Taiwan’s 4G Blues

Photo: Matthew Fulco

Despite flat-rate data packages pinching the margins of telecom operators and creating network congestion, Taiwanese consumers are still signing up for 4G in droves.

Dony Wang is underwhelmed by Taiwan’s 4G LTE service. The project manager for a Taipei-based clean-energy company purchased an iPhone 6 for his wife last fall. Since then, his wife has experienced erratic data-transmission speeds and 4G connectivity – it sometimes changes to 3G service.

Eventually, she called the carrier to complain. A customer service representative promised the company would “look into the problem,” but the quality of her 4G service has not improved. “As far as we’re concerned, 4G is a disappointment,” Wang says.

In this particular case, the telecom operator was heavily government-invested Chunghwa Telecom Co. (CHT). “I don’t think it’s a problem specific to Chunghwa Telecom, though,” says Wang. “4G LTE hasn’t lived up to the hype created by the telecom carriers.”

The issue came to national attention in October 2014 when Democratic Progressive Party lawmaker Tsai Chi-chang carried out a test to demonstrate the shortcomings of Taiwan’s 4G coverage. He found that his phone switched from a 4G to 3G network as he stepped inside the Legislative Yuan.

“Taiwanese netizens spend close to 200 minutes per day on their smartphones, the most of any Internet users in the world.” – Shih Mu-piao, President, CHT

A March report by the network diagnostics company OpenSignal rated Taiwan’s LTE coverage No. 11 in the world, with its mobile users on 4G LTE networks 69% of the time. Neighboring markets fared considerably better. Hong Kong placed fourth with 81%; Japan was second (86%), and South Korea had the world’s best 4G coverage at 95%.

And yet Taiwan’s 4G adoption is surging. From the time the service was deployed in May 2014 until January 2015, subscribers reached 4 million. The 17% penetration rate in just eight months was the fastest deployment in the world for that time span, according to the government.

Research firm IDC forecasts that the penetration rate will reach 43% by the end of 2015, with 10 million of Taiwan’s 23 million people using the service.

If Taiwan’s LTE coverage on the island remains inconsistent, why are its consumers anxious to switch over to 4G? For one thing, they want to tap its fast connection speeds – one gigabyte per second, which is seven times faster than third-generation wireless technology (3G) – to watch videos on their mobile devices or transfer large files, says CHT president Shih Mu-piao. Taiwanese netizens spend close to 200 minutes per day on their smartphones, the most of any Internet users in the world, he adds.

Taiwan Mobile and Far EasTone (FET), the No. 2 and No. 3 mobile telecom carriers in Taiwan, respectively, did not respond to TOPICS’ requests for comment on the subject.

Carriers tout 4G’s fast connectivity to persuade consumers to upgrade from 3G, says Remus Hsu, a senior analyst at the government-backed Market Research & Consulting Institute (MIC). That in turn increases the purchase of more expensive 4G subscription plans and 4G-enabled mobile devices, he adds.

Andy Ye, a telecom analyst at IDC in Taipei, observes that Taiwan’s carriers have promoted 4G subscriptions aggressively with unlimited data packages at fixed monthly charges. “The flat rates are a carryover from the 3G era that the telecom operators have to offer if they want to maintain their market share,” he says. “It has helped them sign up more subscribers, but it is less profitable than the tiered-price services offered in many other markets.”

Photo: Matthew FulcoRace to the bottom

Initially, Taiwan’s top three telecom operators had planned to suspend the flat rates from November 2014 to offset high network deployment costs – including licensing fees totaling NT$118.65 billion (US$3.89 billion). But after smaller rival Taiwan Star Cellular announced on October 30 it would offer unlimited 4G services indefinitely, they bowed to competitive pressure and kept their flat-rate packages available.

“In the 4G era, carriers have again spent a fortune to acquire spectrum bands,” says Hsu of MIC. “But the market environment has yet to see improvements because average revenue per user (ARPU) growth remains limited.” Nor have carriers developed paid applications to bring additional value to consumers, he notes. As a result, Taiwan’s telecom operators “are falling into the trap of using me-too services like low-cost Internet connections and cheap phone prices as major promotional strategies.”

“Revenue for Taiwan’s telecoms is plateauing while data use is skyrocketing,” he says. “One day, sooner or later, there will be no more unlimited data packages.”

A race to the bottom has ensued. In December, Asia Pacific Telecom launched a NT$560 flat-rate package, then the cheapest available in Taiwan, in a bid to increase its market share from 7% to double digits. The company, which is owned by contract electronics manufacturing giant Hon Hai Precision Industry, also announced that its 4G customers would be entitled to free calls and text messages to users of other carriers.

Offering the free services will squeeze Asia Pacific Telecom’s margins, but the company believes such practices “will become a trend,” chairman Lu Fang-ming told reporters at a news conference in December.

In April, Asia Pacific Telecom’s competitors hit back. Market leader CHT lowered the threshold of its monthly 4G flat-rate prices from NT$1,136 to NT$988 for new subscriptions before June 30. Taiwan Mobile and FET responded by launching NT$998 packages valid during the same period, while Taiwan Star revived a flat-rate subscription plan of just NT$599 per month.

The escalating price war has begun to spook investors. On April 15, Taiwan’s three telecom giants reported a combined total loss of more than NT$35.8 billion in the value of their stocks in a single day. FET shares fell by NT$2.7 to close at NT$72.5, equivalent to a loss of NT$8.798 billion. CHT shares fell by NT$1.5 to close at NT$97.5, amounting to a loss of NT$11.636 billion. Taiwan Mobile shares were hit the hardest. They plunged by NT$4.5 to close at NT$104.5, shedding NT$15.39 billion in market valuation.

In response to the fall in share prices, a spokesperson for CHT said its NT$988 flat-rate package was a short-term promotion and would not seriously impact the company’s overall financial performance.

Shih of CHT says the ongoing price war among Taiwan’s mobile telecom operators is not tenable. “Revenue for Taiwan’s telecoms is plateauing while data use is skyrocketing,” he says. “One day, sooner or later, there will be no more unlimited data packages.”

 

Opportunities to consolidate

In the short term, consolidation may improve conditions in Taiwan’s mobile market. For instance, Ting Hsin International Group may sell its 52% majority stake in Taiwan Star, according to a February report from BMI Research. The group intends to “exit non-core businesses,” and Taiwan Star is considered “an asset ripe for disposal,” the report says.

The absorption of Taiwan Star by any of its main competitors could improve the competitive dynamics of Taiwan’s mobile market, which is too small to optimally sustain more than four big players, BMI says.

Photo: Matthew Fulco
Chunghwa Telecom President Shih Mu-piao

Ye of IDC agrees. In the 3G era, only CHT, Taiwan Mobile, and FET earned profits from their mobile service, while smaller competitors Asia Pacific Telecom and Vibo have been loss-making for several years in a row, he notes. “Without consolidation, Asia Pacific Telecom and Vibo will face the same condition they did in 3G – losing money,” he says. “I don’t know how long both of these small firms can hang on, so further consolidation should happen in one or two years.”

As for Taiwan Star, if it does not seek a tie-up with CHT or FET, it must acquire 2.6Ghz of spectrum in the next round of 4G bidding, Ye says.

The National Communications Commission (NCC) will accept applications for four spectrum bids from CHT, Taiwan Mobile, FET, Asia Pacific Telecom, and Taiwan Star until September 4. This second round of 4G bidding is likely to be heated since telecom operators are already running out of spectrum. Spectrum bids will also run high – up to an estimated NT$50 billion – and analysts say Taiwan Star’s existing capital is insufficient.

“I think even if Taiwan Star can solve spectrum and capital issues in one year, it will still be very hard for them to change Taiwan’s 4G market landscape in the future,” Ye says.

Network congestion

Financial travails aside, the prevalence of flat-rate data packages is straining Taiwan’s 4G networks. “Data usage growth is phenomenal with 4G,” says Johan Asplund, chief technology officer of Alcatel-Lucent Taiwan. According to the company’s analysis of global LTE networks, data use on 4G quadruples that on 3G. As a result, he says, “flat-rate packages may not be the ideal solution for Taiwan as data consumption amongst its mobile users varies considerably.”

Photo: Matthew Fulco
Johan Asplund, chief technology officer of Alcatel-Lucent Taiwan

“The NCC needs to continue looking at how to support operators to boost capacity through easing introduction of high-capacity small cells and further planning for coming radio spectrum allocations,” he adds.

Jay Lin, a Taipei-based freelance software engineer, says the speed of his 4G service has become gradually less consistent since he purchased a subscription from Taiwan Mobile in September 2014. “At the beginning, it was very fast all the time,” he says. “But not anymore.”

To illustrate that point, Lin uses the Ookla Speedtest app to check his iPhone 6’s download speed, which is shown to be 68.3 megabytes per second (Mbps) at 3:30 in the afternoon. “This is reasonably quick, but at night it often falls to 40 Mbps,” he says. “When I first got the 4G service, download speeds wouldn’t fall that low.”

Bandwidth throttling – the deliberate slowing of Internet service to limit upload and download rates – could help to alleviate Taiwan’s network congestion, experts say. In the United States, throttling is practiced by several major telecom operators when customers hit certain usage thresholds. AT&T throttles LTE subscribers when they hit 5GB of data in a month. T-Mobile throttles customers on its unlimited high-speed data plans when they use more than 21GB a month. Both companies only throttle customers at times of network congestion.

U.S.-based Verizon Wireless has employed a different technique to ease network congestion since June. The company says it now deploys video optimization technology to transmit data more efficiently and ease capacity burdens on the network.

Global telecom operators also rely largely on tiered mobile data plans to better utilize bandwidth. Taiwan’s telecom heavyweights have pushed for a change in the pricing structure of the island’s data plans in the past, but to no avail. In April 2012, then Taiwan Mobile President Cliff Lai, who now heads Taiwan Star, called for the nation’s mobile users to curb their data usage ahead of the rollout of 4G LTE. Speaking at a media conference, he said Taiwan Mobile would work with the NCC to develop tiered pricing plans to alleviate heavy traffic on networks without “affecting the rights of normal mobile users.”

Photo: Matthew Fulco

Maximizing efficiency

The implementation of time division duplex (TDD) technology would be one way to maximize utilization efficiency on Taiwan’s 4G LTE networks, according to AmCham Taipei’s Telecom & Media Committee, as set out in the 2015 Taiwan White Paper. TDD works by dividing the data stream into frames. Within each frame, it assigns different time slots to the forward and reverse transmissions, allowing them to share the same transmission medium while only using the bandwidth required by each type of traffic. Introducing TDD could increase spectrum efficiency and allow higher download volumes for video, which is expected to comprise 70% of Taiwan’s total bandwidth by 2017.

Demand for Taiwan’s 4G spectrum will reach 1,050 MHz by 2020, according to the Ministry of Transportation and Communications (MOTC). The government intends to release around 410 MHz from 2015 to 2017 to meet the needs of 4G operators and prepare for the transition to 5G.

5G will be used in a wider range of applications and will process real-time information better than its predecessor. Market observers expect the next-generation cellular system to play an important role in the development of the Internet of Things (IoT) in sectors such as industrial infrastructure, medical instruments, and transportation.

With its strengths as a technology hub, Taiwan could become a major 5G player as the technology emerges. For instance, market observers say the island would excel in the production of 5G chipsets. System-on-chip solutions made by Taiwan Semiconductor Manufacturing Co. (TSMC) and certified by CHT would be a potential product for the global market. The Taiwan government plans to oversee such endeavors to increase their chances of success.

In August, the semi-governmental Institute for Information Industry (III) signed a pact with the Telecom Technology Center (TTC) to explore a potential spectrum for 5G mobile networks. The agreement could give a boost to Taiwan’s mobile-communications industry if the government can allocate a frequency spectrum for 5G soon and set up a “testing field” for companies to try out their pilot 5G applications, Vice Premier Simon Chang said at the signing ceremony. “This signing of the MOU will help us find a clear path of research and development as well as policy planning for at least the next 10 years,” Chang said.

Meanwhile, 5G wireless technology has yet to be defined by any recognized standards body. Asplund of Alcatel-Lucent notes that a new wireless standard is typically deployed once a decade. “We saw 4G emerge in 2010, so 5G should arrive in about 2020,” he says.

Given that the Taiwanese government supported Intel’s ill-fated WiMAX technology in the lead-up to the 4G era, Shih of CHT says Taiwan should be prudent as 5G standards are decided. “There will be huge opportunity with 5G, as 5G and IoT together are the future of mobile communications,” he says. “Let’s not back the wrong horse again.”

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