On Mar 20, 2014, we issued an updated research report on Chunghwa Telecom Co. Ltd. (CHT). Chunghwa reported mixed financial results for the first quarter of fiscal 2014.
Chunghwa is a dominant telecom operator in Taiwan presently holds 80% of the nation’s broadband market and nearly 35% of the wireless market.
Chunghwa has won 2 slots of 1800 MHz spectrums for the installation of 4G LTE wireless network. Furthermore, the company intends to bid for 2600 MHz spectrum in an auction expected to be held in 2015. In 2014, the company plans to deliver data speeds between 300 Mbps and 1 GB. Moreover, Chunghwa intends to initiate LTE mobile high-speed broadband service this year.
Chunghwa plans to offer both broadband and MOD plans in a single package, thereby driving MOD subscription and fiber migration. Moreover, the company’s IPTV and ad revenues grew 20% and 37%, respectively, from the year-earlier quarter. Chunghwa is optimistic about maintaining the favorable momentum in the advertisement segment, going forward.
On the downside, the Taiwanese telecom market is oversaturated and has become extremely competitive following certain telecom regulatory changes. Chunghwa competes in a tough environment with two other major service providers, namely, Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd. The Taiwanese market is relatively smaller than other regional markets, with approximately 23 million potential customers.
At present, Taiwan has a 115% wireless penetration. We expect fierce competition going forward as the Chinese telecom behemoth, China Mobile Ltd. (CHL) and Far EasTone Telecommunications are collaborating for the deployment of 4G LTE-TDD network technology.
The National Communications Commission, the telecom regulatory body of Taiwan, has reduced the mobile interconnection rate effective Jan 5, 2013, for the next 4 years. Accordingly, Chunghwa has to reduce its mobile voice tariff. Additionally, from Apr 2013, the company has reduced charges for broadband, IP peering and domestic leased line wholesale services. All these measures are likely to hurt the company’s revenues over the upcoming years.
Chunghwa currently carries a Zacks Rank #2 (Buy).
Stocks That Warrant a Look
Other well-performing stocks in the telecom industry include BT Group plc. (BT) and Sprint Corporation (S). Both these companies have the same Zacks Rank as Chunghwa.