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Cablegate: Cross-Strait Telecommunications - Industry

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 TAIPEI 004005

SIPDIS

SENSITIVE

DEPT FOR EAP/TC AND EB/CIP/BA
DEPT PLEASE PASS AIT/W

E.O. 12958: N/A
TAGS: ECPS ECON EINV PREL CH TW
SUBJECT: CROSS-STRAIT TELECOMMUNICATIONS - INDUSTRY
COOPERATION, GOVERNMENT RESTRICTION


Summary
-------

1. (SBU) Cross-Strait telecommunications thrive with over 50
million direct dial calls placed across the Strait every
month that account for 35 percent of Taiwan's outgoing
international calls. Many Taiwan telecom firms have
partnered with PRC counterparts to provide special
cross-Strait services aimed at Taiwan businesses with
investment in the Mainland. However, Taiwan prohibits
investment in the PRC telecom sector. Many firms have
concerns about the investment environment in the Mainland,
but some are looking into future investment opportunities.
The Taiwan government should move out of the way and allow
cross-Strait telecommunications commerce to grow. End
summary.

Industry Thriving
-----------------

2. (U) Cross-Strait telecommunications is a thriving
industry. Over 50 million telephone calls totaling more than
190 million minutes were placed across the Taiwan Strait in
September. Calls to Mainland China accounted for 35 percent
of Taiwan's outgoing international direct dial calls in
number of calls and 44 percent in total minutes. China has
been the number one destination for international calls from
Taiwan since 1995. Furthermore, these figures only take into
account traditional fixed-line and mobile phone telephone
calls. Voice-over-internet protocol (VOIP) calls, which
offer cost and privacy advantages, are not counted. China is
also the largest source of roaming charge revenue for
Taiwan's mobile phone service providers.

3. (U) Phone calls across the Strait are easy to place and
fairly inexpensive. Charges for a direct dial call to the
Mainland are as low as USD 0.10 per minute. Fierce
competition has pushed prices down substantially in recent
years and continues to benefit consumers. As with
international direct dial calls and mobile phone calls in
other parts of the world, connecting charges for calls placed
across the Strait are processed through international
clearinghouses. Officially, Taiwan and the PRC have not yet
implemented direct cross-Strait telecommunications. All of
this traffic takes place under the fiction that because the
calls traverse submarine cables that are owned by
international consortia or are transmitted by satellites, the
connections are indirect.

Commercial Partnerships Expanding
---------------------------------

4. (U) After international direct dial service to the PRC was
established in 1989, the majority of cross-Strait calls was
to family members. In recent years, Taiwan's massive
investment in the PRC and the sizable community of Taiwan
businessmen who live in the Mainland to oversee these
investments have driven most of the demand for cross-Strait
telecommunications. Targeting these business customers,
several Taiwan telecom firms have entered agreements with PRC
firms to provide various cross-Strait telecom services.
Under these agreements, the PRC and Taiwan firm each provide
half of the circuit for specialized telecom services such as
international private leased circuit (IPLC), internet
protocol virtual private network (IPVPN), and
video-conferencing. The firms offer one-stop shopping for
billing and service. So for example, a Taiwan firm with a
factory in the PRC and headquarters in Taiwan might request
service from a Taiwan telecom firm, have equipment installed
and maintained in both Taiwan and the Mainland, and then
receive a single bill from the Taiwan telecom provider.

5. (U) Major Taiwan fixed-line service providers, such as
state-owned Chunghwa Telecom (CHT) and private Taiwan Fixed
Network (TFN), have partnered with multiple PRC firms to
offer these services. CHT's Mainland partners include China
Telecom, China Netcom, China Unicom, and China Mobile. In
addition, some Taiwan telecom firms that lack their own
circuit facilities but lease the circuits of other firms also
offer similar services. Chief Telecom, a firm that focuses
on international data services, offers cross-Strait data
transmission using the networks of firms like CHT and TFN.
Data transmission applications include many of the same
services offered by fixed-line service providers such as IPLC
and video-conferencing.

Investment Prohibited
---------------------

6. (SBU) While China has become the primary destination for
investment among Taiwan's manufacturing firms, Taiwan telecom
industry investment in the PRC is virtually non-existent.
The Taiwan government prohibits any investment that falls
under the category of telecommunications but is in the
process of reviewing the prohibition for possible
liberalization. Other factors also limit interest in
Mainland investment among Taiwan telecommunications firms.
Many firms are concerned about the investment environment in
the Mainland. Taiwan Telecommunication Industry Development
Association Chief of Public Affairs Rachel Liu told AIT/T
that excessive restrictions and lack of regulatory
transparency discourage telecommunications investment in the
PRC. In addition, as CHT Vice President of the
International Business Group T.F. Leng explained, CHT is
prohibited as a state-owned enterprise from investing
anywhere overseas. On the other hand, Charles Hsiung, Senior
Vice President at Chief Telecom told us that his firm is
looking into investing in an international data center in the
PRC after such investment is legalized in the PRC under WTO
accession commitments in 2005. TFN Executive Vice President
Feng Chian also indicated that TFN is looking into PRC
telecommunications licensing regulations to see how they can
expand Mainland operations.

Comment - Taiwan Government Standing in the Way
--------------------------------------------- --

7. (SBU) In some key industries such as semiconductors and
flat-panel displays, Taiwan prohibitions are the only things
holding back investment in the Mainland. PRC regulations and
its investment environment are also contributing factors in
the telecommunications sector. However, if liberalization in
the Mainland continues to outpaces liberalization in Taiwan,
the Taiwan government alone will shoulder the blame for
limiting the opportunities available to Taiwan
telecommunications businesses. In some ways, this is already
the case. Philby Lee Chen Executive Vice President of Far
EasTone, a Taiwan cellular phone company, complained to AIT/T
about Taiwan government regulations that prohibit open
solicitation on behalf of PRC firms. Aiming at Taiwan
travelers to the Mainland, Far EasTone would like to sell SIM
cards and calling cards for PRC firm networks at its own
stores in Taiwan. Under current regulations, this is not
allowed. This is exactly the kind of counterproductive
restriction that does not protect Taiwan's security, public
health or businesses and needs to be eliminated to keep
Taiwan competitive. End comment.
PAAL

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