Taiwan's state-owned Chunghwa Telecom Co. is scheduled to be privatized by 2001. How will it withstand the cold winds of competition? And should customers care?
"In the past, we provided what we wanted to pro vide; today we sell what customers want to buy," says Steven Y. Chen (陳堯), chairman of the board of Chunghwa Telecom Co.
Chen is referring to the state-run carrier's dramatic shakeout since deregulation got under way in February 1996, when the ROC Telecommunications Act was amended with a view to phasing out the government's monopoly over the next five years. July 1 of the same year saw the creation of Chunghwa, a government-owned operator spun off from the Directorate General of Telecommunications (DGT), which had previously played the double roles of operator and regulator, answerable to the Ministry of Transportation and Communications (MOTC). Thereafter, the DGT was confined to the role of regulator. All this restructuring inevitably stimulated a change of culture in the government enterprise, which will soon find itself in the unenviable position of having to face market competition without the strong armor of its former monopoly to protect it.
But every cloud has a silver lining, and it rapidly emerged that less protection also meant greater freedom. Chunghwa is still state-owned, but many of the old regulatory restrictions are history. For example, it is no longer necessary for the National Audit Office to authorize major purchases or construction and maintenance projects in advance. If management wants to reorganize the company, all it has to do is win approval from the board of directors, rather than the MOTC and the Examination Yuan's civil service ministry, as in the past. And whereas under the old regime job applicants had to take a written government examination before they could enter the DGT, forced to answer questions that often had no bearing on their field, nowadays Chunghwa enjoys full autonomy over hiring its own staff, who usually face only an interview. Not surprisingly, new-look Chunghwa's employees tend to have better attitudes and work experience than had their predecessors.
Chunghwa is supposed to be more efficient, more ambitious, and hence more competitive than ever. It has to be, since private operators are mushrooming and growing in strength. "The pressure we feel from competitors is bound to grow, but no way are we just going to sit and wait to be knocked out of the ring," says Chen, who formerly headed up the old DGT and thus has an overview of both cultures. He is fond of delivering morale-boosting addresses to the company's 35,000-odd employees. "I tell them to forget about the DGT culture and adjust to the Chunghwa culture," he says. "I remind them that nowadays we're doing business, not discharging official duties."
For example? Initiatives to woo customers include the reduction of islandwide mobile-phone monthly rentals from NT$2,300 (US$66) in 1992 to the current NT$600 (US$16), and a cut in the telephone installation fee from NT$14,000 (US$403) in 1988 to the current NT$3,000 (US$86). There have also been improvements at the grassroots level: one-stop service counters, previously unheard of, are now the norm, and the company's latest innovation in its capacity as an Internet Service Provider (ISP), is enabling customers to pay income tax via the Internet.
The burgeoning Internet, of course, drives many changes, and Chunghwa is keen to introduce high-speed technology such as Integrated Service Digital Networks (ISDN). It has invested in a number of major international projects, including ST-1, a joint venture with Singapore Telecom aimed at improving satellite communication services, and the construction of thirty-five undersea cables, one of which, between the United States and East Asia, is the longest in the world.
So Chunghwa wants lower prices, better attitudes, more advanced technology, and greater efficiency. Admirable goals --but standing in the way of their attainment are a number of emerging competitors who never relax their efforts to encroach on a market that is expanding at phenomenal speed. According to Chunghwa's 1997 annual report, the number of phones per 100 persons has risen from 36.7 in 1993 to 48.3 last year, while mobile phone density is increasing even more sharply, having climbed from 40.9 per thousand persons in 1996 to 58.1 in 1997.
Taiwan's appetite for telecom services has suddenly become huge. "Telecom service is a major issue in Taiwan," notes Joseph J. Fan (范瑞穎), executive vice president of Pacific Cellular Corp. "If you're out of touch with the rest of the world, you can't integrate with the global economy."
Pacific is one of six private enterprises licensed to operate cellular phone businesses in Taiwan. Although the company only commenced operations in January this year, it is already Chunghwa's biggest competitor in the field, having attracted approximately half of all new cellular subscribers within just a few months. Equally impressive in its way is Digital United Telecommunication, whose SeedNet is Taiwan's largest ISP after Chunghwa's HiNet (the former accounts for 30 percent of dial-up subscribers and the latter for about 50 percent). So Chunghwa must not rest on its laurels, although C. J. Cherng (程嘉君), Digital's general manager, concedes that in the near term the state-owned company will have no really serious rivals.
Steven Chen plans to reorganize Chunghwa by establishing several subsidiaries to focus on different sectors, such as mobile phones, satellite communications, and Yellow Pages. At the same time, Chunghwa must move further along the road to corporatization. At present, it is still 100 percent government-owned, which has a number of drawbacks--for example, lengthy budget-review processes that slow the company down. The idea is to sell Chunghwa off completely by 2001, with a three-phase flotation that contemplates 10 percent of the shares being released in the first stage, 15 percent in the second stage, and more than 25 percent in the third and final stage. That will take the government's stake below 50 percent, and at the end of the process all of the company's existing operations will be in the private sector.
Chen is happy with the coming change, which he thinks will make it easier for Chunghwa to grow and prosper. His view is shared by others, among them Digital's Cherng, who thinks that "government officials are lacking in efficiency and usually don't have the guts to take responsibility." Fan of Pacific Cellular is also alive to the possibilities opening up in front of its biggest rival. "Compared with emerging operators, Chunghwa is rich in experience, resources, and equipment," he notes. "Also, they're a pretty bright group of people. It's a tough setup to compete with. Chunghwa has no major weaknesses, apart from still being government-owned."
One reason for Chunghwa's current strength is that over the years it has accumulated a formidable head start over everyone else. Such a situation is inevitable and many other countries have had to face up to the same problem--after all, most telecom industries start life as monopolies. But in light of the above, is construction of a level playing field possible?
Perhaps surprisingly, Joseph J. Fan of Pacific Cellular insists that the MOTC deserves a lot of credit for establishing a predominantly fair and transparent process for reviewing bids for licenses. He points out that all the successful bidders are now dedicated operators and are actively constructing telecom facilities, and he has not heard grumblings from any disappointed license applicants.
Fan also finds little to complain about in Taiwan's telecom liberalization schedule, despite a somewhat late start when compared with other developing countries, such as Thailand. "Unlike those countries, we didn't have to bring in private investors to help build the telecom infrastructure, because the DGT had already done most of the work." His comment is borne out by the fact that Taiwan has one local phone line for every two residents, even in the most remote parts of the island.
Zsehong Tsai (蔡志宏), a professor of Electrical Engineering at National Taiwan University (NTU) and a contributor to the DGT's white paper on telecom liberalization published earlier this year, is also fairly satisfied with progress. "Though we started late, all telecom operations are scheduled to be liberalized by the end of 2001," he says. "That's pretty quick, com pared with most other countries, including the United Kingdom and the United States."
By now, most telecom operations have been opened up to private operators, the remaining exceptions being fixed-line networks that involve local, long-distance, and international telephone business, and leased-line services. A 180-member DGT advisory panel to which Tsai belongs was set up in January this year to make recommendations on a number of out standing issues, and it has suggested that the market for fixed-line network operations should be opened up no later than October 1999.
Nevertheless, there is always room for improvement. "In any newly liberalized market, the regulator should keep a close eye on the dominant carrier, the market leader, because it may try to entice customers with predatory prices," Fan says. "But in Taiwan, the regulator has chosen to let the market decide who will survive." He also has reservations about the hefty size of the connection fee that private carriers are obliged to pay Chunghwa, since part of that fee relates to local-call business where Chunghwa runs a deficit, and it seems unfair to pass on the cost of it to other operators.
Another sore point is the construction of base stations, of which the more the merrier where quality of communication is concerned. Chunghwa has easy access to government land whenever it wants to build a new base station, whereas private operators are denied that advantage. "These are issues that need to be solved, but Chunghwa tends to leave questions out standing," Fan says dryly.
The main sticking-point, however, is Chunghwa's fully comprehensive fixed-line network. This is absolutely essential to provision of telecom services, and Chunghwa's is the only one on the island. "We have no choice but to take whatever Chunghwa offers," Fan says. Digital must also lease Chunghwa's fixed-line network if it wants to stay in business, and thus is in a similar situation.
The private-sector players have learned not to expect too much too soon. State monopolies the world over are like supertankers: not easy to turn around. "We shouldn't expect Chunghwa to change overnight," Fan says. "We must just hope that a relatively level playing field will be created, step by step." And there are bright spots: for example, instead of taking advantage of its dominant position, Chunghwa has cut its ISP network fees several times in recent years, reducing operators' costs and making Internet access less expensive for the consumer.
But even the acknowledged successes have to be set against the ROC government's wider goal of making Taiwan into an Asia-Pacific Regional Operations Center (the APROC plan) for a number of high-profile industries and activities, including telecommunications. On that at least, there is still some way to go. "Without a strong government determined to push for telecom liberalization, overseas players are going to think long and hard before they invest their money here," Fan says.
In particular, Fan sees a need for more clear-cut goals. He notes that the central government has yet to announce a deadline within which Taiwan is to become a regional telecom center--a fact confirmed by Wang Pi-lien (王碧蓮), director of the DGT's planning department. This is a major problem because, as Fan observes, "clear goals, good plans, and the influx of capital go together." There are also lingering doubts about the consistency and continuity of central government policies, which are so crucial to business planning. Fan has been with Pacific Cellular for almost five years now, and in that time there have been no fewer than three MOTC ministers. Such frequent personnel changes at the highest level make investors feel insecure.
So is Fan confident about the future of Taiwan's telecom industry? It would seem that the answer is yes. He notes that both the DGT and Chunghwa are on the road to reform, and that his own company is taking active steps to advance the telecom aspect of the APROC plan. Pacific Cellular is a participant in Motorola's Iridium satellite communication project, designed to make Taiwan the regional hub for all cellular communications among Brunei, Indonesia, Papua New Guinea, and the Philippines, and has already built four land-based terminals on the island. NTU's Tsai regards this as a first major step toward realizing Taiwan's APROC aspirations, at least as far as communications are concerned. "And major international telecom companies like AT&T still choose to stay here," Fan says. "They understand that Taiwan is a market with great potential, and in turn Taiwan benefits from the talent and know-how they bring in."
Chunghwa's Chen is no less optimistic about Taiwan's telecom industry, but he realizes that the challenges his company will face are not going to get any easier. According to Professor Tsai of National Taiwan University, the island's fixed-line network is likely to be opened up to competitors in 1999, long before Chunghwa is fully privatized. Chen is well aware that as much as 70 percent of Chunghwa's revenue comes from its fixed-line network, and there will be fierce competition among bidders eager to acquire a piece of the action.
Some players will have certain advantages. The Chinese Petroleum Corp., the Taiwan Railway Administration, and the Taiwan Power Co. are all likely to enter the fray by making their existing private fiber-optic networks available to those whose businesses make heavy use of fixed-line services. Chen says that Chunghwa's current network, which reaches into just about every household, is still much more comprehensive than those belonging to such potential newcomers, and anyway he is not frightened of honest competition. It is certainly a prospect that pleases Digital's Cherng. "That will give people an option other than Chunghwa," he says. "Then service providers will have to sit up and pay attention to their customers' requirements. That's the way a free economy works."
"Chunghwa's market share is certain to drop," Chen concedes, "but I'm confident we can still emerge as the leader in every area." He regards Chunghwa as a consistently excellent player on a reasonably level playing field. "If we hadn't put in so much effort, we couldn't have built such a complete and convenient network for other operators to use."
So life will be tougher for Chunghwa, but the good news is that a more efficient and generally better telecom industry is on the horizon for Taiwan. NTU's Tsai points to the government's white paper on telecom liberalization, which has three planks.
First, operators should be given a fair environment in which to compete. Second, consumers should be offered a high -quality, diversified range of services. And third, telecom-related industries, such as phone manufacturers and distributors, should be encouraged to become more profitable and vibrant. "The ultimate goal of telecom liberalization is to create an information-oriented society distinguished by its efficiency and productivity," Tsai says. "Private operators will gain market share and Chunghwa will lose some, but both sides will increase revenues. We're looking at a win-win situation here."