Thoughts of chairman Mao: Chunghwa Telecom chairman Mao Chi-kuo has seen the worst of the sliding market for telco stocks, after four unsuccessful attempts at a partial-privatization. Mao and the Taiwan government are not giving up yet. Speaking with group editor Robert Clark, Mao cites the company's recovery in mobile, fast broadband rollout and revived corporate culture as reasons to believe - One-To-One

Telecom Asia, Oct, 2002 by Robert Clark

Telecom Asia: The hot issue of the moment is over who has the right to set prices for calls between mobile and fixed networks. What is Chunghwa's view?

Mao Chi-kuo: I think the decision was made during the period when the mobile market was just about to take off. At that point, I would say it was appropriate to give mobile operators some advantage on the pricing decision. But after four or five years, I would say that the situation has changed.

At that time, mobile only accounted for 16% of the total revenue, but today it is more than half--I think last year it accounted for 52%--so I would say that the situation has skewed to the other direction. A lot of people are also arguing that now is about the time to review this old policy, to make the whole pricing mechanism more logical.

How would it affect Chunghwa Telecom's revenue?

In the short-term, because of the interconnection fee and so on, there's a change in the formula, and we can see a little bit of a revenue increase from this revision. But what is really important is this lays a foundation for a long-term, more rational basis for fixed line development.

In Taiwan's long distance and broadband markets, are we seeing a repeat of the mobile sector, with a lot of operators generating heavy price competition?

As far as pricing is concerned, the long distance market has changed most significantly. That should be no surprise, because in the past it was a monopoly, so after it opens up we would see a return to cost-based pricing.

For those CLECs, the long distance market is easier to attack. So yes, we do compete in some way on price in long distance. But usually they are promotional prices rather than the list prices.

As to broadband, I don't think there is real price competition. We did reduce our price twice since we aggressively began our ADSL rollout, but I would say that those two price reductions were basically reflecting our costs--I mean our procurement cost, because we do enjoy a very significant quantity advantage in our tender. The actual price concluded from the tender was way below our original target. So we simply reflected those cost drops.

How wide is your DSL coverage today?

Currently we have close to 1.6 million DSL subscribers, and still growing very fast. Last month, in a single month, the new adds were more than 120,000. In market share Chunghwa accounts for more than 85%.

Inevitably, perhaps, your competitors say they can't compete fairly with you, and that's why you have so much market share.

In other countries, the market share between the DSL and cable modem is relatively half and half, but I would argue that in theory ADSL is a kind of technology developed for incumbents. I would say probably that Chunghwa is one of the very few incumbents to really roll out ADSL successfully on such a massive scale.

Looking forward, where is the business going to come from in the future?

If we want to maintain our top-line revenue, we have to maintain our growth in mobile and data.

For Chunghwa Telecom, up to now, the growth from these two businesses is OK. But I would like to see more revenue generated from value-added services, for both mobile and broadband. Currently the value added, or non-voice is a relatively small portion. The real value-added services--other than access and ISP for broadband--is also very shallow. So we would like to see higher growth in this part of the business.

Why has it been so difficult to sell of parts of Chunghwa Telecom on the stock exchange?

I would say that as far as the performance metrics are concerned, Chunghwa Telecom's today is at the upper end, compared with our counterparts around the world.

However, as to the privatization timetable and on the pricing of the IPO--all those things are decided by the government, not by the company. Maybe the government is still waiting for a better time.

What do you think has been the reason? Because the markets aren't friendly toward telecom stocks?

I would say it is because we are an integrated carrier. Before the world, and in particular the European and US carriers, financial situation got into trouble--I'm talking about six months or one year ago--a carrier like us was relatively unfavorable on the stock market. So probably the government would consider the pricing is not very advantageous to us.

However, recently we found some changes in the direction of the winds blowing in the international investment community. I'm not sure, but probably a more favorable situation in the stock market is emerging, and probably the government is waiting for that kind of moment.

As chairman of this state-owned company, what do you understand your role is in privatization?

I would say that my agenda in a way has changed, evolved, every year. For last year, 2001, because that was the year the fixed line market opened [to competition], my goal was try to maintain top-line [revenue]. So we had to grow our mobile and data business significantly as well to fill the gap in top-line revenue. I would say basically we made it, for last year.