Taiwan Mobile Acquires 74.09% Stake in Taiwan Fixed Network

In a Taiwan Stock Exchange filing, Taiwan Mobile said it bought a total of 4.78 billion shares, or a 74.09% stake, in fixed-line operator Taiwan Fixed Network in a tender offer that ended last Friday (13 April). The island's third-largest mobile operator by revenue launched the tender offer through its wholly-owned unit, Taihsing International Telecommunications, in March to increase its holding in Taiwan Fixed Network and tap into cable-TV and broadband services. Taiwan Mobile held 9.95% of the fixed-line operator before the tender offer. Based on an earlier statement by Taiwan Mobile that it would pay NT$8.3 for each share, the mobile operator would have spent NT$39.67 billion (US$1.2 billion) on the additional stake in Taiwan Fixed Network.

Outlook and Implications

• Diversification into Broadband and Cable TV: The deal would help Taiwan Mobile diversify into broadband and high-margin cable-TV businesses. The operator will become the second telecoms firm on the island to offer mobile, broadband and pay-TV services over its networks. Currently, only the industry leader, Chunghwa Telecom, offers integrated telecoms services. Taiwan Mobile projected that the acquisition would boost its annual revenues by 19%. The mobile operator generated NT$58.9 billion in revenues in 2006. Furthermore, it expected the consolidation would add ten percentage points to its margin in earnings before interest, tax, depreciation and amortisation (EBITDA). The EBITDA margin for cable TV is about 56%, according to the operator's calculation. In addition to its core fixed-line and broadband businesses, a quarter of Taiwan Fixed Network's total revenues come from its fully-owned cable TV unit, Pacific Broadband. The unit ranks as the fourth-largest cable TV operator in Taiwan with a market share of about 10%, or 500,000 subscribers.
• Consolidation between Telecoms and Cable TV Segments: Fierce competition and limited organic growth opportunities in Taiwan's maturing telecoms market, particularly in the mobile segment, have driven Taiwan Mobile to diversify into the cable TV market in order to generate new growth momentum. With a population of some 23 million, the number of mobile subscribers on the island had reached 22.1 million, including 18.2 million 2G and 3.9 million 3G users, by the end of February. The mobile penetration rate stood at approximately 96%. As the telecoms market continues to mature, we expect to see more consolidations between telecoms and cable TV segments to take place. Although such a trend will, in the long term, create more competition for Chunghwa Telecom, Taiwan Mobile's move will not pose an immediate threat to the incumbent operator, as the market shares held by Taiwan Fixed Network and Pacific Broadband are fairly small (see Taiwan: 4 January 2007: Chunghwa Telecom Plans US$4-bil. Network Investment Over Next Five Years and 31 May 2006: Taiwanese Government Plans to End Chunghwa Telecom's Last-Mile Monopoly).