Taiwan's Own AT&T Is A Rare U.S. Issue On The Rise In 2008

Meet AT&T's "little brother": Taiwan's Chunghwa Telecom.

Both AT&T T and Chunghwa CHT are the biggest provider of wireless phone services in their respective countries. Both are flush in cash. AT&T last month announced its biggest dividend hike ever and has a big share repurchase program under way. Chunghwa shareholders are also expecting bigger dividend payouts and more stock buybacks.

Also, both AT&T and Chunghwa are rolling out Internet-based services over broadband networks.

Chunghwa's U.S. shares have held up a bit better than AT&T's amid the global stock meltdown. Chunghwa's stock is up about 14% this year, while AT&T is down about 12%.

Chunghwa has an edge as the incumbent phone company in Taiwan, but like AT&T, it faces some tough rivals and tough issues.

IPTV Reality Vs. Hype

One issue is how fast it can build a business in providing television services via the Internet, or what's called IPTV.

There's been much hype about Internet TV services worldwide, and investors should be cautious, says Dominic Grant, an analyst at Macquarie Research.

"I don't think IPTV will contribute to Chunghwa's earnings in 2008," Grant said via e-mail. "But the capital management angle (dividends and stock buybacks) is a positive."

Chunghwa bought 100.5 million of its own shares from Aug. 29 through Oct. 18 as part of a plan to repurchase 250 million shares. Chunghwa is seeking approval from Taiwan's Securities and Finance Commission to return more cash to shareholders via larger dividends. (During the registration period for a "capital reduction," or special dividend, trading on the stock in Taiwan and the U.S. was halted from Dec. 20 until Jan. 14.)

Taiwan's regulators have been agreeable on other financial matters. Foreign investors will be permitted to own up to 55% of Chunghwa, up from the earlier limit of 40%, Taiwan's ministry of transportation and communications recently said.

Like most older phone companies across the globe, Chunghwa's landline voice revenue has been falling. It is looking for growth in wireless and broadband services.

It is eyeing real estate, too. Chunghwa created a property subsidiary in 2007 to develop unused land it owns.

Besides the expected dividend hikes, "there could be more long-term upside from property and IPTV services" for Chunghwa shareholders, says Elinor Leung, an analyst at investment bank CLSA.

"The IPTV service could bring in more revenue, though it will likely take a long time for Chunghwa to build up the business," she said.

In the first nine months of 2007, Chunghwa's revenue climbed 7% from the year-earlier period, in Taiwan dollars. Net profit rose 10.6%, aided by cost cuts.

Chunghwa has about 38% of Taiwan's market. But most Taiwanese already have cell phones, so subscriber growth has slowed to a crawl for all of the nation's wireless firms.

Wireless firms hope to boost wireless revenue with next-generation 3G services, including Internet access, and music and video downloads. Some 23% of Chunghwa's 8.7 million wireless customers buy 3G services, up from 7% a year ago, says Marvin Lo, an analyst at Daiwa Institute of Research.

Price War Possible?

Chunghwa recently stirred 3G competition in Taiwan by lowering prices and offering free phones. Some analysts say a 3G price war might erupt.

The company has 4.23 million broadband subscribers, research firm Point-Topic says.

Chunghwa delivers broadband mostly via copper-based digital subscriber lines. But it also is invested in faster fiber-optic links to homes. Chunghwa has about 430,000 fiber-based customers. Chunghwa ended September with 358,000 IPTV customers, up 74% from a year earlier.

To boost IPTV content, Chunghwa is in talks with Hong Kong carrier PCCW, says Daiwa's Lo. Chunghwa would be able to offer many more TV channels through a deal with PCCW, Lo says.

A pioneer in IPTV services, PCCW says it has the highest market share among all phone companies that have pay-TV services.

CLSA's Leung says Chunghwa plans to offer more video content in super sharp high definition, as it boosts broadband speeds.

About one-fourth of Chunghwa's broadband subscribers now get service at speeds of 8 megabits per second. That's fast. In the U.S., AT&T has just announced its first market with 10 mbps service. Chunghwa should be up to 40% of broadband users at 8 mbps by the end of 2009, Leung says.