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RR RUEHCN RUEHGH RUEHVC
DE RUEHIN #1125/01 2600829
ZNR UUUUU ZZH
R 170829Z SEP 09 ZDK
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 2326
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 TAIPEI 001125 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/RSP/TC AND EEB 
STATE PASS TO AIT/W FOR RICK RUZICKA 
STATE PASS TO USTR FOR ERIC ALTBACH AND MCHALE 
COMMERCE FOR ITA/OPB BRENDA CARTER-NIXON 
 
E.O. 12958: N/A 
TAGS: ETRD ECON ECPS TW
SUBJECT: Taiwan Telecom: Carlyle Sells Kbro to Taiwan Mobile 
 
Reftel: A) Taipei 476; B) Taipei 580 
 
 
Summary 
------- 
 
¶1. (SBU) Taiwan Mobile Company announced September 16 it will spend 
NTD 32.8 billion (USD one billion) to buy Kbro Company, Taiwan's 
second-largest cable TV system operator, from the Carlyle Group. 
Taiwan mobile will be the market leader among cable TV system 
operators, providing service to one-third of all cable customers in 
Taiwan.  The National Communications Commission (NCC) and Taiwan 
Fair Trade Commission (TFTC) will both review the deal, which is 
also subject to the approval of Taiwan Mobile's shareholders.  The 
sale is unlikely to affect Kbro's ongoing appeals of several 
controversial license-renewal decisions by the NCC (ref A). End 
summary. 
 
The Deal 
-------- 
 
¶2. (U) Taiwan Mobile, a subsidiary of Taiwan's banking giant the 
Fubon Group, is Taiwan's second-largest telecom operator after 
state-controlled Chunghwa Telecom.  Under the deal, Carlyle will 
swap control of Kbro--originally acquired by Carlyle in 2006 for USD 
1.5 billion--for USD one billion, with Taiwan Mobile also assuming 
USD 800 million in Kbro debt.  Carlyle will subsequently hold a 15.5 
percent stake in Taiwan Mobile, making Carlyle Taiwan Mobile's 
second-largest shareholder after the controlling Tsai family. 
Carlyle will also have two seats on Taiwan Mobile's board. By adding 
Kbro's 22.4 percent share of the Taiwan cable market to the Taiwan 
Mobile-owned Taigu Media Company's 11 percent share, Taiwan Mobile 
will become the island's largest cable-television service provider. 
 
 
NCC, FTC Approval Needed 
------------------------ 
 
¶3. (SBU) The NCC and TFTC, however, must first approve the sale. On 
September 17, NCC Operational Administration Department Deputy 
Director Huang Chin-yi told AIT the NCC will examine whether the 
deal violates the Taiwan Cable Television Act, which stipulates a 
company may not directly control more than one-third of the total 
cable-television market, nor own more than one-fourth of all 
television channels.   The regulators will also see if the sale is 
legal under various laws limiting foreign investors to 49 percent 
direct ownership or 60 percent total (direct plus indirect) 
ownership of any telecom or cable-television company. Huang noted 
that, as a publically-listed company, Taiwan Mobile's total foreign 
ownership is already unclear, and adding in an additional 15 percent 
ownership by Carlyle will further muddy the waters. 
 
¶4. (SBU) Huang added the NCC must also decide on how the sale is 
affected by provisions of the Telecom Act that forbid public 
entities from owning broadcasting enterprises.  According to Huang, 
if the deal goes through, the Taipei-City-owned Taipei Bank (TB) 
will have a small stake in Kbro through the Bank's partial ownership 
of Taiwan Mobile.  [Note: According to our research, Taipei Bank 
sold TCB to the Fubon Financial Holding Company in 2002, and TCB is 
therefore now privately-owned. End note.] 
 
¶5. (SBU) Huang opined that mergers between telecom and broadcasting 
enterprises will become more frequent as Taiwan moves toward digital 
convergence--the bundling of telephone, cable and Internet service 
(ref B)--which he thinks will eventually force the NCC to revise the 
laws setting these limits.  Huang added even if the NCC 
Commissioners approve the deal, the decision might not be speedy, 
and the Commissioners could also add unexpected conditions, much as 
the Commission has done for recent, controversial cable-television 
license renewals (ref A). 
 
¶6. (SBU) On September 17, former NCC Senior Specialist Yeh 
Ning--currently Senior Executive Assistant to 
Minister-without-Portfolio Kao Su-po, and rumored to be returning 
soon to the NCC as Secretary General--told econoff the NCC and the 
Taiwan Fair Trade Commission (TFTC) will, in addition to considering 
ownership limits and market share, also consider whether the deal 
gives Taiwan Mobile a monopoly or quasi-monopoly position in the 
cable-television market. Yeh thinks Taiwan Mobile will be able get 
under the one-third cap by selling off one of Kbro's smaller local 
operators, but added it is "hard to predict" how the NCC and TFTC 
will decide regarding the company's market power. According to media 
reports, in order to reduce its market share to under 33.3 percent, 
Taiwan Mobile plans to sell off the Hong Shulin Cable TV Company, 
which has 56,000 subscribers. 
 
 
TAIPEI 00001125  002 OF 002 
 
 
Won't Affect Pending License Appeals 
------------------------------------ 
 
¶7. (SBU) In fall 2008, the NCC added financial conditions to several 
of Kbro's cable franchise license renewals.  Kbro then made 
administrative appeals to the EY Appeals Committee on the issue of 
the legality of the NCC's granting of conditional licenses, 
requesting that the EY overturn the NCC's decision to grant such 
licenses (ref A).  The Committee, however, due to the NCC's initial 
refusal to cooperate, failed to hand down its ruling within the 
legally-mandated five-month period, and the appeals process has 
dragged on for nine months.  According to Yeh, Taiwan Mobile's 
acquisition of Kbro is not likely to affect the timetable or outcome 
of the appeals decisions. 
 
Comment 
------- 
 
¶8. (SBU) The deal, if approved by the NCC and FTC, would position 
Taiwan Telecom to challenge Chunghwa Telecom in the commercial race 
to implement digital convergence.  Approval, however, is not 
certain, as the NCC will have difficulty figuring out what amount of 
Taiwan Mobile and Kbro are directly or indirectly owned by foreign 
investors, as well as the more subjective issue of Taiwan Mobile's 
possible monopoly power.  End comment. 
 
STANTON