• Divergent Opinions on Regulating Convergence
  BY THIBAULT WORTH
   

• Taiwan Off to a Solid Start in the 4G Era
  BY PHILIP LIU
  
  

• Here Comes Digital TV
  BY DON SHAPIRO
  
  
  

Divergent Opinions on Regulating Convergence

The NCC has postponed consideration of comprehensive new legislation while it first revises five individual laws. In the meantime, industry is left with little guidance.

BY THIBAULT WORTH

Toward the end of 2007, Taiwan’s National Communications Commission (NCC) put together the first draft of a proposed piece of legislation designed to bring Taiwan’s regulatory regime into the era of technology “convergence” – the emergence of media services across the previously distinctly separated platforms of telephone (including broadband), broadcast, and cable.

But before that complex bill could be subjected to broad public and industry discussion, the composition of the NCC changed. Due to political controversy over the selection of the original commissioners (a dispute resolved only by a ruling of the Council of Grand Justices), a second group of commissioners – six new ones and just one holdover – took office in August 2008.

After doing its own review of the challenges posed by convergence, the new NCC members decided to depart from their predecessors’ game plan of preparing overarching “3 in 1” legislation. Instead, it opted first to revise the individual statutes governing each sector of the industry – and only in the second stage to try to combine them into a single comprehensive law. More than a year later, the NCC is still at work on new versions of a whole series of relevant laws: the Communications Act, Telecommunications Act, Radio and Television Act, Satellite Broadcasting Act, and Cable Radio and Television Act.

The timetable for completion of the task is unclear, and industry – fearing that Taiwan is missing the opportunity to stake out a competitive position in this industry – is growing impatient. Seeing a risk that Taiwan could remain behind the industry curve for years as the two-stage lawmaking process unfolds, June Su, an attorney-at-law at Tsar & Tsai and co-chair of AmCham’s Telecom & Media Committee, says she is concerned that the incumbent commissioners will run out the clock on their terms, which for three of them expire next summer, and that their successors may have different views on the issue. That would further delay the legislative process, and cause regulatory uncertainty that would hamper the industry’s development. 

The reason for industry’s concern is that the world is in the midst of a revolution in which digital communications are blurring the distinction between telecom and pay-TV service providers. Already, mobile telephony offers music and video to the handset. Television is enabled through computer hardware manufacturers cum digital content distributors (like Apple and Hulu), giving consumers access to high-definition picture quality and “on demand” control over programming. Operators around the world are bundling Internet, telephony, and television service (“triple play”), and even mobile phone service (“quadruple play”), into the convenience of a single contract and a single bill. The technology has enabled place-shifting and time-shifting of content to a wide range of devices.

Reaching this brave new digitally convergent world is neither easy nor cheap. Massive investment is needed to build broadband infrastructure as demand grows for fixed and wireless services. Precious broadcast spectrum will need to be judiciously examined and reallocated. Media and telecom laws will need to be jettisoned and rewritten to reflect the realities that enable a level and open playing field.

 But the potential benefits from this evolution are enormous – enabling a wide range of entertainment content and delivery formats to fit consumers’ every lifestyle need, creating jobs in the creative industries and elsewhere in the service sector, and driving innovation in software and hardware design to change the way people consume content and telephony services. Taiwan Mobile’s recent acquisition of cable operator Kbro, which allowed the Carlyle Group of the United States to transfer its stake into a significant equity shareholding in Taiwan Mobile, is an example of how industry participants may seek to pre-position themselves for the future benefits of convergence.

But while regulators in such markets as the United States, United Kingdom, Hong Kong, and Singapore have encouraged these new trends by initiating forward-thinking policies and opening the decision-making process by actively engaging industry, Taiwan’s NCC is generally regarded as mired in the slow lane on key questions about regulating convergence. Key industry players are reluctant to publicly criticize their regulators, but privately they grumble that the prolonged process of writing new legislation means that substantive reform will continue to be delayed, leaving Taiwan increasingly uncompetitive with its neighbors and resulting in key investments going elsewhere in the region. Despite Taiwan’s technological accomplishments, they say, its relevance to the global market remains limited to OEM manufacturing rather than the innovation of new services.

By deciding to first overhaul the individual communications laws, which are based on old-fashioned concepts of separate “silo-ed” lines of business, the NCC is left without the necessary tools to deal with the current business reality that these sectors are in fact already intertwined, industry experts say.

Modern legislation needs to be organized differently, says June Su, not only to address current aspects of convergence, but also to accommodate the entry of new technologies and innovative services in the future. Instead of regulating individual technologies, which invariably become obsolete over time, she argues, laws should be revamped to focus on three levels of service provision: infrastructure (including spectrum management), the distribution platforms through which service is delivered, and content. Such a structure would best facilitate future growth and innovation. An up-to-date convergent law, in addition, would reduce the likelihood of conflicts arising from unequal regulations as technology converges or lack of regulation as new technologies fall between the cracks of existing legislation. 

The NCC’s growing pains

In August 2008, Taiwan Business TOPICS gave a progress report on the work of the then two-year-old NCC. The first 11 commissioners had then just ended their terms under a cloud of political controversy that had stymied the work of the commission, and their seven successors had just been appointed. The article cited complaints from industry players about the first NCC’s lack of efficiency and transparency, and its unwillingness to dialogue with industry members about their concerns.  

The 2009 Taiwan White Paper published this May gave a similar assessment of the second commission, and raised additional industry complaints, such as the seemingly haphazard way in which spectrum auctions were conducted and the failure to come up with a clearly defined policy agenda and timeframe.

Recent assessments suggest that not much has improved. Jason Wang, managing director of Cypress River Advisors and another AmCham Telecom & Media Committee co-chair, says the new commissioners have not defined a policy agenda and schedule to demonstrate their commitment to industry development. Instead, he says, the current commissioners have tried to rebrand the NCC as primarily a “consumer protection agency rather than fulfilling the spirit of their charter as a leader in industrial development and a governmental driver for openness and reform.” 

Wang cites several NCC policies as demonstrating that the commissioners have adopted short-sighted positions without the substantive public discussion that might expose the economic flaws in their arguments. One such policy is the continued maintenance of price caps and rejection of tiered programming options on basic cable service, and another is the position of some NCC commissioners that pay-TV operators should provide two free set-top boxes per household – without presenting any economic studies to confirm the presumed benefits. On the surface, these policies appear to take consumer interests to heart, but in reality the price cap winds up limiting consumers’ choice of content and the free set-top box rule may force service providers to use lower-functionality equipment.

Prior to the formation of the NCC in 2006, two different government agencies regulated telecom and broadcasting. The Directorate-General of Telecommunications (DGT) was charged with the former, while the Government Information Office (GIO) oversaw the latter. As the two sectors became increasingly intertwined, the responsibilities of the two agencies began overlapping. AmCham supported the formation of the NCC, which was created in 2006.

Even before its creation, however, the organization became heavily politicized, as the then ruling Democratic Progressive Party (DPP) and opposition Kuomintang (KMT) each feared that the other could gain undue control over the media for partisan advantage. As a result, the two parties clashed over the process to be used for nominating commissioners, and Taiwan’s constitutional court had to step in with a compromise ruling. When the NCC was reorganized in 2008, the political cloud over the body discouraged a number of well-qualified candidates from accepting appointment to the organization.

As it moves forward, the NCC faces the choice in its regulatory approach of either favoring particular technologies or leaving it up to the market to decide what is preferred.

Since no one can predict what technologies will emerge in future phases of digital convergence, Wang stresses the importance of the government taking a “technology neutral” approach to development, something it has not always done in the past. “It’s never a question of whether one technology is better than another, nor is it possible for any one technology to be a panacea,” says Wang. “Every technology may be appropriate given the business and technical constraints of a given market and period of time.”

Convergence requires a multi-disciplinary approach to regulation, says Wang, plus the involvement of the regulatory authority in fostering industrial development. He notes that the growth of a service sector is predicated on deep governmental commitment to research and development. For example, given the growth of data-intensive mobile applications, the government could support R&D that focuses on developing interference cancellation technologies for improving data uplink at the cell edge. Such technologies would have a significant impact on the capital expenditure of telecom companies, while improving the quality of service to the consumer. 

In managing the transition to effective convergence, as with any new infrastructure initiative in a highly regulated industry, it is important for the government to take a leadership role in providing a roadmap to change, so that private investors can make their business plans with confidence. In facing that challenge, industry members say, the NCC must decide whether it wants to be a real partner in change, or risk losing control of the process.

Taiwan Off to a Solid Start in the 4G Era

With solid government support and a strong base in equipment manufacturing, Taiwan enjoys some advantages in deploying WiMAX technology. 

BY PHILIP LIU

With the help of strong government backing, Taiwan is ready to move forward in a major way in implementing WiMAX to provide fourth-generation (4G) wireless communications technology. That development gives Taiwan a critical headstart in the global rush to prepare for the era of next-generation high-speed broadband wireless communications.

When the six licensed carriers for WiMAX – it stands for Worldwide Interoperability for Microwave Access – start operating by the deadline set by the regulator of March 2010, Taiwan will have the distinction of the world’s highest density for WiMAX service. Equally importantly, Taiwan has put together a complete supply chain for WiMAX hardware, covering WiMAX chips, CPE (customer premise equipment), notebook PCs, MIDs (mobile Internet devices), mobile phones, and even small-scale base facilities.

Tatung InfoComm inaugurated Taiwan’s first WiMAX network on April 26 when it launched its service on the offshore islands of Penghu. The company demonstrated its ability to conduct instant graphic transmission from Penghu to Taipei with an image quality even better than that of satellite transmission. To promote the service, the company is offering a monthly rental rate of under NT$700 (US$21), even lower than the going rate of NT$700-$850 for 3.5G service, although the transmission speed of the new service is three to four times that of 3.5G.

The company subsequently expanded its service to Kaohsiung City in July and plans to further extend the reach of its network to Kao- hsiung, Pingtung, and Hualian Counties by year end. For the moment, the service is confined to Internet access but will be expanded to voice communications next year, following the rollout of WiMAX mobile phones by its affiliate, ECS. The current service is being applied to such purposes as telemedicine, household security, and home care for the aged. Lin Kuo Wen-yen, chairperson of Tatung InfoComm, says the company will invest a total of NT$5 billion (US$152 million) in its network and aims to reach 1 million subscribers within five years. 

Among the other carriers, Far EasTone Telecom has completed construction of its WiMAX network in Taichung City; when it begins commercial operation in early December, the network will significantly strengthen Taiwan’s mobile-phone service in central Taiwan, currently a relative weak spot on the island. Global Mobile started its network in Hsinchu City on an experimental basis on October 5; in August it had initiated a pilot system inside the Hsinchu Science-Based Industrial Park to allow WiMAX hardware suppliers there to test their products. The network is scheduled for formal inauguration next January at the latest.

VMAX Telecom is scheduled to launch its service in Taipei City and Hsinchu City by year-end, focusing on value-added applications for both the public and private sectors. Company president Teddy Huang says VMAX plans to cooperate with 3G carriers to provide them with such value-added services as commercial applications and rescue operation communications when their bandwidth is insufficient.

Vastar Telecom plans to kick off its service in the greater Taichung area, also by year-end, complementing its existing affiliated operations in cable TV, broadband fixed network, and Internet access for the provision of digital-convergence service. Those affiliated operations give Vastar an existing base of 90,000 subscribers.

First International Telecom, a PHS service provider, plans to roll out its WiMAX service by the deadline next March, although it is still undergoing corporate restructuring.

Since all six WiMAX carriers possess only regional licenses, four of them – Global Mobile, Tatung, Vastar, and VMAX – have agreed to form an alliance to enable their subscribers to receive WiMAX service wherever they are in Taiwan.

The carriers say that the WiMAX business outlook looks rosy. They expect that many of the current 600,000 3.5G subscribers (double the number of a year ago) will seek to upgrade to WiMAX. “Compared with 3.5G, WiMAX boasts much higher efficiency, thanks to its much higher bandwidth and quicker latency [transmission],” explains Wayne Sun, vice president of Global Mobile. “Its bandwidth can reach 45 Mbps, compared with a maximum of 14.4 Mbps for 3.5G service, a difference that is critical for transmission quality under massive usage. In addition, quicker latency can eliminate the problem of delayed response when playing online games.”

Most of the carriers predict that their subscriber levels will each reach 500,000 to 1 million in five years. But they concede that in the initial stage, WiMAX service will be confined mainly to specialized purposes, such as commercial applications, medical care, rescue, and education.

Global Mobile appears to have the most aggressive business plan, aiming to attain 2 million subscribers within five years. “Twelve years ago, local people still made phone calls mostly at home, but now everyone is using mobile phones. The same development pattern will happen with WiMAX service, as growing numbers of people embrace mobile Internet browsing,” says Wayne Sun. “Growing numbers of people will embrace VoIP (voice over Internet protocol), such as Skype, in making phone calls, free of charge, and with the completion of WiMAX networks, the quality problem haunting VoIP phone calls will be eliminated. Imagine the impact on existing telecom carriers.”

To achieve its business target, Global Mobile will partner with software firms in providing tailor-made applications to different sectors, including large enterprises, households, and schools. “We can offer e-learning and e-medicine applications, for example,” says Sun. It will extend its service from the pilot-operation area of Hsinchu to Taipei City, the market with the largest business potential.

Opposition to base stations

Sun notes that a major obstacle for WiMAX development has been the opposition of nearby residents to the construction of base stations in their neighborhood. The problem could be further aggravated by a bill in the Legislative Yuan that would limit the number of base stations in one building to a maximum of three and the number of antennas to three per station, much lower than the existing limit of 12. Such limits are unjustified for WiMAX carriers, Sun argues, in view of the compact size of the base – a mere fraction of that needed for existing wireless communications service. “Solution of the base problem will be key to the success of the WiMAX carriers,” he notes.

Meanwhile, the WiMAX licensees are expected to invest a total of some NT$20-30 billion (US$606-$909 million) for their facilities, including transmission bases and CPE, giving a strong boost to Taiwan’s fast-developing WiMAX hardware industry.

That industry’s output reached NT$6.1 billion (US$185 million) in 2008, and is expected to jump 50% to NT$10 billion (US$303 million) this year. The local industry received a strong boost from the rollout of WiMAX chips in the middle of this year by Taiwan-based MediaTek, the world’s largest fabless IC supplier, breaking the domination of the global WiMAX chip market by Intel and Fujitsu. With the addition of the IC production, Taiwan has formed a complete supply chain for WiMAX equipment, as clearly demonstrated by the dazzling array of displays at the 2009 WiMAX Expo Taipei, held alongside Computex Taipei 2009 in early June. The products being shown included WiMAX MIDs, small notebook PCs, CPE, dongles (signal receiving devices), IADs (integrated access devices), mobile phones, and e-readers.

Following the completion of IOTs (Interoperability tests) with the products of many international telecom equipment suppliers, Taiwanese WiMAX device suppliers are confident about scoring robust growth this year and next. In addition, thanks to the rollout of WiMAX chips by MediaTek and other factors, Taiwanese WiMAX device suppliers plan to continue cutting their prices, thereby boosting demand.

The solid progress in both software and hardware has placed Taiwan at the forefront of global WiMAX development. During a visit to Taiwan in April, Barry West, chairman of Clearwire, the leading WiMAX carrier worldwide, said that Taiwan will lead South Korea in WiMAX development and become a pilot platform for the Asian WiMAX market. Headquartered in Kirkland, Washington, Clearwire now boasts over 700,000 subscribers, with service covering Baltimore, Portland, Las Vegas, and Silicon Valley. 

As a sign of its interest in the Taiwanese market, Clearwire has inked a technological cooperation agreement with Vastar. Under the terms of the agreement, it has dispatched experts to help Vastar with network construction, equipment procurement, and the provision of value-added services, in return for which it will receive both cash payment and stock options. Clearwire has also signed a cooperative agreement with Global Mobile, covering international roaming and the sharing of intellectual properties.

For its part, Intel – the pioneer of WiMAX technology – has invested US$11.5 million in VMAX for a 19.3% stake, with a buyback condition. In addition, reflecting Taiwan’s leading supply capability, such major international telecom equipment suppliers as Alcatel-Lucent and Motorola have set up interoperability testing centers on the island.

The remarkable achievement owes a great deal to the government’s vigorous promotion of the sector in recent years, starting with the “WiMAX Development Roadmap” issued by the Executive Yuan in 2005. The Roadmap assigned the mission of promoting R&D on WiMAX chips and key systems to the Department of Industrial Technology of the Ministry of Economic Affairs (MOEA). The effort complements the “M-Taiwan” program under the aegis of the Ministry’s Industrial Development Bureau (IDB), a project designed to encourage the widespread application of broadband wireless communications in Taiwan.

Besides enhancing both the convenience of daily life in Taiwan and efficiency in the workplace, the “M-Taiwan” program seeks to enable those living in remote mountainous areas to access  Internet services via broadband wireless facilities. By circumventing the problem of installing and maintaining fixed-line systems in areas with difficult terrain and small populations, “M-Taiwan” seeks to span the domestic digital divide.

Under the auspices of the “M-Taiwan” program, the government has spent NT$7 billion (US$212 million) over the past few years, spearheading the development of WiMAX technology in Taiwan. The IDB, for instance, has established the “M-Taiwan WiMAX Interoperability Certification Office,” which by offering interoperability testing service has greatly shortened the time-to-market for WiMAX products. In addition, the semi-official Industrial Technology Research Institute (ITRI) and Institute for Information Industry (III) have contributed to the development of WiMAX technology.

In September, ITRI’s SoC [System on Chip] Technology Center rolled out a PID (personal Internet device) featuring a WiMAX chip and Android operating platform, representing a highly efficient solution for mobile entertainment and audio-visual integration, which is capable of transmitting data at a speed five times that of 3G technology with graphic quality two to three times better than DVD.

Consequently, Taiwan’s WiMAX equipment makers are well-positioned to tap the expanding market potential of the global WiMAX market. The Market Intelligence Center (MIC), a division of III, reports that of the estimated 330 WiMAX carriers worldwide, 180 have already started commercial operation. The number of subscribers, now more than 6 million, is expected to rise to 10 million in 2010. In the next two years, global investment in WiMAX networks is seen as coming to US$10.5 billion, 60% of it in developing nations where WiMAX can be a low-cost substitute for fixed-line broadband networks. With this worldwide growth, MIC forecasts that the annual output value of Taiwan’s WiMAX equipment industry can reach US$3.2 billion in five years.

The LTE challenge

Other experts, however, harbor some doubts about the outlook for the global WiMAX market. IDC, a U.S.-based industry research organization, for example, questions whether WiMAX will gain market acceptance in developed economies such as the United States, Europe, and Japan. In addition, another 4G wireless communications technology called LTE (Long Term Evolution) is seen as posing strong competition. WiMAX, based on Internet protocol (IP) technology, is more suitable for computer-based data transmission, while LTE has evolved from 3G and 3.5G technologies based on voice communications, and may therefore enjoy the advantage of existing customer bases in many markets. As a result, most major wireless-communications carriers, such as Vodafone, NTT DoCoMo, and China Mobile, have decided to join the LTE camp, although that technology is still in the experimental stage.

Even in Taiwan, Chunghwa Telecom (CHT) and Taiwan Mobile, the two leading mobile-phone carriers, are not involved in WiMAX operations and are likely to embrace LTE for their 4G technology. A major consideration for them is to avoid impacting their existing 3G and 3.5G operations by adopting WiMAX service at this time. CHT Assistant Vice President Shih Mu-biao says the company has decided to set up an experimental LTE network by year-end. For the moment, the company will focus on upgrading its 3.5G by investing NT$2 billion (US$60 million) in HSPA+ service next year, increasing transmission speed from 14.4 to 21 Mbps.

Many industry insiders believe that despite its late start, LTE will eventually emerge as the mainstream technology in the global telecom market. G.W. Wang, chief executive officer of Micro Mobio Corp., a Silicon-based mobile-communications design house, for instance, predicts that the global output of the LTE industry will hit US$70 billion by 2014, compared with US$15 billion for the WiMAX industry.

When visiting Taiwan in May, Mats H. Olsson, president of Ericsson Greater China, noted that while WiMAX will surely retain a significant presence in the world’s 4G market, LTE will dominate in the long run, in a continuous evolution of the market from 3.5G HSPA to 3.75G HSPA+. He urged Taiwanese manufacturers to step up development of HSPA (High Speed Packet Access) and LTE technologies.

Jan Nilsson, Far EasTone’s vice chairman and president, notes that WiMAX operators will have a window of opportunity of at least three years to build up volume should LTE turn out to become the prevalent technology. “We can always switch to LTE without much difficulty, since it only involves a change in the facilities for the last-mile connection, from ratio station to subscribers, which account for only 20% of the cost for the network,” says Nilsson.

In an interview with Chinese-language Economic Daily News in May, J.T. Wang, chairman of Acer Inc. and the Taipei Computer Association, pointed out that while endeavoring to develop WiMAX products, many major local communications-device makers have also started to engage in the R&D of LTE technology. “In an era focusing on speed, those who secure a position ahead of others will win,” he said.

Here Comes Digital TV

Although major cable operators are moving quickly to introduce new Digital TV services, some questions regarding the regulatory framework are still under review.

BY DON SHAPIRO

After some false starts over recent years due to regulatory uncertainties, the major cable broadband operators are in the midst of aggressively rolling out digital TV service for their customers.

For those who take up the option, the home TV-viewing experience will never be the same. Remember when you missed some key dialogue in your favorite drama series when you answered the phone or failed to see A-Rod’s game-winning home run when you ran to the kitchen to turn off the teakettle? With the help of the platform’s Digital Video Recorder (DVR), you will be able to play back those scenes, even when you hadn’t instructed the system to record them, and then continue to watch the remainder of the program.

The DVR can also be pre-programmed to record an entire show – or even every show in a given series – when you won’t be home at the time of broadcast or wish to watch something else on a different channel. With the addition of digital channels on top of your existing channels, you will also have access to a broader array of programming, including the possibility of Video on Demand – plus the opportunity for an upgraded quality of audio and video reception through High-Definition (HD) TV. Eventually such additional features may be offered as game-playing, transactions, educational applications, and social networking.

To make the service available, according to an estimate by the Cable Broadband Institute in Taiwan, the domestic cable industry will need to invest at least NT$150 billion (US$4.6 billion) in network upgrades and other equipment over the coming five years.

The largest cable companies are taking the leading in Taiwan’s digital revolution. These include Taiwan Broadband Communications (TBC), part of the Macquarie group of Australia; China Network Systems (CNS), invested in by the regional private equity firm of MBK; and two companies – Kbro and Taiwan Mobile’s TFN Media – that will now be combined as a result of a recent M&A deal. In that mid-September transaction valued at about US$1 billion, the Carlyle Group of the United States swapped control of Kbro for a 15.5% stake in Taiwan Mobile, the country’s second biggest telecom service provider. After acquiring Kbro, TFN Media will surpass CNS to become Taiwan’s largest Multiple System Operator, with nearly a one-third market share.

Although the MSOs are moving ahead vigorously with digitization, the process is taking place against the backdrop of a number of unanswered questions about the regulatory environment. One issue that will directly affect the companies’ business model – as well as that of the content providers – is whether advertising will be permitted on the digital channels. The National Communications Commission (NCC) has taken the position that since this is pay-TV, with customers charged a service fee on top of their basic cable bill, the digital channels defined as part of the paid package should be commercial-free.

That regulation will have the effect of discouraging premium content providers from entering the market, says Jay Lin, CEO of Portico Media, an independent content aggregator and distributor of premium digital content. “They’ll feel they aren’t being incentivized,” he argues. “When you’re trying to build a bustling highway, it makes sense to encourage the traffic.” Industry sources say that after a recent policy change in Thailand, the only country in the region prohibiting advertising on pay-TV channels is China.

There is also continuing controversy over who should bear the cost of the set-top boxes that need to be connected to TV sets to convert the digital signals transmitted by means of the digitized cable network. Some approaches considered by the NCC commissioners include requiring cable operators to supply one or even two free STBs per household.

The operators have resisted for several reasons, starting with the cost, given consumer preferences in the digital era. Based on industry experience in other markets, a feature-rich STB able to support the DVR and HD-content is priced at arouund US$175. If Taiwan reaches 50% market penetration of its 5.5 million homes, the cost of the STBs alone (if two are provided per household) could approach a billion dollars for these premium STBs.

But the cable companies note that if they are required to give away free boxes, financial realities would force them to utilize basic equipment that would deprive users of much of the potential functionality – with the result of discouraging the migration from analog to digital.

More fundamentally, industry members question the logic of forcing system operators to subsidize customers’ start-up expense. Thomas Ee, CEO of TBC, notes that “everywhere in the world, digital service is a value-added service sold on top of basic TV service (analog).” He compares the relationship between analog and digital TV to that between land lines and mobile telephones. Fixed-line carriers are heavily regulated because they offer a basic service viewed as a utility, but the value-added mobile business is treated differently. “If mobile phone operators aren’t required by law to provide free handsets to consumers, the same consideration should determine whether cable operators should be requested to provide free set-top boxes,” he says.

Chuck McElroy, CEO of CNS, also challenges the perception in some quarters that every consumer should be provided with digital TV as a matter of right. “We all have different tastes and interests, and different degrees of willingness to spend more,” he says. “Some people will desire digital more than others.”

Another regulatory issue sparking sharp disagreement between the NCC and the cable industry is the Commission’s call for a mechanism to protect consumers from losing money prepaid for cable service in case the operator goes bankrupt. The regulatory body is asking operators to post a performance bond or open a trust account equal to the  amount of prepayment, but the cable companies say they can’t find a bank willing to provide this service.

No other country requires a performance bond for media-based services, making this regulation another example of the “Taiwan-unique” solutions cited in AmCham’s 2009 Taiwan White Paper as increasing the difficulties that international companies face in operating in this market. Even within Taiwan, the restriction isn’t applied to comparable businesses. “When you buy a newspaper or magazine subscription, the publisher isn’t required to put that money aside,” says McElroy. “This will just limit our capability to invest.”

As an alternative, some operators propose that the NCC allow them to arrange for mutual “signal backup.” A contract between two operators could specify that if one of them is unable to deliver the promised service, the other would take over its customer obligations. “We still need more dialogue with the NCC about this,” says Ee.

Conversations with the MSOs invariably also turn to the lack of a level playing field in Taiwan for the cable sector. The problem is the continued absence of legislation that would address technology convergence by treating similar services equally, regardless of the mode of delivery. Primarily, the cable operators point to the different set of rules by which they and Chunghwa Telecom are regulated when both are offering Media on Demand. The MSOs are limited by law as to the size of the market they can serve and have a rate cap on the amount they can charge for basic cable service.

Referring to TFN Media’s acquisition of Kbro, McElroy says TFN Media seems to be saying that it needs to expand to have a better chance of competing with Chunghwa. He adds that it could be good for the industry to have a domestic company as the largest player, as the sector’s advocacy points may be more palatable coming from a domestic source.

For digitization to succeed, the operators also emphasize that it is important for the NCC to drive local content development. Taiwan isn’t as cosmopolitan as Hong Kong and Singapore, which easily accept Western products. Rather than a free set-top box, the quantity and quality of local content will determine whether consumers want digital service, says Ee. He suggests that the NCC emulate Japan and Korea in encouraging domestic content providers to upgrade their products and offer more digital and HD programming.

With the right content and the right regulatory framework, Taiwan should be a receptive market for digital service, given the people’s interest in new technology, relative affluence, and high level of education. “Consumers want more quality and more choice in their TV viewing,” says McElroy. “That’s going to prompt more investment and more application development, which ultimately will benefit the economy.”