Corporate Profile and Strategy
Taipei-based Chunghwa Telecom Co., Ltd., (CHT), is the largest telecom service provider in Taiwan. Services provided by the company include local calls, domestic and international long-distance, wireless services, and Internet access/data services. Chunghwa Telecom operates in five business segments Mobile (37.5% of total third quarter 2007 revenue), Fixed line (30.9%), Internet/Data services (24.7%), Mobile Handsets (4.9%), and Other (2%). Geographically, 96% of revenue is derived from the Taiwanese market while the overseas market contributed the remaining 4%. The company is Taiwan's dominant, fixed-line service provider, controlling over 97% of the local phone market with the lion's share of the long distance segment, and is a leading provider of Internet services. In addition, Chunghwa Telecom maintains approximately 36.1% of the wireless market in Taiwan. The company listed its American Depository Shares (ADS) on the New York Stock Exchange in July 2003. Taiwan's Ministry of Transportation and Communications currently owns a 42.21% stake in the company.
Continued Growth: Much of Chunghwa's success over the past decade has been driven by its continued leadership in providing fixed-line services, which include local calls as well as domestic and international long-distance offerings. Although this fixed-line business is now relatively saturated, we expect Chunghwa's faster growing wireless and Internet/Data services to drive overall growth over the next several years. At the end of the third quarter of 2007, the company had 8.66 million mobile subscribers, up 0.93% sequentially, which includes 1.99 million high-margin 3G subscribers. Mobile value-added services revenue also increased significantly by 32.4% year-over-year. Total subscriber count for HiNet Internet services was 4.07 million at the end of third quarter 2007, up 1% sequentially. The total number of users for ADSL and FTTB, combined, was 4.22 million, up 1.2% sequentially. Total fixed-line subscribers, however, decreased by 0.31% from the previous reporting period to 13 million at the end of third quarter 2007.
3G Technology Deployment: Chunghwa Telecom is the clear leader in the 2G wireless market in Taiwan, but the subscriber base has reached saturation. This has resulted in stiff competition and low margins. To retain a leading edge, Chunghwa has collaborated with Nokia to expand its 3G networks of WCDMA and HSDPA. The 3G services are expected to facilitate the company's continued leadership by offering a wider of array of advanced features and higher speeds. During the reported quarter, 3G ARPU (average rate per user) was 60% higher than that of 2G. We also expect Chunghwa to generate additional revenue from its recently launched 13-channel Multimedia-On-Demand (MOD) services in the greater Taipei area. The MOD subscriber base has increased by 74.1% year-over-year. In addition, the company is implementing an advanced broadband network, which includes rolling-out IPTV services and WiMAX/Wi-Fi access networks in most urban areas of Taiwan.
Major Strategic Move: Chunghwa recently initiated its network transformation to a single, IP-based converged network to be completed by 2013. Total budget for this plan is NT$ 130 billion (approximately U.S. $4 billion), of which a large part will be spent on fiber-to-the-home (FTTH) and fiber-to-the-building (FTTB) access infrastructure. Chunghwa is aiming to provide both of these facilities to 75% of Taiwan's population by 2011. As part of this program, the company implemented the Cisco optical network solution, which will enable Chunghwa to expand its coverage from 6 to 12 cities in different countries of Asia, Europe, and the United States. With the help of a converged IP network, the company can provide optimal bandwidth to other service providers and enterprises in overseas markets for effective communications. We believe successful deployment of an all IP-based converged network will generate considerable growth for its international revenue (currently 4% of total revenue) as many of the Taiwanese companies have offices in different foreign countries.
Strong Finances: Chunghwa Telecom has a strong balance sheet with positive cash flow from operations, as well as significant free cash flow. Completion of the Early Retirement Program for employees will reduce operating costs moving forward. Also, the company has relatively low debt obligations in comparison to peers in the industry.