Chian Feng(錢鋒) has lengthy experience in telecommunications, and since 1994 has been the managing director in Taiwan of Sprint International Communications Corp. In 1988-1989, he served on a government committee convened to provide private sector input on planned telecom reforms. In December, he spoke with the Free China Review about the liberalization of Taiwan's telecom market and the obstacles it still faces.
FCR: What, ultimately, is telecom liberalization all about?
Chian Feng: I prefer to call it telecom reform, as opposed to liberalization. On the one hand, you can say that this is part of Taiwan's UN and WTO [World Trade Organization] bids, but it's also part of the government's APROC plan to create an Asia-Pacific operations center for the telecom industry. Peer pressure is also at work. Countries around the region and around the globe are reforming their markets, and Taiwan wants to be part of that.
Do the planned liberalization measures go far enough?
The provisions drafted by the government are all right, but the process has been far too slow. The proposed changes to the telecom law spent a year in the Ministry of Transportation and Communications [MOTC], and then almost another year in the Executive Yuan, and for the past three years, the draft law has been held up in the Legislative Yuan. I see the legislature as the major problem. The revision of the telecom law has been a low priority item. The slow speed of legislation creates further problems, because technology is changing so fast that any law will be obsolete within five years.
What forces are driving reform?
A number of technological developments are threatening the DGT's main revenue-generating operations, particularly in international calling services. For example, call-back services, which are legal in the United States, but are illegal here and very hard to control. With call-back service, you can dial a number overseas, in the US for example, the service can identify the caller's number without ever answering the phone, and call back. This is a cheap alternative for customers because rates in the US are much lower than here. But the service also deprives the DGT of revenue from international telephony. Like many monopolies, the DGT has been using cross-subsidies from expensive long-distance and international services to support cheaper local calling services. As new technologies deprive it of high revenues from long-distance and international calls, it can't continue to charge such high rates, and it also can't continue to rely on cross-subsidies.
Can the DGT respond effectively to foreign competition?
The DGT has a real problem with productivity. Some areas are improving, but I don't think people have really addressed the problem yet. Until they do, they won't be able to compete effectively. They must also review internal systems, like accounting. They don't really have a good accounting system, and that's compounded by the cross-subsidy practice. They couldn't tell you what percentage of their profit or loss comes from long-distance international, or local phone services, or how much those services might be costing them.
Will the planned privatization of the DGT's business operations in the form of the Chunghwa Telecom Co. (CTC) help it become more competitive?
First of all, it's not privatization, it's corporatization. Privatization is still several years away. The DGT is currently part of a government ministry, the MOTC. The CTC will be a government-run industry, and even when it's privatized, the government is likely to maintain a majority shareholding in the company. As far as increasing productivity is concerned, about 99 percent of the DGT's existing personnel will be moving over to the CTC. Some fundamental changes will have to take place before the CTC can become competitive.
What can the DGT do to boost competitiveness?
It should try to be a more aggressive and competitive player. Whether it'll be successful, I don't know. For example, it could be much more active in overseas markets and in establishing global alliances with other telecom companies. Of course, that would require financing, and would have to be approved by the Legislative Yuan.
Is it possible that increased productivity will be an automatic result of increased private sector competition?
That I doubt. If all the company's employees have job security, as is being promoted in the CTC law, are they going to be interested in improving productivity? Currently, the DGT has 97 percent of the telecom service market; the private sector has taken 3 percent with the liberalization of some value-added net work services. Even if we had full liberalization today, in five years' time the CTC will still have 60 to 70 percent of the market. So improving productivity is important to everyone. To the industry, consumers...everyone.
Do you think the government will succeed in creating a better environment for private enterprise?
Even after we have open competition, private sector companies will still have to work with the CTC, because it will have the biggest wired network in Taiwan. Private enterprises will have no choice but to work with it, at least for wired operations. If the CTC has strong productivity, then it will be good for everyone. But if it isn't productive, or if they charge high access fees to their network, which could happen, then customers will perceive private companies as inefficient or expensive, when the reality would be that it's the CTC that is inefficient or expensive.
Can the CTC hinder private sector competitiveness by charging higher costs for network access?
Yes, to a certain degree. But in the telecom industry, all companies have to both compete and cooperate. There should be a law or regulation, like in the United States, which guarantees equal access to the network. The CTC will have one branch that competes with other telecom concerns, and another part that cooperates with them by providing network services, access, and so on.
Does the MOTC see a need to make the DGT more competitive?
I'm actually a bit worried about this. My feeling is that the policymakers and the MOTC are not aware of the problem. Their stated agenda for telecom reforms indicates four main objectives: national policy objectives, economic and industry development, consumer benefit, and DGT employee welfare—meaning job security for the 36,000 members of the DGT employees’ union. But there's no mention of improving DGT productivity. That means something is definitely wrong. If productivity isn't mentioned, it would seem that it's not on the MOTC's agenda. It's trying to strike a compromise between the interests of domestic enterprises, foreign enterprises, consumers, and DGT employees. But if telecom reform is to have any impact, improving DGT productivity must be included.