July 24, 2014 12:00 am JST

Newcomers mount 4G challenge in Taiwan

RALPH JENNINGS, Contributing writer

Taiwan Mobile Chairman Richard Tsai announces the rollout of the company's 4G service in June.

TAIPEI -- Taiwan's three largest mobile operators are poised to maintain their dominance as the island belatedly moves to fourth generation phone services, but there could still be surprises as they face off against competition from new entrants with strong track records in other industries.

     Newcomers Ambit Microsystems and Taiwan Star Cellular are backed by Hon Hai Precision Industry, known as Foxconn, and Ting Hsin International Group, parent of China's largest instant noodle maker, respectively. While Foxconn has a long history in assembling phones such as Apple's iPhone, both it and Ting Hsin have essentially started from scratch in mobile operations since winning 4G licenses last October. Meanwhile, mobile leaders Chunghwa Telecom, Taiwan Mobile and Far EasTone Telecommunications have each already launched 4G services over the past two months.

     The newcomers are digging into their deep pockets to acquire infrastructure, bandwidth and customers, with Foxconn reaching a 11.7 billion New Taiwan dollar ($390 million) deal in May for an initial 15% stake in second-tier player Asia Pacific Telecom that is set to lead to a full merger. Taiwan Star had also courted Asia Pacific Telecom, but instead is integrating mobile operator Vibo Telecom, which it acquired in a NT$4 billion deal with hardware producers Compal Electronics and Kinpo Electronics. Vibo and Asia Pacific Telecom have about 2 million customers for their third generation services.

     Foxconn has been looking for new growth areas as smartphone sales growth slows. "They want to transform into services and that (drive) has gone into 4G," said Andy Ye, senior analyst with market research company IDC in Taipei. Foxconn's Chairman Terry Gou has talked of offering free voice and text messaging to focus on data services as part of a broader plan to promote new Internet-based technologies. Citing one example at the company's annual shareholders meeting June 25, Gou said, according to the Taipei Times, "We can utilize the 4G network to deliver data on and monitor an individual's health on all sorts of mobile devices for a comparatively lower cost via cloud computing technology."

     Gou has also described Taiwan as a testing ground for Foxconn's mobile operations, with China seen as a future target. Taiwan's National Communications Commission, however, held up approval of Foxconn's network construction plans until July 3 amid a standoff over the company's desire to use network equipment from China's Huawei Technologies. Gou had responded to the commission's national security worries about Huawei by threatening to move Foxconn's headquarters abroad or stop paying taxes, but finally backed down after the three major mobile operators launched their 4G networks.

Upgrading the estimates

About 50,000 Taiwanese upgraded to 4G services in the first two and a half weeks it was offered, according to the Commercial Times newspaper. IDC on July 1 said it expected more than 1 million users to upgrade by year-end, up from an earlier forecast of 600,000.

     Chunghwa Telecom has put its initial focus on its 3G customers. "We will push our subscribers to upgrade," Fu-fu Shen, investor relations director, said. Chunghwa, the island's largest mobile operator, has 10.8 million customers and aims to have 400,000 on 4G by year-end. "The upgrade won't be necessary, but we hope they will go for it," Shen said. "We hope things move as fast as possible."

     Part of Chunghwa's strategy is to heavily subsidize 4G-capable smartphones to sway customers who are considering replacing their existing handsets, said Emily Tsai, senior industry analyst with government-backed research group Market Intelligence & Consulting Institute. She said rival Taiwan Mobile will compete by offering low-cost 4G phones under its own brand but supplied by Huawei and fellow Chinese hardware maker ZTE.

     Takeup rates will depend heavily on the pricing and discounts that Taiwan's operators offer. "The (sign-up) goals are lofty, but it depends on the service packages whether consumers decide to go up a generation," said IDC's Ye.

     Taiwan has come late to 4G because the government initially backed an alternative next-generation mobile technology to the long-term evolution telecommunications being implemented now. The government licensed six operators to offer mobile services using Wimax technology in 2009 in the hope that its support would help Taiwanese electronics companies to dominate the global market. This strategy collapsed as other countries and operators committed to LTE and Intel, Wimax's leading backer, abandoned its support. Only 107,336 customers are using Wimax in Taiwan now, according to the latest government figures.

     When Taiwan did move to auction LTE licenses last year, it raised NT$118.7 billion, more than 2.5 times the floor price set by the government. Even for Chunghwa, the NT$39.1 billion it spent on licenses exceeds analyst forecasts for its net income this year. And the shift still promises to give a lift to local phone makers such as HTC and new entrant Asustek Computer, as well as component makers, including MediaTek, Largan Precision, Taiwan Semiconductor Manufacturing and Wintek. Largan, which makes smartphone camera lenses, reported that half-year sales rose 53% to NT$16.8 billion on 4G model demand.