Telecommunications Regulation. TAIWAN Tsar & Tsai Law Firm

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1 Telecommunications Regulation TAIWAN Tsar & Tsai Law Firm CONTACT INFORMATION June Su James Cheng Tsar & Tsai Law Firm 8F, 245 Dunhua S. Rorad, Sec. 1 Taipei 106, Taiwan law@tsartsai.com.tw 1. What is the name and nature of the regulatory body(ies) in your jurisdiction? To which bodies (if any) are decisions appealed? The National Communications Commission (NCC) is the central governing authority for telecommunications and broadcast businesses. The NCC's decision may be appealed to the Executive Yuan (the Cabinet). The Executive Yuan's decision may be appealed to the High Administrative Court. The decision of the High Administrative Court may be appealed to the Supreme Administrative Court. 2. Has your jurisdiction adopted the WTO Basic Telecommunications Agreement? If yes, with what exceptions, if any? Yes. Taiwan is committed to liberalizing basic and value-added telecom services. Taiwan also agrees not to impose limitations on market access and to provide national treatment for basic and value-added telecom services with the following exceptions: a) for facilities-based service provider (Type I operators), operators must be a company incorporated in Taiwan as a company limited by shares. Direct foreign ownership shall not exceed 20% and direct plus indirect foreign ownership shall not exceed 60%. The chairperson and more than half of the board of directors must be Taiwan nationals.

2 b) for cross-border mobile satellite operators, a commercial arrangement with a Taiwan-licensed operator must be entered into for the provision of services in Taiwan. 3. Are operators in your jurisdiction privately or publicly/state owned? All operators in Taiwan are privately owned. However, the current largest operator, Chunghwa Telecom, used to be a state-owned monopoly but has privatized and reduced its state-ownership to below 50% after August What are the primary differences between the regulation of wire line, wireless, satellite, cable and VoIP providers? Each type of operators are regulated by different set of regulations. In terms of wireline, wireless and satellite telcos, they are regulated as Type I facilities-based telcos under different administrative regulations and more onerous regulations apply. Cable operators providing telecom services are also regulated as Type I facilitiesbased telcos. However, a separate set of cable television regulation applies to cable operators providing broadcasting services. VoIP providers are regulated as special Type II value-added telcos and subject to less stringent regulatory regime. The major difference in licensing conditions applicable to Type I facilities-based telcos, cable and VoIP providers are minimum capital requirement, foreign investment cap, nationality requirement applicable to directors and supervisor, concession and licensing fees and inspection of network facilities. Additionally, satellite and cable broadcasters are separately regulated under two sets of broadcasting regulations. 5. Are broadcasters regulated separately from telecoms? Yes, different regulatory requirements and licensing conditions apply to broadcasters and telcos. 6. How are satellite earth stations and submarine cable landings regulated? Both satellite earth stations and submarine cable landings are classified as Type I services. The Regulation Governing Satellite Communications Business specifically governs the establishment and operation of satellite earth stations. Under this regulation, the approval process for obtaining a license for the establishment and operation of a fixed satellite earth station includes prior approval for construction and, after completion of construction, an inspection by the NCC. The establishment of a mobile satellite earth station or a small earth station (a fixed earth station with antenna of less than 3M in diameter) do not require a license. However, certain reporting requirements apply.

3 The Regulation Governing Fixed Network Business governs the landing of submarine cables. Under this regulation, international submarine cable circuit leasing operators are required to apply for a construction permit for landing facilities. After construction is completed, the cables and cable landing facilities must pass the NCC's inspection. Submarine cable circuit leasing operators may deploy its own inland backhaul or lease inland backhaul from licensed local fixed network operators to connect the landing station to the inland gateway. 7. How is the radio spectrum generally regulated? The government has a spectrum policy but there is no separate regulation for spectrums. Rather, under applicable regulations, spectrum for wireless services is assigned to operators with the requisite licenses. The original amount of frequency to be assigned to each particular type of service operator is specified in the regulations. Any assignment of additional frequencies to operators is subject to government approval. A wireless service licensee is not permitted to lease, lend, assign or encumber the assigned frequency in favor of another. The frequency assigned to the licensee remains public property and cannot be transferred. 8. Are any operators granted exclusivity? No; however, because of the concession system, the number of licensees for certain facilities-based services or the specific geographical area covered by the licenses is limited. 9. Are anti-competitive practices subject to regulation or general competition (e.g., antitrust) laws? The telco regulations contain provisions aim to prohibit anti-competitive behaviors, e.g., cross-holding restrictions. General antitrust laws also apply to regulate the conduct of telcos. In addition the Taiwan Fair Trade Commission, the antitrust authority of Taiwan, also has separate administrative rules applicable to the business conduct of cable television business and telecom business. 10. What services have been liberalized or designated as competitive services? The following types of services are liberalized: fixed network services (including local, domestic long-distance and international services and circuit leasing businesses), mobile services (including digital low services, trunking radio services, mobile data services, paging services, 2G, 3G and wireless broadband internet services) and satellite telecom services (including satellite relay services and satellite mobile and fixed telecom services).

4 11. Are there regulated tariffs or price lists? If so, for what types of services? The regulations place a ceiling on the tariffs of Type I facilities-based service provider. In addition, the main tariffs of a facilities-based service operator that is deemed a "market leader" (i.e., dominant carrier) are subject to prior approval by the NCC. In case of ancillary tariffs of the dominant carriers and all tariffs of nondominant carriers, only notification to the NCC is required. The tariffs of Type II value-added service providers are not regulated. 12. Are there restrictions on foreign investment in any types of communications companies? If so, what are the restrictions? The permitted direct and indirect foreign ownership in a Type I (facilities-based) operator is capped at 60% whereas direct foreign ownership is capped at 49%. Indirect foreign ownership is defined as the foreign ownership in a domestic company that is a shareholder of a Type I (facilities-based) operator. There is no foreign ownership restriction applicable to Type II (non-facilities based value-added) service operators. 13. What are the approval processes for mergers and acquisitions? Do these vary by type of operator? The Telecommunications Law provides that a merger or cross-investment between two or more Type I operators is subject to prior approval by the NCC. The merger and acquisitions in the telecom industry (regardless of the type of service operator involved) are also subject to merger filing requirement under the Fair Trade Law. Under the Fair Trade Law, for merger filing to be required, there must be a combination and the combination must meet one of the following criteria to trigger the filing requirement: a) the resulting enterprise of a combination will have a market share of at least 1/3; b) one of the parties of the combination has a market share of at least 1/4; or c) one of the parties in the proposed combination has a sales volume of at least NT$10 billion in the immediate preceding fiscal year and the other party has a sales volume of at least NT$1 billion for the same year. 14. Is interconnection between carriers mandatory? Interconnection between Type I (facilities-based) operator and another Type I or Type II (non-facilities based value-added) operators is mandatory. The interconnection arrangement between carriers must be transparent, reasonable, nondiscriminatory, unbundled and at cost.

5 15. Are interconnection fees/rates regulated? Yes, the interconnection fees are regulated. The Regulation Governing Network Interconnection of Telecommunications Enterprises sets forth the cost sharing principle for interconnection and requires the interconnection fees to be calculated based on cost and be fair, equal and non-discriminatory. The interconnection fees charged by dominant Type I carriers should be unbundled, at cost and calculated based on TELRIC and the fees must be approved by the NCC. 16. Must carriers make available network components to competitors? If so, what are fees/prices based on cost, or market rates? The Administrative Regulation Governing Fixed Network Telecommunications Business provide that fixed-network service providers should negotiate in good faith for the fees and arrangement for sharing of basic network infrastructure and related telecom facilities. The NCC will step in for mediation per the request of an operator if another operator refuses to negotiate or enter into an agreement after negotiation for three months. 17. Is there an obligation to serve all customers? If yes, is there a fund to subsidize eligible carriers? Which carriers contribute to the fund? Which carriers are eligible to receive these funds? Are broadband services subsidized or otherwise promoted through tax or other incentives? Under the Fundamental Communications Act, telcos should provide fair and reasonable services to all customers. Under the Telecom Law and the Administrative Regulation Governing Universal Telecommunications Services, all customers have the right to enjoy quality telecom services at a reasonable and fair price. The Universal Service Fund is set up to subsidize universal service provider. Type I operators and those Type II operators designated by the NCC shall contribute to the Universal Service Fund pro rata. Existing operators (defined as fixed network operators licensed before 18 May 1999) interested at providing universal services may apply to the NCC to be selected as the universal service provider whose universal service provision would then be subsidized by the Universal Service Fund. Universal telecommunications services include both voice and broadband services and both are subsidized through Universal Service Fund. 18. Are there mandatory requirements to customer agreements (subscriptions, etc.)? The customer terms and conditions of a Type I service provider are subject to prior approval by the NCC. The terms and conditions of a Type II service provider must be filed with the NCC. The NCC also has the right to order a telecom service provider to amend its customer terms and conditions if the provision is determined by the NCC to be unfair or harmful to customers.

6 19. Are there any general or telecommunication specific requirements as to data retention? According to the various administrative regulations governing various types of telecommunications services, the required data retention period for communications records are as follows: Local calls by fixed network operators: 3 months. Domestic long distance or international calls by fixed network operators: 6 months. Mobile calls by 2G, 1900MHz digital low-tier or 3G mobile service operators: 6 months. Communications over international simple resale services: 6 months. Communications over VoIP: 6 months. Communications over mobile virtual private network services: 6 months. 20. Is number portability mandatory? If so, for which types of carriers (e.g., wireline, wireless, voice over internet protocol)? Number portability is mandatory for fixed network operators and mobile operators, including both 2G and 3G mobile operators. The provision of number portability between operators shall be equal and non-discriminatory. 21. Is equal access dialing selection mandatory? If yes, for which types of carriers? Equal access dialing selection is mandatory to Type I (facilities based) service providers that are either fixed network local service provider or 2G, 1900 MHz digital low-tier, and 3G mobile service providers. 22. Is access or other contributions ( ADCs ) required of new entrants? No, there is no access or other contributions required of new entrants. 23. Is VoIP regulated? If yes, to what extent? VoIP is divided into two types: E.164 Number VoIP and non-e. 164 Number VoIP. Both types of VoIP services are classified as special Type II telecom services and are regulated under the Administrative Regulation Governing Type II Telecommunications Business. Applicant for a special Type II telecom license to provide VoIP services must first obtain a permission to roll out the facilities. Thereafter, the operator must pass inspection of its telecom facilities before it can apply for the Type II telecom license. Operators whose paid-in capital is NT$500 million or more may directly apply to the NCC for numbers. Operators whose paid-in capital is less than NT$500 million will

7 have to obtain numbers from Type I (facilities-based) operators who also provide E. 164 Number VoIP services. E. 164 Number VoIP operators may use foreign E. 164 numbers in offering VoIP services. However, E. 164 Number VoIP operators using foreign E. 164 numbers should obtain prior approval from the NCC by submitting information relating to offering of free 110 and 119 emergency calls in Taiwan, methods for audit of customer information on customers using foreign E. 164 numbers and evidence of compliance with Taiwan's communications surveillance regulations. 24. Are any major changes to telecommunications laws expected in the near future? Yes, the NCC is considering a major overhaul in the telecom and broadcasting regulatory regime to provide a new set of converged regulations. However, no concrete set of amendments is proposed yet. 25. Is resale of telecom services permitted? If yes, is this activity regulated? What is the process to become a reseller? Are foreign companies permitted to be resellers? Resale of telecom services is permitted. Resale business is classified as special Type II telecom services and the Administrative Regulation Governing Type II Telecommunications Business contain regulations on resale services. As a special Type II telecom services business, the resale operator must first obtain a permission to roll out the facilities. Thereafter, a reseller must first pass inspection of its telecom facilities before it can obtain a Type II telecommunications license to provide services. Foreign companies are permitted to be resellers and there is no foreign investment cap applicable to a resale telecom service provider.