With cable television in more than 80% of Taiwan homes, and more than 80 channels available for a basic rate of just US$16 per month, Taiwan is gearing up for the next phase in the development of its cable industry: multi-tiered offerings of services including high-speed internet access, digital video programming and interactive television. The next phase has been put on hold, however, until the government determines how to set the rates for such services.

Under Taiwan's Cable Radio and Television Law, each cable operator is required to report its subscription fees to the local regulatory authority for review and approval according to subscription fee standards set by the national authority. In order to offer new services and technologies, cable system operators need the flexibility to charge different rates for different services. However, Taiwan's law fails to provide that flexibility.

The Cable Television Law includes definitions of the terms 'pay channel' (a channel that cannot be received without payment of additional fees) and 'pay-per-view programme' (a programme that cannot be received without payment of additional fees), clearly anticipating a multi-tiered system of programmes and pricing. However, it gives no guidance on how fees are to be calculated in each tier or how programmes are to be allocated to each tier. Nor does it specify whether all three tiers of services are subject to review, or only basic channels. Local authorities have taken the position that all cable subscription fees are subject to review and all are subject to the cap of about US$16 per month.

While that cap works for basic channels, operators claim it is unrealistic for the pay channels and is hindering the development of new services and technologies. Admittedly, digital television has already been introduced to Taiwan. Last October, multiple system operator (MSO) China Network Systems (CNS), a joint venture between Rupert Murdoch's STAR TV and Taiwan's Koo's Group, began offering Total TV to its 12 operators who service about 1 million subscribers. Subscribers who pay a deposit for Total TV's set-top box can gain access, for no extra fee, to games and on-demand information concerning finance, banking, news, education and entertainment. However, the true potential of Total TV - the plans to add email, online shopping, banking, stock trading and other services - is contingent upon authorities lifting the US$16 cap.

CNS is not the only operator whose services are being held up by the unfinished legislation. All three major MSOs in Taiwan - CNS, Eastern Multimedia Company and Taiwan Broadband Communication, a subsidiary of Carlyle Group - are ready to launch their pay channel services and are only awaiting government resolution of the pricing issues. In order to hasten the completion of the legislation and obtain fair regulatory treatment of cable pricing, those three MSOs have joined forces to create the Cable Broadband Institute in Taiwan, an entity that lobbies for amendments to the Cable Television Law and liberalization of industry regulations.

These efforts appear to be paying off. In March 2003 the Taipei Times reported that Taiwan's Government Information Office is drafting relevant regulations. Perhaps the key issue is how to designate basic channels. One option being discussed is the possibility of reducing the 80 basic channels to about 25 or 30, and offering the remaining channels as pay channels either by genre - such as sports, movies and so forth - or in other packages. To ensure that basic channels retain quality programming, the government has stated that the regulations will clearly specify which channels are basic and which are not.

Once the government defines the parameters of the basic channels, it is hoped that clear and reasonable standards for multi-tiered pricing will be established, so operators can move beyond the 80 existing channels into the as-yet undeveloped realm of digital video broadcasts, video conferencing, e-shopping, e-banking and other forms of digital broadcasting and interactive television.

For further information on this topic please contact Arthur Shay, Christopher M Neumeyer or David C Yeh at Shay & Partners by telephone (+886 2 8773 3600) or by fax (+886 2 8773 3611) or by email ([email protected] or [email protected] or [email protected]).