Taiwan’s new telecommunications law will give wireless companies the chance to break into that country’s communications market, but a 20 percent ownership limit may disappoint some businesses.
Taiwan is making liberalization strides in hopes of becoming an Asia-Pacific regional operations center, as well as fulfilling ambitions to join the World Trade Organization. With those goals in mind, lawmakers in the Republic of China have approved a new telecommunications law that has been under debate for four years.
Under the new law, foreign investment is limited to 20 percent of network ownership and operation; an earlier draft of the law had set the limit at 33 percent. However, foreign investment is unlimited in value-added network services and private companies can apply for value-added licenses without a waiting period, according to government reports. Taiwan previously allowed no foreign telecom participation.
The government will be allowed to charge service operators for radio spectrum, according to the new law.
The U.S. Department of Commerce said non-Taiwanese telecom companies were disappointed that foreign investment was limited to 20 percent, particularly in light of predictions that Taiwan’s cellular phone market will more than double to 2 million subscribers by 2000. The market during that period for cellular switching equipment and handsets is estimated at $1.8 billion, while the paging equipment market could total $565 million, the Commerce Department said.
“With foreign investment in type one (operating) services limited to 20 percent, the necessary infusion of foreign technology and know-how may still be insufficient to help Taiwan start chasing regional hub services that would otherwise go to Hong Kong and Singapore,” according to a Commerce Department report. But conditions are sufficient to make Taiwan’s telecom market attractive, the report said.
The new law also strips Taiwan’s government-owned Directorate General of Telecommunications of its operating power, although DGT will retain its regulatory role. Network operations will be handled by a newly created, state-run firm, the China Telecommunications Co. The law also forbids cross-subsidization, addressing a concern that CTC would use its operating profits to subsidize its value-added services. Service providers can, however, cross-subsidize operating services with revenue from similar operating services, such as local and domestic or international long distance.
CTC is expected to take over operations within a year.
“Demand for cellular telephone service is high in Taiwan and the DGT has found it difficult to cope,” said Meera Singh, senior analyst for Northern Business Information of New York. There were 160,000 people in Taiwan on a waiting list for cellular service at one time last year, she said.
Taiwan’s only service operator has been DGT, which deployed cellular about five years ago on a limited basis. It was extended to all three of the country’s geographic zones in 1992.
The Advanced Mobile Phone Service network has more than 700,000 subscribers and is saturated, Singh said. “Network capacity has been inadequate despite the high cost of handsets and heavy usage charges,” she said.
To remedy that situation, DGT launched a new Global System for Mobile communications network last summer. The network has an estimated 80,000 subscribers. Singh predicts about 200,000 subscribers will be acquired in 1996, with the GSM system attracting an average of 450,000 subscribers by 1998.
The $110 million GSM system now serves the major cities of Taipei, Taichung and Kaohsiung, and includes Chiang Kai-shek International Airport and the Chung Shan freeway. It uses Northern Telecom Ltd. equipment.
The network is geared to serve 500,000 subscribers until the system is extended in May, adding service in downtown Taipei. A third construction phase in 1997 is expected to extend service to suburban areas, Singh said.
The Taiwanese government also licensed six operators to offer second generation cordless telephone, or CT2, service in September. Three operators were selected for each of the country’s three regions. Industry analysts continue to be pessimistic about the success of CT2 in light of the new GSM offering and the advent of licensing liberalization. Singh said DGT also hopes to install a personal communications services network because it believes demand for that service will be high>
