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Last updated: November 30, 2005 5:16 pm

Trio braced for mobile shake-up

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Taiwan?s big three mobile phone service providers are bracing themselves for intensified competition ahead of the introduction on Thursday of rules that will allow customers to keep their numbers when they switch between providers.

In other markets, such as Hong Kong and Singapore, the introduction of number portability has raised customer turnover and reduced lowered operators? profit margins.

While number portability alone is not expected to pose a serious challenge for Chunghwa Telecom, FarEastone and Taiwan Mobile ? the incumbents in Taiwan?s market ? analysts believe its arrival, together with the start of third-generation services and the entry of competitors, could shake up the industry.

?By itself, number portability is just likely to increase churn rates and create little spikes in marketing expenses,? said Dominic Grant, a telecoms analyst at Macquarie Securities in Taipei. ?But the unique combination of those three new factors in the market creates a perfect storm scenario.?

The acquisition by Taiwan Mobile and FarEastone of two smaller rivals each during the past four years has ended the previous era of price wars between them and Chunghwa Telecom, the former state-owned monopoly. The three have cleaned their subscriber bases of low-revenue users, divided the island?s mature market of 20m subscribers, one of the world?s most saturated, almost evenly among themselves. Average revenue per user has increased and their earnings before interest, depreciation, tax and amortisation (ebitda) margins have risen to as much as 50 per cent.

However, all three incumbents reject the suggestion that their cosy hold on the market will be challenged. ?We will see only minor increases in customer turnover,? said Harvey Chang, Taiwan Mobile chief executive. Chunghwa Telecom estimated the turnover rate would not exceed 5 per cent within the next six months.

The big three all claim they will not subsidise customers switching from a rival. Mobile phone users have to pay a one-off transfer fee of T$240 (US$7).

However, analysts say the incumbents are playing down the issue and will have to increase spending to stop smaller rivals from aggressively poaching customers. Asia-Pacific Broadband Wireless, a small competitor that provides only 3G services, has promised to pay the T$240 fee.

Vibo Telecom, a new entrant set to start 3G services by December, could prove?at least as aggressive. It is part of Compal, one of the world?s largest downstream electronics contract manufacturers. Its experience in surviving cut-throat competition in the low-margin own-design manufacturing business make it a likely candidate for initiating fierce price wars, said analysts.

Vibo?s late entry means it suffers from none of the burdens APBW has to bear: It is rolling out its network at far lower cost and is operating with standard WCDMA technology, which gives it access to a wide range of handset models ? different from APBW which pioneered with CDMA technology.

With their preparation for 3G, the three incumbents have already shown that they are prepared to spend big to fight for customers even if they play down competition. All three big providers have subsidised 3G handsets, Chunghwa Telecom in some cases even up to 100 per cent of the phone price.

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