an increase, because of costs for cutting jobs and marketing high-speed wireless services. “We don’t see very firm areas that can give us much higher profitability,” Ho-chen Tan, chairman of Taiwan’s largest phone company, said in a Jan. 24 interview at the company’s headquarters in Taipei. “We still have the same situation as last year, where we have to pay significant one-time pensions.”
Ho-chen has cut employees by 2,700 to 27,000 since the state-run operator privatized in 2005 and plans to reduce a total of 5,000 by 2008. The company’s revenue per employer was about 25 percent that of rival Taiwan Mobile Co. last year. Chunghwa is trying to expand in China, the world’s biggest telecommunications market by users, to boost revenue, as user growth slows in Taiwan, which has almost as many mobile subscriptions as people.
Profit last year fell 5.7 percent to NT$44.89 billion on sales that rose 0.6 percent to NT$184.39 billion, according to unaudited figures released by Chunghwa Telecom Jan. 10. Ten analysts surveyed by Bloomberg expect the company to report profit rose this year to NT$4.76 per share from NT$4.57 a year earlier, according to the average estimate.
Chunghwa Telecom shares gained 8.8 percent last year, lagging behind the 20 percent gain in the benchmark TAIEX index. The stock rose 1.3 percent to NT$63 as 1:10 p.m. yesterday in Taipei.
“The forecast of a profit decline may result in more pressure on the company’s share price,” said Charles Chen, who helps manage the equivalent of US$3.7 billion at JF Asset Management Co. in Taipei. “The market is also concerned about how Chunghwa Telecom is going to attract as many new 3G mobile users this year as it expects.”
Chunghwa Telcom’s revenue per employee was NT$6.83 million last year, while for Taiwan Mobile, the island’s third-largest phone company, was NT$27.4 million.
“We’ll see benefits in the future from the early retirements as costs decrease,” Ho-chen said, without saying how much job cuts will cost and what the savings will be. “Handset subsidies were more than expected because we had to promote 3G with more effort.”
The company had 942,000 3G subscribers by the end of last year, compared with 8.47 million second-generation customers. Chunghwa is targeting 2.2 million 3G users by the end of this year.
“With its aggressive promotion of 3G mobile-phones and Internet services, Chunghwa Telecom’s telecoms revenue should improve significantly this and next year,” said Kevin Yang, chief investment officer at Paradigm Asset Management Co., which oversees US$360 million in assets. “The pension payments are likely to ease next year and its profit should begin to rise in 2008.”
At the end of 2005, 97.4 percent of Taiwan’s population had mobile-phone subscriptions, while 59.8 percent had fixed-line telephones, according to statistics on the Web site of Taiwan’s National Communications Commission.
To further boost revenue, Chunghwa will spend NT$130 billion over seven years to lay fiber-optic cables to homes and offices, allowing subscribers to take advantage of content services such as its Internet-based television offering called multimedia on demand, or MoD.
The fiber-optic cables will improve the speed of the Internet service, and the purchase of content companies will enhance the range of shows on offer, he said. MoD has 250,000 subscribers and will remain unprofitable for another three to four years, even as it boosts the company’s subscribers to its high-speed Internet service, Ho-chen said.
“We’ll see better revenue next year,” after the rollout of fiber-optic telecommunications cables to Taiwan homes this year, he said, without providing detailed forecasts. “We’re making ourselves better prepared for the coming years.”
The government completed its privatization of Chunghwa in August 2005 when it sold a 14 percent stake in the form of American depositary receipts in New York and a further 3 percent to local investors the same month.
The privatization and plans to reduce employees were met with resistance from both unions and workers, forcing the company to offer cash payments to lure employees to take up early retirement. Chunghwa has declined to say how much money is being paid out for early retirements.
The company had NT$40.5 billion in cash and equivalents at the end of September, which it plans to reduce this year, Ho-chen said. Options include a share buyback, payment of dividends, or capital reduction, which involves canceling shares and issuing dividends at the same time. Under Taiwan law, companies are not allowed to pay a special dividend, while annual dividends must be tied to earnings.
“Chunghwa won’t do a capital reduction because that would make government officials worry that we’re not confident in the domestic capital market,” Ho-chen said.
Capital spending will grow from NT$24 billion last year to NT$30 billion this year, he said. Chunghwa is looking to cooperate with mainland operators in providing 3G services. China has yet to announce when it will issue licenses for the high-speed service and how many it will grant.
The company wants to collaborate with major players in China, and see if “we can have the chance to be part of a team to acquire a 3G license,” Ho-chen said.
Chunghwa would prefer to take an equity stake in a mainland 3G operator, Ho-chen said. Regulations by both governments may prevent the company from investing directly and the alternative is a consulting role in building and maintaining networks.
The Taiwanese company is set to sign a deal with China Telecom Corp, the nation’s biggest fixed-line company, or China Mobile Ltd., the world’s biggest cellphone operator by users, this year to provide services.
Chunghwa was one of the telecommunications companies whose operations were disrupted by an earthquake that struck southern Taiwan Dec. 26, damaging undersea cables. Chief financial officer Hank Wang said today that all the company’s phone and Internet services have returned to normal, while the repair of the undersea cables will be postponed to late February because of bad weather.
The 6.7 magnitude earthquake that hit the Luzon Straits damaged all seven submarine cable systems passing through the area causing disruptions to Internet and telephone connections throughout Asia.
