The mobile phone industry consists of three closely related sectors: telecom operators, mobile phone distributors and handset manufacturers. "It's a coincidence to note that each sector in the local market happens to be dominated by three principal players," said Bruce Chiu March 27, executive vice president of Senao International Co. Ltd. At the first step of the supply chain, multinational companies dominated handset manufacturing. Nokia Corp., Motorola Inc. and Song Ericsson Mobile Communications AB created mobile phones that were distributed all over the world. Once the phones reached Taiwan, however, local telecom companies and retailers occupied the majority of the market.
At present, there are three major telecom companies--and several minor ones--fiercely competing for market share on the island. Chunghwa Telecom, the nation's largest phone service provider, was established in 1996 by the Ministry of Transportation and Communications before being privatized in 2005, though the government is still its biggest shareholder. Launched in 1998, Far EasTone became the second-largest mobile phone service carrier after acquiring its smaller rival KG Telecommunications Co. in 2003. Founded in 1997 as the No. 3 mobile operator, Taiwan Mobile now operates two subsidiaries in the local market, TransAsia Telecommunications Co. and Mobitai Communications Co.
According to a Dec. 18, 2006 survey conducted by the government-sponsored Institute for Information Industry, each person in Taiwan possessed an average of 1.4 cell phone numbers. In terms of cell phone subscribers, Chunghwa had the largest market share at 51.1 percent, with Taiwan Mobile 28.9 percent and Far EasTone 24.7 percent, the report stated. On the other hand, smaller telecom operators held less than 10 percent, including Asia Pacific Telecom Group, Vibo Telecom Inc., a pure third-generation mobile operator; and First International Telecom Corp., the nation's sole low-power Personal Handyphone System provider.
As domestic telecom operators battle it out for market dominance, the mobile phone retail sector is in a similarly competitive state. In the domestic market, telecom operators usually retail cell phones within their own specific telecom distribution channels, either through company outlets or professional mobile phone distributors.
Telecom companies utilize distributors' far-reaching sales networks and professional services, while distributors market cell phones using the most competitive telecom network for customers. Senao, founded in 1979, became the largest domestic mobile phone distributor after Chunghwa purchased over 30 percent of the company's shares last December. This delivered US$300 million in annual cell phone purchase orders to Senao, as well as the exclusive rights to maintain cell phones using the Chunghwa network.
This was surprising, since Chunghwa could easily have chosen Synnex, which led the market with US$4.3 billion in sales last year. "Market observers were amazed at Chunghwa's decision to select Senao rather than Synnex, who was the largest mobile phone distributor at the time of the deal, as its exclusive agent," said Chiu, adding that "however, few would believe it took us 10 years to win the market leader's trust and the contract."
Launched as a distributor of cordless products, Senao started out as one of Chunghwa's plethora of agents in 1998 with a clear goal: meeting Chunghwa's needs irrespective of the cost, said Chiu. "During the time when Chunghwa was still a government-owned enterprise, not many people foresaw its potential, particularly in the face of a large number of rival private telecom companies with more flexible strategies in the rapidly changing market." In the end, Senao's strategy proved correct.
Being a stable partner of Chunghwa's was the first step toward becoming an industry leader, said Chiu, who explained that the second step to maintaining market leadership should center around providing more specialized services. "Having a clear strategy and executing it firmly can lead an enterprise down the right path."
Established in 1974, Synnex began as a sales agent of integrated circuit components to manufacturers of information technology, communications and consumer electronics products. During the startup years, Synnex was merely an agent awarded distribution rights in the local market by manufacturers. As prices fell and profits shrank rapidly, Synnex transformed its position from agent to service provider, said company CEO Evans Tu in the October 2006 issue of the Chinese-English bilingual monthly Taiwan Panorama. Due to its efficient logistics and rapid repair service, the company expanded its international presence across Asia, the Middle East and Africa, becoming one of the largest providers of information-technology products in the Asia-Pacific region, the magazine stated.
Synnex's rapid repair service was an unexpected advantage when the company entered the retail cell phone sector, said Tu. Promising 30-minute repairs and two-year warranties on all products sold through Synnex's shops, consumers were encouraged to focus on the importance of after-sales service, as opposed to price, when choosing a handset. Rather than developing an exclusive relationship with one telecom operator as Senao did, Synnex forged a strong reputation based on outstanding after-sales service for a wide variety of products bearing the company's brand.
Another mobile phone distributor and telecom operator, Aurora Telecom Corp., works with different domestic network providers when selling phone numbers and handsets. "It is one of our advantages to be able to offer consumers a wide range of choices in our shops," Aurora Marketing Manager Anita Hong said March 30. "After the mobile number portability service started in 2005, our shops have been providing more options and services, while making it more convenient for consumers to change their mobile network system without changing phone numbers."
According to a June 13, 2006 Taipei Times report, Aurora had a joint venture with Vibo created solely for the purpose of directly offering 3G mobile services at cheaper rates in the former's retail outlets. "To us, 3G services will become gradually more popular and increasingly necessary in our shops," said Hong.
Although the domestic cell phone retail sector is characterized by players employing distinct management strategies, the number of franchise retail outlets is still growing. Senao plans to open another 100 company-run stores by the end of this year, which will bring the total to 200, according to a March 12 report in the Chinese-language Economic Daily News. The service centers of Chunghwa--approximately 322 locations on the island--were revamped with new interiors before opening their doors bearing Senao's colors, the report continued. In addition to its 145 shopfronts and Aurora's 240 outlets, Vibo also plans to open another 100 stores across the nation.
"Besides selling phone numbers and handsets, cell phone distributors serve consumers by teaching how to use the latest models, repairing broken ones and offering consultation services," said Chiu. He further explained that distributors know what the people's genuine opinion of a new handset or service is. "We sometimes communicate consumers' needs to cell phone manufacturers and telecom operators so that they can create more user-friendly designs."
For local telecom operators and mobile phone distributors, realizing technology and operational synergies in the nation's market is an unstoppable trend, reported the Economic Daily News. With an increase of capital and resources due to mergers and acquisitions, both the telecom operating and cell phone retail sectors were growing in size. "Based on the past 10 years of working with this constantly changing technology, this industry still contains a great deal of potential for explosive growth," said Chiu.
Write to Allen Hsu at allenhsu@mail.gio.gov.tw