Chunghwa Telecom Co., Ltd. and Chief Telecom

Case:

Key Words:

merger report, type I telecommunications operation, type II telecommunications operation, data communication service market, international voice service market

Reference:

Fair Trade Commission Decision of August 17, 2006 (the 771st Commissioners' Meeting)

Industry:

Telecommunications (6000)

Relevant Laws:

Article 12(1) of the Fair Trade Law

Summary:

1. The applicant of this merger case, Chunghwa Telecom Co., Ltd. (hereinafter called "Chunghwa"), stated that it was the largest consolidated telecommunications carrier of the nation with a business scope of type I telecommunications operations and type II telecommunications operations; its major operations include fixed-line network communications, mobile communications, data communications and satellite communications. Chunghwa planned to acquire 70% of the shares of a type II telecommunications carrier, Chief Telecom (hereinafter called "Chief"). The merger type falls within the scope of Article 6(1) of the Fair Trade Law and meets the reporting thresholds provided in Article 11(1)(ii) of the same law. This case was not subject to the exceptions provided in Article 11-1 of the same law, and therefore, shall be reported to the Fair Trade Commission ("FTC") pursuant to the laws prior to the merger.

2. Findings of the FTC after investigation:
   The merger type of this case was that Chunghwa planned to acquire 70% of Chief's shares in cash and might further obtain the positions of directors or supervisors in Chief to directly or indirectly control the business operations or personnel appointment within Chief. Therefore, said case met the descriptions of the merger type set forth in Articles 6(1)(ii) and (v) of the Fair Trade Law. Up till the end of 2005, Chunghwa's market share of data communication service market was about 85.3%, while its market share of international voice service market was about 57.8%. The condition of Chunghwa fell under Article 11(1)(ii) of the Fair Trade Law where the merger shall be reported to the FTC. The exceptions provided in Article 11-1 were inapplicable herein. Therefore, this merger case shall be reported to the FTC pursuant to the laws.

3. Grounds for non- prohibited:
   (1) Since Chief's market share of data communication market and that of international voice service market were both less than 1%, and this case only had major impact on aforesaid two markets, this merger shall only have limited influence on the centralization of the relevant markets.
   (2) Prior to the merger, Chief entered into long-term contracts and/or contracts notarized by court with other domestic and foreign telecommunication businesses to ensure all parties' performance of the relevant telecommunication service contracts.
   (3) The type II telecommunications operations run by Chief, such as bandwidth resale, virtual network operations and Internet data centers, had rather low technical threshold. Thus, the merger shall not have immediate competition restraints on the relevant telecommunications service market.
   (4) The merger of Chunghwa and Chief will enable them to provide high-quality and consolidated telecommunication services to their customers due to their cooperation in network nodes and integration of resources. In addition, the utilization efficiency of the relevant telecommunication equipment will be effectively improved, and the overall economic benefits will thereby be enhanced.
   (5) Considering the merger behavior hasn't obvious impact on the relevant market structure and competition and the synergy to be induced from the merger, the FTC found that the overall economic benefits shall outweigh the disadvantage of competition restraints and therefore determined not to disapprove this merger pursuant to Article 12(1) of the Fair Trade Law.

Appendix:
Chunghwa Telecom Co., Ltd.'s Uniform Invoice Number: 96979933

Summarized by Huang, Yan-Bin; Supervised by Chiang, Kou-Lun