Chunghwa Faces Tough Competition - Analyst Blog

Taiwan's largest integrated telecom operator, Chunghwa Telecom Co. Ltd. ( CHT ), is facing intense competition in the core wireless market. The telecom market in Taiwan is oversaturated and has become extremely competitive following the implementation of certain telecom regulatory changes.

Consequently, Chunghwa competes in a tough environment with two other major service providers, Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. The wireless market size of Taiwan is small in comparison to other regional country markets, with approximately 23 million customers. At present, Taiwan has 115% wireless penetration.

Recently, Far EasTone became the first global wireless operator to launch commercial 4G LTE (Long-Term Evolution) services on the APT700 MHz spectrum. This marks a significant advancement in the global wireless industry. The technology for this network was provided by LM Ericsson AB ( ERIC ). Far EasTone Telecommunications holds licenses for both APT700 and 1800 MHz frequencies.

Chunghwa has also won 2 slots of 1800 MHz spectrums to install 4G LTE wireless networks. The company plans to initiate LTE deployment from mid-2014. Also, Chunghwa has struck a deal with LINE, a developer of popular communication apps for smartphones. This agreement will provide Chunghwa's mPro subscribers with free mobile Internet service.

At the end of the first quarter of 2014, Mobile subscriber base of Chunghwa stood at 10.78 million, up 4.1% year over year. Mobile Internet subscriber base was 4.29 million, reflecting a significant hike of 49.5% year over year. Chunghwa currently commands 35.6% of the mobile Internet market share in Taiwan.

On the flipside, approximately 59% of Chunghwa's customers use 3G services, while around 71% of Taiwan Mobile's subscribers and 63% of Far EasTone subscribers use 3G services.

If wireless and Internet/data segments fail to gain adequate business, Chunghwa's top line may be severely affected. Moreover, Far EasTone's business cooperation agreement with China Mobile Ltd. ( CHL ) is likely to pose more competitive threat to Chunghwa.

In Dec 2013, Nokia Solutions and Networks (NSN), a division of Nokia Corp. ( NOK ), renewed its contract withChunghwa to supply infrastructure for the carrier's HSPA+ network capacity expansion. Chunghwa selected NSN as its major vendor for LTE network deployment.

NSN will provide its RAN (radio access network) superior technology, supported byFlexi Multiradio 10 Base Station to Chunghwa. Further, it will deliver circuit-switched fallback technology, which will support voice services for the company's LTE smartphone users. Chunghwa currently has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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