Letter to Shareholders
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Letter to Shareholders To all of our shareholders, We are both excited to report to you in our new management roles as the Chairman/Chief Executive Officer and President. After many years at Chunghwa Telecom, beginning in the early days when Chunghwa was still a state-owned enterprise, we have witnessed many changes in our industry and at our company. However, some things have remained the same: We are still the number one telecom player in Taiwan and our commitment to long-term value creation for our shareholders is unwavering. We continue to lead the market for each of the services that we provide, including fixed line, mobile telecommunications and Internet and data businesses. Increasingly, new and exciting devices and services, such as Apple’s iPhone, are being launched in the market, which will continue to drive our network usage and service demand. Our recent partnership with Apple on the iPhone has enhanced our user experience, and consequently our customers’ loyalty, and it is because of Chunghwa Telecom’s strong brand, dominant market leadership and operational scale that we are able to draw partnerships with manufacturers of world-class devices. 83.8% of broadband users in Taiwan subscribed to our broadband access service in 2008, and the average bandwidth per user has reached 4.32Mbps for 2008. Such strong bandwidth demand demonstrates consumers’ increasing dependence on fast and reliable connections as their internet usage tendencies become more frequent and sophisticated. Total wireless penetration continues to exceed 100% in Taiwan, and Chunghwa commands 35.2% of subscriber market share. Wireless data applications, such as Internet access, photo sharing and messaging, continued to drive demand for value-added services (VAS). Our leading ICT solutions including corporate VPN solutions, and bank transaction PKI certification and verification services, multi-site backup solutions, provide the most valuable and reliable services for enterprises and government entities. Furthermore, over 95% of the transactions performed by Taiwan’s brokers, the Taiwan Stock Exchange, the Taiwan Future Exchange among Taiwan Depositary & Clearing Corporation are supported by Chunghwa’s network. In the future, we will continue to provide ICT managed services and applications over our advanced broadband network for our growing Enterprise customer base. We have delivered on customer expectations for mobility, seamless interconnectivity and a high level of performance; we have also delivered another year of remarkable shareholder value and improved our positioning for long-term growth. Given the current economic conditions and overall market expectations, the year ahead will be a challenging one for many of us. However, we are committed to steadfastly and prudently leading Chunghwa Telecom through these times, executing our strategy for continued growth and shareholder returns. In realizing our future prospects and opportunities, we will focus on our core business: capitalizing on the growing digital convergence trend, and broadening our revenue stream by continuing our tradition of innovative product and service development. In addition, we are committed to furthering our corporate social responsibility initiatives through such offerings as our intelligent energy saving solutions. Furthermore, we will prudently evaluate overseas opportunities in order to generate sustainable value for our shareholders. We will continue to optimize our human resources and capital resources, encouraging continuous out-performance among our employee base and executing efficient capital management as a top priority. Solid 2008 Performance Successful execution of our strategy to be the trusted provider of high-quality integrated communications in Taiwan has enabled us to strengthen our dominant market position. For our core services: . We provided fixed-line services to nearly 13 million customers, whose minutes of use represented 85% and 59.5% of the total market’s long distance minutes and international minutes, respectively. Our broadband subscriber base has reached 4.3 million, of which 25% are FTTx subscribers, an increase of 99% year-over-year. These FTTx subscribers use an average bandwidth of 10 Mbps per user. As of the end of the fiscal year, we had 8.95 million mobile subscribers, which is 2.85% year-over-year growth. 39.8% of total mobile subscribers are 3G subscribers. The number of 3G subscribers grew as a percentage of our total mobile subscriber base, and 3G mobile revenue reached NT$32.5 billion for 2008. In addition, we observed higher demand for value-added services among 3G subscribers, as compared to that of 2G subscribers. In addition to our core services, we offer an innovative menu of new products and value-added services (“VAS”) to capitalize on the continuing trend of digital convergence: . Our MOD/IPTV subscriber base was more than 676,000 at year end, significant growth of 71% when compared to 2007. We now offer 3 HDTV channels, which specialize in topics ranging from sports to drama. We have also partnered with many well-known global companies, such as FOX International, Universal, BBC, Disney and Time Warner to provide content. In addition, our MOD/IPTV platform provides interactive services, such as home banking, karaoke and games, as well as dedicated corporate services. For example, for the Taiwan Lottery, we offer a special application platform for them to draw and announce the winning numbers. One of our great MOD/IPTV achievements in 2008 was our exclusive broadcast distribution of the Summer 2008 Olympic Games. In August 2008 alone, our MOD/ IPTV subscriptions increased by 14.3% compared to the average monthly subscriptions from January to July 2008. In addition, during the Olympic Games, from August 8 to August 24, 2008, we achieved our peak level of MOD/IPTV household views, the highest of which was 1.6 times higher than our peak before the Games. While usage tapered slightly following the conclusion of the Olympics, customer feedback and usage patterns indicate that many of our customers will continue heavier usage following their enjoyable Games experience. Demand for our mobile data services has continued to grow. Total mobile VAS revenue increased by 24.9% year-over-year, of which Mobile Internet and Short Message Service (“SMS”) exhibited the highest growth of 38.5% and 20.5%, respectively. In addition, mPro subscriptions have reached 60,695, representing year-over-year growth of 131%. mPro packages are specifically designed for smart phone users, and include advanced mobile office functionality such as push email, calendars and to-do lists. mCool subscriptions for young users have reached 109,654, representing year-over-year growth of 2075%. Finally, a data card service launched in 2006 for professional mobile internet access at the speed of 7.2Mbps/384Kbps has gained significant traction in the market. As of the end of 2008, we had already gained 113 thousand subscribers, equivalent of about 1.3% of our total mobile users. Our innovative solutions for our Enterprise clients, which are instrumental in allowing them to streamline operations, have gained momentum. For example, our intelligent energy saving solution (“iEN”) is gaining popularity. After about eight months of availability, we have received 93 inquiries and 39 customers have signed up for 48 of our iEN solutions. As a result, we achieved consolidated revenue of NT$201.7 billion, with our mobile business contributing 35.9%, Internet and data 24.8%, and fixed-line 28.3%. In addition, our net profit was NT$45.0 billion, representing a net margin of 22.3%. Our continued profitability, cash generation and solid balance sheet have allowed us to confidently continue our capital return program to our shareholders. So far in 2009, we have already returned a total of NT$19.1 billion to our shareholders via capital reduction. In addition, we have also announced a cash dividend return of approximately NT$37.1 billion to be paid in the second half of 2009. We are committed to building shareholder value consistently and will continue to enhance our capital management practices. Commitment to Our Community Corporate social responsibility (CSR) and sustainability, and more specifically, our ability to foster a balanced relationship between the environment and corporate society, are critical endeavors for our company. We have been a member of World Business Council for Sustainability and Development for four years. In 2008, we continued our CSR efforts and I am pleased of our achievements: . Conversion to our electronic billing service has reduced paper usage by an equivalent of 24,290 million pieces of A4 paper . Our water re-use system has efficiently saved 8,628 tons of water . We processed 4,911 tons of metals for re-use . By the end of February 2008, our broadband access services are available for all of Taiwan’s 7,827 villages. However, we continued to penetrate within the villages and established broadband access for 5,768 low-income households throughout 2008. In addition, we donated NT$30 million through our Foundation for low-income region in the remote country-side in order to bridge the digital divide. 24,522 employees volunteered a total of 49,355 hours at such charities and programs as helping disadvantage minority. As a result of our commitment and dedications, we were recognized as the Top 50 (amongst listed companies) in Social Corporate Responsibility by Global View Monthly Magazine. In addition, we were awarded the 2009 CommonWealth Corporate