We downgrade our recommendation for Chunghwa Telecom Co. Ltd. (CHT) to Neutral following increased competition in the Taiwanese telecom market and a challenging economic environment. Chunghwa commands the majority share in the Taiwan market for traditional voice and dial-up services, VoIP, IPTV, broadband, and mobile segments. However, the Taiwanese telecom market is quickly approaching maturity and has become extremely competitive following telecom regulatory changes.

Chunghwa competes in a tough environment with Taiwan Mobile Company and Far EasTone Telecommunications Co. Ltd., the two other major service providers. The market size is smaller than other regional markets, with approximately 23 million potential customers. We expect fierce competition going forward as the Chinese giant China Mobile Ltd. (CHL) has purchased a 12% stake in Far EasTone Telecommunications.

Chunghwa is rapidly losing revenue in its Fixed-line Services (both domestic and international) segment. The company has reduced its subscriber estimation for MOD (multimedia-on-demand) offerings. From an initial estimate of 1.2 million subscribers by the end of 2010, the company now expects its subscriber base to reach just 1 million. Severe global economic recession that has hit Taiwan hard has forced this downward revision.

Zacks Investment Research

1. (QCOM) Telecom Industry Update – December 2009 – Industry OutlookThe global economic downturn continues to weigh on the fortunes of companies in almost every...
2. (CHT) Chunghwa Telecom Reduces MOD EstimateChunghwa Telecom Co. Ltd. (CHT) is gradually reducing its subscriber estimation for MOD (multimedia-on-demand) offerings....
3. (CHA) China Telecom Boosts Handset PortfolioChina Telecom (CHA), the largest Chinese fixed-line operator, has revealed plans to augment its wireless...
4. (CHT) Chunghwa Telecom Meets Earnings EstimatesChunghwa Telecom Co. Ltd. (CHT) declared third quarter 2009 financial results. Quarterly revenue of $1,525...
5. (CHL) Chunghwa Widens Fiber to the Home FootprintChunghwa Telecom Co. Ltd. (CHT)  is gradually expanding its subscribers’ base for FTTx (fiber to...
6. (SI) Chunghwa Upgrades to HSPA+Chunghwa Telecom (CHT), the largest integrated telecom operator in Taiwan, has planned to launch HSPA+...

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