This Telecom Is Behind With 4G but Remains Solid

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For investors looking for stability, Chunghwa Telecom (NYSE: CHT) cannot be missed. As Taiwan’s largest integrated telecom company, Chunghwa Telecom continues to deliver stable, consistent dividends, currently offering over 4.5% annual dividend yield. 

What does Chunghwa Telecom offer?

Besides traditional fixed line services, Chunghwa also offers broadband, mobile and Internet value-added services (VAS). Chunghwa connected directly to mainland China’s telecommunications network with Taiwan’s by laying the first-ever cross-strait fiber optic cable last year. With its leadership position, Chunghwa continues to expand 100Mbps fiber and 3G networks as well as its Wi-Fi hotspots and cloud data center capacity. The company also offers Multimedia-on-Demand (MOD) services.

How is Chunghwa doing?

Chunghwa painted a mixed picture for its Q1 report. The total net revenue for Q1, 2013 increased 2.1% to $1.90 billion, comprised mainly of 49.3% mobile, 31% domestic fixed, 10.6% Internet, and 6.7% international fixed. The ISP and Internet VAS revenues were negatively impacted by the declining Internet business revenue. Domestic fixed line revenue declined due to mobile and VoIP substitution, whereas broadband revenue increased as subscribers migrated to higher speed fiber services. For growth, Chunghwa added over 388,000 mobile Internet subscribers and had over 81.9% year-over-year growth for subscribers opting for fiber offerings with speeds of 50Mbps and higher. The overall revenue increase was driven by 42.2% year-over-year growth in mobile VAS revenue and 17% growth in handset sales.

What’s next for Chunghwa?

To counter the declining fixed line and Internet revenues, Chunghwa is taking several initiatives. Strategically, the company is now focusing on promoting the cloud services. Recently, Chunghwa Telecom has partnered with Taiwanese notebook manufacturer Asustek Computer to provide cloud services jointly. Chunghwa will integrate its cloud system software with Asus hardware into a high-quality cloud appliance for both domestic and overseas markets. The goal is to build the largest “cloud platform” in Taiwan, covering personal cloud, home cloud, health cloud, and innovative cloud.

Chunghwa is also expanding internationally into North America with CoreSite. CoreSite's customers will benefit from an enhanced gateway to the Asia Pacific region, direct connections to CHT Global, a U.S. subsidiary of Chunghwa, and an expanded community of global media and finance companies through the CoreSite Mesh.

On the 4G front, Chunghwa is highly interested in bidding for a 4G license plan, which has a starting bid of $1.20 billion, more than twice as much as the 3G licensing starting bid. The spectrum sale will start in September, whereas the final result will be released at the end of November. However, the time frame for actually starting the 4G spectrum construction could be delayed until 2017, when Taiwan’s existing 2G licenses expire.

Chunghwa telecom, despite its dominate leadership position in Taiwan, is very behind China Mobile (NYSE: CHL) when it comes to 4G development. China Mobile, as the world’s largest mobile operator, has learned from its 3G mistake and is pushing forward aggressively with 4G TD-LTE development. On the other hand, it makes sense for China Mobile and Vodafone (NASDAQ: VOD) to withdraw their joint bid for one of the two licenses offered in Myanmar as both are investing heavily and upgrading their networks in their major markets. Vodafone is increasing its spending on its network by more than 50% to prepare for the launch of its 4G network later this year. By increasing its investment, Vodafone's 4G signal will be stronger and more reliable. The company's commitment is to reach 98% indoor coverage across the UK before 2016.

Bottom line

Although Chunghwa telecom is behind with its 4G development and continues to struggle with decreasing revenues from fixed landlines and Internet business, Chunghwa telecom is benefiting from growing revenues from mobile value-added services and increasing high-speed broadband adaptation. With its dominant position in Taiwan, Chunghwa is also expected to win 4G license. Overall, Chunghwa may not be the best telecom play for growth, but it certainly provides a steady cash flow for investors.

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Nick Chiu has no position in any stocks mentioned. The Motley Fool recommends Vodafone. The Motley Fool owns shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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