Chunghwa registered a y-o-y decline in revenues during the quarter, driven by price cuts imposed by the National Communications Commission (NCC) in fixed-line and ADSL services, partially offset by increased revenues from the Internet & data segment (driven by increased subscriber-base). Going forward, we expect Chunghwa to face stiff competition from small telecom operators (as they provide cheap tariff packages to attract subscribers) as well as from cable operators (as they provide access services at lower prices). Accordingly, we expect Chunghwa to marginally loose market share. Furthermore, we expect a decline in fixed-line tariffs and reduction in ADSL service fees to negatively affect top-line growth, going forward. Conversely, in order to ease margin pressure Chunghwa has implemented an effective cost reduction programme, based on which we expect marketing expenses and labor costs to decline over the next two years. In addition, we expect cost of services to increase, as we expect Chunghwa to provide more handset subsidies due to intensified competition. In light of the subdued revenue growth expected, coupled with the declining EBITDA margin we have a muted outlook for the company.

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