSM phone today, there is no standardization on handsets, so if you want to run a Web browser through our platform, it will run slightly differently. That is one of the big challenges. Our problem is the navigation, even if we use the same software, when customers move to a new handset, the interface format will change.
Next is the "platform" which allows application developers to write applications. Then we can, from there, run on GPRS, SMS or say, the fixed line Internet.
We plan to set up the platform and then application developers can write suitable programs for us. Right now we are building and are going to launch a platform later this month, which we have been working on with IBM.
You also have to have your sales and service channels ready. Thinking about what happens when you go to a telecom shop and ask about GPRS. The sales or customer service people don't know what to tell you. So, I think getting sales and service channels ready is very critical for the service to take off.
TT: Does Far Eastone plan to spin off its sub-departments anytime soon?
O'Konek: We combine our sales and service functions into one group, because customers only need one window to contact us. Now [that] we have six clear divisions, internally they can operate as independent business units. We plan to use the service-level agreements between divisions, which clearly state what one department will do for another during any joint effort. The structure gives us more flexibility.
We have no immediate plan to change the structure of the company, but internally we have begun to operate each division independently. When you are in a growth market, you have to keep close control over your business processes.
TT: Far Eastone was listed on the Taiwan Stock Exchange on Dec.10. Where is the money earned from the stock sale going to be put forward?
O'Konek: Taiwan's structure for telecommunication companies is unique; it is the only category requiring you to have a local listing before you can list offshore.
The Over-the-Counter (OTC) requires the company to have 10 percent of its share or 10 million shares listed.
Far Eastone listed at NT$31 [per share] on Dec. 10, selling 10 million shares, and one million of that went to the underwriters.
Our majority shareholders are all locked in, 90 percent of the shareholders are partially locked in for at least six months. And this really gives our company a lot more flexibility.
Before the listing when we needed more capital, our only choice was to go back to company owners or to borrow. In the future when we need to raise equity, instead of our existing shareholders putting in money, we can do offerings internationally or in Taiwan. I think we can completely fund our business without cash in 2003. There is no immediate need for Far Eastone to raise cash.
TT: Your stocks are doing well and went up 7 percent daily for the first three days.
O'Konek: This probably comes back to the structure in Taiwan. Under the OTC rule, the government sets the listing price, but in the typical foreign markets the existing shareholders are able to set the price, basing on market value, not the government's formula. I think that's the main reason why many analysts say Far Eastone is undervalued.
TT: What are Far EasTone's China plans?
O'Konek: Today, under government regulations, our company will still focus on the Taiwan market; however, we are exploring the opportunity of transferring the platform, applications and content here to other Chinese markets. The [mobile] usage market in China is mostly influenced by Taiwan, then Japan and a little bit by Korea. It is not really influenced by Hong Kong or Singapore, because most of their content is still in English. So, we get the great potential opportunity to work with companies in China.
TT: What is Far EasTone's plan for 3G?
O'Konek: We are talking about launching 3G services in late 2003 or 2004. I think that will be factual once the auction is done and companies determine what is the best schedule. It will depend on the market readiness as well. Generally speaking, 3G networks are going to operate in the later half of 2002 and handset manufacturers will provide the first generation 3G phones by the first quarter of 2003.
Mobile service will be substantially better on 3G networks.
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