In the past few years, cellular telephone usage in
Taiwan has soared to one of the highest levels in the
world. The relatively small geographical size of the
island allows for better mobile phone coverage,
and its population is welcoming of new technology.
Here's a tip for suitcase manufacturers or purse designers wishing to succeed in the Taiwan marketplace: include at least one pocket for cellular phones. The cellular mobile-phone penetration rate in Taiwan jumped by more than one-third to reach 96.6 percent--the highest in Asia and possibly the highest in the world--in the three years from 1999 to the end of 2001, according to Taiwan's Directorate General of Telecommunications (DGT), a unit under the Ministry of Transportation and Communications. Other sources put the rate as high as 130 percent for the population group between the ages of sixteen and sixty, since many people receive additional phones as gifts or premiums, or prefer to have a second line as a means of screening calls.
The resulting ever-busier radio waves are contributing to the creation of a new lifestyle. Young people who own the fanciest new phones show off by wearing them around the neck as a fashion accessory. In offices, coffee-break conversation frequently centers around the latest cell-phone styles and functions, and on the Taipei subway, operating a phone is prohibited in the first and last cars to provide a haven for those wishing to escape from the chattering of other passengers. During this February's Chinese New Year holidays, the mailing of greeting cards dropped dramatically as many people switched to sending short text messages via mobile phones, producing record service loads as high as four million text calls a day.
Besides the rapid acceptance of new technology by people in Taiwan, another factor leading to the high usage of cell phones is the relatively small geographical area of the island. Due to that compact size, the operating companies have found it cheaper and easier to build enough cell base stations to achieve wide coverage than they could in countries with a large land mass.
Just a few years ago, mobile phones were still a luxury beyond the reach of most people in Taiwan. First introduced in 1989 by the DGT--which then was both the national telecommunications monopoly and the industry's regulatory authority--cellular phones were initially marketed as optional equipment in luxury automobiles. A bulky analog portable or car phone sold in those days for more than NT$100,000 (US$3,788), a small fortune compared with today's prices. But even with the high prices, demand for the wireless communication tool mounted steadily, and the DGT was forced to keep expanding its mobile system capacity. Still, the inconvenience of the analog system then available and the steep cost of equipment upgrades served to limit the scale of market expansion.
In 1996, enactment of the Telecommunications Law ended the DGT's dual status as both player and referee. The statute confined the DGT to a regulatory role and transferred its business operations to the newly established Chunghwa Telecom Co. The company operated as an independent state-run enterprise (the process of conversion to a private corporation is still underway), endowed with the advantages of market familiarity and a huge customer base. But the privilege of keeping the entire telecom market to itself did not last very long. In December 1997, private local and nationwide mobile operators were allowed to compete for cell -phone customers for the first time.
"The competition was difficult for Chunghwa Telecom to respond to, because it was still tied up by government red tape," says Yue Chin-yi, president of Chunghwa's Long Distance and Mobile Business Group. "Until today, for instance, Chunghwa still has to abide by the rigorous stipulations set out in the government procurement law, which lessens our management flexibility and hampers our actions. We've had to go through a lot of internal adjustment to try to adapt to the new market order." The effort was well worthwhile, however, because the market liberalization took place at a time of rapid advances in wireless technology that contributed to booming business opportunities. "The introduction of the private operators into the market set off an explosive market demand that had been latent for some years," says Roger Tseng, a senior manager at the Mobihome Co., an e-commerce operation focusing on marketing wireless and digital products.
The new private operators devised a subscription policy that bundled the purchase of a handset with a service contract. "This was a significant step that brought down the price threshold markedly, making mobile phones much more affordable to the public," Yue Chin-yi notes. The system then--and still--most widely used is called the General System for Mobile Communication (GSM), which carries voice traffic on the 900 MHz and 1800 MHz frequencies. The number of cell base stations soon multiplied rapidly both in the metropolitan areas and in the countryside, and mobile operators started intensive advertising campaigns on TV, touting their abilities to provide reliable, high-quality communication services. Within a year after the opening of the market, the number of mobile users had increased from 1.4 million to 4.7 million people.
New styles and functions are
constantly being introduced to
appeal to the many consumers
who will buy a replacement
model just to keep up with the
latest trends.
As a proportion of the total population of 23 million, however, that volume still came to only 21.6 percent. One reason for the low market penetration might have been the relatively high tariffs, typically a NT$600 (US$22.64) minimum charge per month. In addition, some potential users were deterred by reports of radiation carried by the handsets. Most usage, therefore, tended to be work-related--in occupations requiring a greater-than-usual level of mobility. But at that point the market began to change more rapidly than anyone had expected. Competition continually pushed the rates downward and brought the introduction of more flexible tariff plans, while technological advances were raising the popularity of wireless communication both in Taiwan and globally. In 1999 the number of subscribers in Taiwan doubled from the year before and the mobile phone industry generated revenue of NT$106 billion (US$3.3 billion), accounting for 40 percent of the domestic telecom market as a whole.
According to the DGT's latest statistics, the number of mobile subscribers exceeded 22 million by the end of 2001. By now, most people in Taiwan seem to view cellular phones as an absolute necessity--something that must accompany them wherever they go. This vibrant market is dominated by four nationwide mobile operators: Chunghwa Telecom, Taiwan Cellular Corp., Far EasTone Telecommunications, and KG Telecommunications, with the first three controlling about 80 percent of the total revenue. Under current legal restrictions--expected to be liberalized in the near future--direct foreign investment in a telecom company is limited to 20 percent of its capital. Among the major existing foreign investors are GTE PCS International and AT&T Wireless (both of the United States) in Taiwan Cellular and Far EasTone respectively, and Bell Canada in KG Telecom.
"Four operators in a market size of 23 million people makes for a reasonable competitive intensity that's conducive to the mobile businesses' survival," says William Newton, vice president of Taiwan Cellular, which is challenging Chunghwa Telecom for market leadership. "To look at the market now in terms of penetration rate is an outdated point of view. We've been successful in getting a phone in just about everybody's hand. Now we're just starting the next step--finding creative ways to make sure that everybody uses their mobile phone to the fullest extent."
That next step is two-pronged. One aspect is to further promote the use of mobile phones for voice communications, gradually replacing fixed lines as the main channel for people to talk to each other by phone. Toward that end, the operators have been trying to come up with more attractive pricing offers, including various types of discounts. The second approach is to move on to the next product cycle, which involves "information-on-demand services." These involve what the industry calls value-added services (VAS), plus such new technologies as 3G (third generation) and GPRS (General Packet Radio Services). VAS includes a number of plat forms that are already in use: SMS (Short Message Service), IVR (Interactive Voice Response), VMS (Voice Mail System), Internet-access technology such as WAP (Wireless Application Protocol), and servers specifically geared to providing email access.
Following its rapid rise in the mobile phone penetration rate, Taiwan has found itself in the vanguard of the industry worldwide. "The major issues that Taiwan faces now are the issues of the global industry because Taiwan has developed to a point where it's standing at the leading edge," Newton says. "Whatever new developments occur in Taiwan are going to be reproduced in other places." Mobile chat groups, which double as a dating service, and Chinese-language mobile Internet service are examples of innovations introduced in Taiwan that are attracting interest elsewhere, especially in China.
Chunghwa Telecom's Yue Chin-yi concurs that the new services hold vast potential. While VAS currently constitutes less than 2 percent of the company's revenue, he regards its future development as highly promising due to the continuing integration of mobile phones with various other types of wireless technology--for example the Internet, PDAs, and even digital cameras. WAP is also expected to grow rapidly because it can now be built on the GPRS platform, enabling data to be transmitted in pieces through shared circuits to increase the speed and volume of the traffic.
Domestic mobile operators, moreover, are working with related companies and organizations, such as content providers, Internet service providers, and the semigovernmental Institute for Information Industry, to create a VAS platform that would be shared by everyone in the market for greater efficiency of data transmission. An example of how this step could vitalize the business is seen in the conversion of the operators' individual short-message platforms into an integrated service in November 2000. In the year and a half since then, Yue Chin-yi notes, SMS usage has experienced a ten-fold increase. In addition, the DGT plans to issue five 3G licenses to keep Taiwan in line with future trends. By increasing data-transmission speed up to two megabytes per second, 3G aims at turning cell phones and handheld computers into mobile, high-speed web-accessing devices. In an auction held by the DGT in February, six companies bid for five licenses, and four of the bids exceeded NT$10 billion (US$286 million). Since it is still uncertain how soon 3G technology will be operational, three companies have started to offer interim services on the GPRS system--nicknamed 2.5G because it serves as a transition between GSM, which is defined as the second generation, and 3G.
Although Taiwan consumers are becoming ever more taken with visions of the "mobile life," distributors of the handsets are feeling an increasing sense of gloom. The current business slump is perhaps the inevitable aftermath of the explosive prosperity of previous years. Worldwide overproduction of handsets in 2000 led to a global inventory of more than 100 million units, causing many distributors to engage in drastic price-cutting. But even during such difficult times, merchants in Taiwan were able to outperform their counterparts in other countries because of the vitality of the domestic market. The distributors are now becoming resigned to the notion that their best days are behind them, and that the major portion of their sales in the future will have to come from the replacement market. At least half of Taiwan's mobile users tend to replace their phones every six months on the average, which contributed heavily to the estimated domestic sales of 4.5 million handsets last year.
According to Mobihome, 40 percent of consumers who buy a new phone for replacement do so to take advantage of a better tariff package for mobile service, while 23 percent are attracted by the styles and functions of the new models. "Techie" consumers who enthusiastically purchase all the latest gadgets may soon find their heads spinning. Color screens have already come onto the market, as well as enlarged screens designed to pave the way for the coming trend of enhanced data services. Some 3G-related services such as MMS (Multimedia Messaging Service) may also be introduced in advance of the 3G system itself. And the mobile operators are still aggressively trying to find additional ways to add to the attractiveness of their service. The people of Taiwan, it seems certain, will be increasingly reliant on that little communication device in more and more aspects of their daily lives.
Making It
Besides being a large market for mobile communication services, Taiwan is also a leading producer of the handset equipment. Total output in 2001 reached an estimated 12.9 million units, according to the Institute for Information Industry (III), a 33.8 percent growth from the year before. With substantial orders continuing to flow in from the major international brands, including Motorola, Nokia, Panasonic, Siemens, and Sony-Ericsson, III this year projects growth by over 93 percent to reach 24.9 million pieces--with a climb in production value to NT$1.6 billion (US$45.7 million) from NT$857 million (US$24.5 million) in 2001.
But some manufacturers contend that those projections are too conservative, and estimate that output this year should exceed 40 million sets. Three companies--BenQ, DBTEL, and Compal Electronics--each say they expect to produce more than 10 million phones in 2002. The biggest market for Taiwan's cell phones is China, which replaced Europe last year as the number-one export destination.
By the time Taiwan's cell phone makers started operations in 1999--much later than their European and Japanese competitors--the market was already dominated by the European standard, known as GSM. That puts the Taiwan manufacturers at a disadvantage in producing the key components, such as power amplifiers and transceivers. But with its strong background in computer technology, Taiwan has found it relatively easy to gain competitiveness in making such peripheral components as connectors, PC boards, and speakers.
The Taiwan industry's design capability is another plus. In their relationship with the international brands, several companies have moved beyond the normal subcontracting basis--known as OEM (for Original Equipment Manufacturing)--to ODM (Original Design Manufacturing), in which the foreign customer commissions the Taiwan company to design and make the product. Three manufacturers have even moved on to the next stage of marketing under their own brand names--BenQ (part of the Acer Group), DBTEL, and Inventec Appliance Corp.