AmCham arrow Publications arrow Topics Archive arrow Topics Archive 2006 arrow Vol.36- No.4 arrow BEHIND THE NEWS: Experts' View of Taiwan's ?Convergent Future?
BEHIND THE NEWS: Experts' View of Taiwan's ?Convergent Future? PDF Print E-mail

A February 22 symposium organized by AmCham together with the Cable & Satellite Broadcasting Association of Asia (CASBAA) and the U.S.-Taiwan Business Council provided an opportunity for wide-ranging discussion of regulatory issues facing the development of Taiwan's telecom-broadcast industry. The following summary of the proceedings was prepared by CASBAA Vice President John Medeiros.

by JOHN MEDEIROS

 

The opening presentation, "Recommendations on Taiwan's Telecom and Broadcasting Convergence Policy," was given by Mao Chi-kuo, former chairman of Chunghwa Telecom and now the Decision and Change Management Chair Professor at National Chiao Tung University's Institute of Business and Management. The presentation was based on a paper prepared by Mao and Shih Jun-ji, a research fellow at Academia Sinica.

The authors noted that the development of information and communication technology (ICT) is providing an opportunity to construct a common platform to converge telecommunication and broadcasting services. Compared with other markets in the world, Taiwan is among the best positioned - given its almost-ready infrastructure - to capitalize on the benefits of ICT. To fully exploit these benefits, however, Taiwan needs not only to strengthen its telecom and broadcasting infrastructures, but also to build a new regulatory regime to guide the country toward a new ICT-enabled society.

Other major points of the presentation:
* It seems increasingly clear that the fixed-line or public switched telephone network (PSTN) will be phased out in the near future in most markets due to competition from other telecom technologies. Competition has forced down prices. Fixed to mobile substitution is proceeding rapidly. VOIP (voice over Internet protocol), which allows consumers to make global calls for a flat rate, is forecast to sharply curtail use of the PSTN subscriber base.
* PSTN will be replaced by broadband IP networks, either fixed or wireless.
* Taiwan's mobile telephony market is becoming saturated. Operators will soon be in a fight for survival with wireless broadband networks.
* The future of telecom networks (fixed and mobile) lies in providing value added services. In this "post-voice era," content providers and application service providers (such as banking and transaction services, etc.) will play a key role.
* Triple-play (voice, data, and video) service is emerging as a key marketing device for both fixed-line telecom operators and cable networks.
* Cable TV systems have achieved a penetration rate nearing 85% in Taiwan. But subscribers are not satisfied with the current flat-rate policy, which does not generate quality content and services.
* 99% of consumers still receive TV programming through analog connections. Digital service will allow upgrades such as interactive TV and high-definition TV. Digital penetration is low because there is no incentive for cable operators or consumers to make the necessary investments. Flat-rate pricing is a problem.
* Other problems associated with the digital transition include lack of agreement on technological standards and on the extent to which "must-carry" rules should apply, as well as the need to eliminate illegal connections.
* The convergence of alternative telecommunications and broadcasting services means there is a need for regulatory reform. To encourage cross-industry operations and competition, a new level playing field for fair competition must be established.
* Value-added services rather than PSTN should be the focus in the future. Any unnecessary barriers that might hinder the convergence trend should be removed.
* Chunghwa Telecom should make its IPTV delivery network a neutral, open platform to all content providers and application service providers. CHT should remove its hands from the TV provider business and concentrate on content delivery.
* The newly established National Communications Commission (NCC) should develop a clear vision of the interplay among digital cable TV, IPTV, digital terrestrial TV, digital public TV, DTV operators, and cable multi-service operators (MSOs).
* There is no reason to maintain regulation of MSOs' market shares, which impedes development of economies of scale.
* Separation of content production and delivery would allow abandonment of the traditional "quota rule" that limits the proportion of self-generated content that platform operators can broadcast. If that rule is abandoned, in a digital environment with many more channels and greater consumer choice, the rationale for regulating the vertical relationship between content provider and delivery platform may disappear.
* CATV price regulation must be revised, to include a vision of new services such as pay channels, pay-per-view, interactive commerce, and triple-play aspects. The recommendation is to maintain a basic rate-controlled channel package while updating the price-approval mechanism, concentrate price review and approval at the central government level (as is the case for telecoms), and leave price-setting for pay channels and pay-per-view services to market forces.
* Finally, Taiwan should review regulations on foreign share limitations in telecom and television, with a view to liberalization.

The second presentation, "Open Access Toward Convergence: A Prospective View with the Inauguration of the NCC," was given by Jessica Yun-tsai Chou, chairperson of the Taipei City Government Research, Development and Evaluation Commission, and concurrently associate professor of public policy at Yuan Ze University.

Chou said that convergence has produced an unbalanced regulatory framework, in which the cable-TV industry now faces challenges from multimedia on demand, IPTV, and mobile television, while bound by a higher level of structural and behavioral constraints. The NCC has now started operations, but many issues remain to be settled by means of needed amendments to the three television acts.

Among her main points:
* The current draft legislation for such amendments (prepared by the Government Information Office) relaxes foreign investment requirements, unifies the island into one service area, permits channel tiering, and requires non-discrimination by channel operators and platform operators. This is said to be a deregulatory approach.
* The level of deregulation proposed in this draft is still substantially less than the degree to which the telecom industry is deregulated. Some essential issues, such as licensing policy, vertical/horizontal integration, and open network architecture are not covered at all.
- Channel operators should be deregulated. Government controls allow cases like the recent pressure on TVBS to emerge.
- NCC should balance considerations of economy of scale and market concentration in regulating cable MSOs.
- Many countries have adopted asymmetric regulation of open broadband network architecture (in which telecom operators are required to open their networks to internet service providers, but cable operators are not). This is justified because it creates a competitive playing field in favor of the less powerful cable operators. The NCC will have to take a dynamic view of regulating broadband access, balancing the goals of speedy deployment of broadband networks and maintaining effective competition.
* Development of digitization has been discouragingly slow. In the current environment, market forces have been insufficient to produce the necessary investment. Cable operators prefer subsidies or tax exemptions from government to advance the process.
* However, the most crucial factor in delay of digitization is the current tariff scheme. The flat rate plan sets a ceiling on revenues, causing cable operators to seek greater profit by cutting expenditures, leading to the presence on systems of many low-cost, low-quality channels.
* Tiering and a la carte pricing would provide market incentives and reveal the market value of individual channels. Cable MSOs are opposed to tiering, which could reduce their revenues. GIO has delayed tiering by tying it with another lagged policy - digitization. The NCC should take the tiering issue seriously and devise a concrete plan to move it forward.
* "Content is king" should be the spirit of convergence. Competition between telecom and cable-TV providers will be more effectively contestable once deregulation of content and market entry is established. The TV industry could attract more talent and develop products with more appeal to consumers if channel tiering is mandated. This would provide a basis for a structurally reorganized and sound TV industry to grow, even under conditions of competition with telecom providers.

The final portion of the program was a panel discussion. The participants were Wellington Liu, a partner in the Taipei law firm of Tsar & Tsai; Arthur Shay, managing partner of Elite Law/Shay and Partners, and Jason Wang, practice leader, Technology, InfoCom & Entertainment Practice (TICE) Advisory Services, PricewaterhouseCoopers. Wang is also co-chair of Amcham's Telecommunications Committee.

Some of the main points raised during the discussion were:
* Five years ago Taiwan had promise as a growing television market, but the current regulatory system has caused the market to stagnate since then. This is Taiwan's last chance to give this sector new impetus (Wang).
* Partisan political obstructionism has to cease (Wang and Shay).
* Regulation should foster a robust environment for competition. Some current limits (such as the district limitations on cable system penetration) no longer serve a useful purpose (Liu).
* Lifting the geographic restrictions on cable operators is not necessary to promote competition. It would be preferable for the NCC to promote cross-selling (across industry lines) rather than cross-invasion by cable operators. Both telecom and cable operators should promote premium services. In that respect they could share a common goal and are not necessarily competitors (Shay).
* Cable operators feel threatened by the well-capitalized telecom operators. But convergence is irresistible and competition is needed. The challenge is how to quickly create a level playing field (Liu).
* Franchise regulation is unfair. Cable operators have to get franchise licenses but telecom operators are allowed to operate nationally with one license. In 49 of 50 U.S. states, telecom operators are forced to apply for franchise licenses in order to operate television services (Questioner).
* It isn't appropriate to ask IPTV to follow the old cable TV regulations; a more appropriate policy would be to adopt the EU model of broad TV licenses for all (Mao).
* The United States is not necessarily the best benchmark. We should seek to encourage telecom operators and TV firms to be competitors, cooperators, and partners at the same time (Wang).
* The rate cap should be modified or removed. This would provide incentives to deploy digital set-top boxes, which are the key to digitization of the industry (Liu and Wang).
* There seems to be universal agreement among all segments of the industry that the NCC should focus on relaxing or removing the price cap, but the issue is politically very sensitive. "Consumer advocates" and political figures will oppose it (Shay).
* Convergence is important, but the idea of total unification is not very practical. The NCC should aim to deregulate in a way that will promote the development of new services (Shay).
* Tiering must move forward. It is the only way to stimulate delivery of quality services to consumers (Wang).
* There are other important issues as well (Liu):
- Intellectual property: If P2P systems are allowed to grow without respect for IP rights, it will threaten the industry.
- Taxation of internet sales: How to achieve balance between domestic and foreign sellers.
- More regulation of new services would be highly counterproductive.
* There will now be six months of chaos while the NCC gets organized. Its members are distinguished individuals with strong backgrounds and real independence; there are grounds for optimism once they actually get down to work (Shay and Questioner).
* During this period, it is important that the NCC receive the message that rapid further deregulation is necessary, and it should listen more to businessmen trying to grow their activities to make an economic contribution and less to political figures whose aim is to block new development (Shay).
* Politics may get in the way and delay the whole process much too long (Questioner).
 
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