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April 17, 2007 1:09 am

A long journey to the era of light

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In its latest TV advertisement, Chunghwa Telecom welcomes its customers to the “era of light”.

An orange-coloured ball emerges from the dark and then gives way to Ho Chen Tan, chairman of the Taiwanese company, sitting back to back with Kuo Hung-chih, a Taiwanese baseball player for the LA Dodgers, who introduces the benefits of Chunghwa’s advanced fibre-optic network.

The hip advertising campaign is part of Chunghwa’s efforts to shake off its image of a bureaucratic behemoth following its privatisation in August 2005.

Over the past 20 months, Taiwan’s largest telecoms operator has started slimming down through an early retirement programme, committed itself to improving its capital structure and aggressively investing in modernising its networks and buying into content providers and distributors.

But for Mr Ho Chen the hard part is still ahead. The former communications ministry official has faced resistance to internal restructuring, persistent government meddling and a challenging regulatory environment as he tries to transform Chunghwa into a true private enterprise.

The most immediate issue is keeping investors happy. Chunghwa said months ago that it would strive to make better use of its cash and return some of its T$210bn (US$6.32bn) capital surplus to shareholders.

The company needs to finalise a proposal this month to be put to its June annual meeting for shareholder approval. But management says it is finding it extremely difficult to get clear government support for even a modest capital reduction.

Under current rules, the company is only allowed to pay out 10 per cent of total share capital, or T$9.5bn, in one step – a measure that would amount to a special dividend of no more than T$0.98 per share.

Mr Ho Chen says that since the special approval required for a more drastic capital reduction is out of reach, he has settled for this moderate amount for now and plans to do more later.

“Some people in the government think doing a capital reduction at a time it wants to demonstrate it is doing big investments will send the wrong message,” Mr Ho Chen says. “But if you politicise everything, you’ll never get anything done.”

Meanwhile, Chunghwa’s labour union is protesting at management plans to increase efficiency through another early retirement programme, rationalisation of units and the adoption of performance-based compensation.

Management claims that it will remain firm. The company has given employees bonuses in 2005 and 2006, Mr Ho Chen says. “But this is a give and take. I have given, and now I’m going to have to get something.”

Another concern is the role of the National Communications Commission, Taiwan’s telecom regulator. Shortly after the new body’s inauguration last year, the Council of Grand Justices ruled that the way NCC’s members is picked is unconstitutional and should be amended once their three-year term ends.

But the NCC has taken a very active course over the past year, forcing telecoms operators to lower prices and remove cell phone base stations, in response to consumer complaints, as well as pushing a tender for licences for Wimax, a new wireless technology that covers a much bigger area than a wi-fi wireless network.

Mr Ho Chen charges that the constitutional ruling has driven the regulator into a populist attitude that risks doing lasting damage to Taiwan’s telecoms industry. “They have proven very willing to force mobile operators to give money back to consumers because that attracts applause,” he says. “But they don’t care about a reasonable industry landscape.”

This could particularly prove true in the case of Wimax. Although the technology is not considered mature, the government wants to push the system to help hardware manufacturers get ready early enough to gain an advantage in the global market.

The telecoms regulator is handling the tender without a thought about what this will do to the telecoms industry, says Mr Ho Chen. “Taiwan is not a country that can completely let the free market decide,” he says. “As our government has policy directions, our industry also needs some support.”

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