"By the end of September, the company's debt will rise to more than US$3.3 million. Financial assistance from Shin Kong and FICG will be key in addressing our difficulties," Fitel Chairman Charlie Wu said.
According to Wu, the firm's board is planning to raise around US$33 million by issuing preferential shares in October, with FICG Chairman Chien Ming-jen already expressing a willingness to purchase a 17-percent stake. However, the resignation of Shin Kong's chairman, Eugene Wu, from the company's board Sept. 5 was interpreted by market analysts as an indication of the shareholder's unwillingness to help ease Fitel's debts. Analysts cautioned that this development might trigger a confidence crisis in Fitel.
Meanwhile, Fitel Chairman Wu expressed additional concerns that even if major shareholders were willing to increase investment, the capital raised would be allocated to repaying debts. "We still need extra funds to keep operations running," he said.
Wu noted that Fitel recently had to pay access charges of around US$660,000 to two mobile operators, Taiwan Cellular Corp. and Far Eastone Telecommunications Co., to ensure that its subscribers can continue calling mobile phones on other networks.
To maintain network operations and customer service, Fitel filed voluntary petitions in the Taipei District Court Sept. 5 for reorganization and an emergency protective order, Wu said. The firm also asked the Ministry of Finance, the Financial Supervisory Commission and the National Communications Commission, the country's telecom regulator, to participate in its negotiations with banks. According to a JPMorgan Chase & Co. report, Fitel's top three creditors are Taishin Bank, Taiwan Cooperative Bank and Sunny Bank.
"We will keep negotiating with banks about a reduction in interest and restructuring debts after the courts approve these petitions," Wu said, adding that the firm has to pay around US$560,000 in interest per month on more than US$130 million in bank loans. "We hope the creditors will grant us a 12- to 18-month grace period, during which we just pay the interest on our loans."
Industry statistics reveal that the economic downturn has slowed growth in the highly lucrative telecommunications sector. The nation's three leading operators, Chunghwa Telecom Co., TCC and FETnet have all reported a decline in revenues of around 1 percent for the first half of the year, compared to the same period last year.
By comparison, Fitel's revenues for the first six months of the year slid by 19 percent. Market analysts say the expansion of 3G networks run by smaller operators offering low prices, such as VIBO Telecom Inc. and Asia Pacific Telecom, has significantly weakened Fitel's competitive edge, which is based on cheap mobile-Internet rates.
"Fitel's financial crises have sounded the first alarm bell of recession in the telecommunications industry after more than a decade of prosperity," said Rosemary Ho, a former technology adviser to the Executive Yuan. She cautioned that the telecom market on the island has approached saturation. "If First International's dilemma is not taken seriously, it may well signal the industry's first funeral bell," she warned.
NCC Vice Chairman Chen Cheng-tsan said Sept. 2 that the commission has formed a task force in response to Fitel's situation and requests the company provide daily reports on its crisis management, capital flows and changes in business subscribers. "We will focus on safeguarding customers' rights and helping the firm through its present difficulties," Chen added. The task force stated that it is not considering a takeover or an exit mechanism for Fitel, and will not transfer the company's customers to other operators.
Meanwhile, on the same day Fitel's financial troubles became public, FICG Chairman Chien visited Chunghwa Telecom and held meetings with its chairman, Lu Shyue-ching, and president, Chang Shao-tung. Chien's call sparked conjecture that Chunghwa is considering assisting Fitel through investment or a merger.
If the two companies were to merge, it might allow Chunghwa to acquire Fitel's license to provide WiMAX services for northern Taiwan. Since securing the coveted operator license last July, Fitel has been working with Motorola Inc. and UTStarcom Inc. to deploy a WiMAX network as part of the M-Taiwan project.
However, Lu and Chang held a separate conference with Ministry of Transportation and Communications officials immediately after their meeting with Chien in which they denied the speculation. "Chien's call had nothing to do with Fitel's crisis," Lu explained, adding that they only discussed a cooperative project.
Write to Melody Chen at melodychen@mail.gio.gov.tw