Taiwan Mobile Puts Pressure on Chunghwa

Chunghwa Telecom Co. Ltd. (NYSE: CHT) look out!

Taiwan Mobile Co. Ltd. , which already has a small but growing cable TV and broadband operation, is buying cable operator kbro Co. Ltd. (formerly known as Eastern Multimedia Co.) in a $1 billion cash and equity swap deal with the MSO's current owner, The Carlyle Group LLC .

The resulting company will have about 1.6 million cable TV customers, giving it a 32 percent share of Taiwan's pay TV market, and more than 6.4 million mobile customers, about a 30 percent share of the market, making it a stronger rival to Chunghwa. (See Chunghwa Rides High in Taiwan and KBRO Picks Thomson Headends.)

In its presentation materials for investors, Taiwan Mobile noted that bringing kbro on board will: give it "direct access to more than 1 million households in urban areas"; the leading position in "higher-growth and higher-margin pay-TV business to complement [our] traditional strength in wireless"; boost its "growth momentum and increase revenue share from non-voice source"; enable it to "take advantage of convergence across multiple delivery platforms"; and enable "capex synergies."

As part of the deal, which could take months to close, Carlyle will take a 15.5 percent stake in Taiwan Mobile.

Taiwan Mobile generated revenues of 17.35 billion Taiwan New Dollars (US$534 million) during the second quarter of this year. Kbro's revenues are not published, but Taiwan Mobile's presentation suggested that kbro had generated US$100 million in EBITDA (earnings before interest, tax, depreciation, and amortization) in the 12 months to the end of June.

The deal is the second major telecom services M&A event in Taiwan in recent months, following China Mobile Communications Corp. 's move to take a stake in Far EasTone Telecommunications Co. Ltd. (See China Mobile Enters Taiwan.)

— Ray Le Maistre, International News Editor, Light Reading