Chunghwa Telecom in scandal over Nokia purchase: Next

Vice Premier-designate Mao Chi-kuo denies involvement

TAIPEI (Taiwan News) – Prosecutors were investigating Chunghwa Telecom (CHT), Taiwan’s largest telecom company, for alleged corrupt practices in its purchase of billions of 3G equipment when Vice Premier-designate Mao Chi-kuo headed the company, Taiwan’s Next Magazine reported Tuesday.
According to the report, the company, which was privatized in 2005, has purchased a total of about NT$50 billion (US$1.6 billion) worth of 3G equipment from Nokia since 2002. Last year, it planned to continue to buy more than NT$10 billion (US$338 million) of similar equipment from the Finnish company. Next said that according to the people who took part in the bidding process, a number of decision makers have engaged in corrupt practices in the purchase, disregarding the interests of the country, the company and consumers. Prosecutors were looking into the case, Next reported.
In 2002, CHT purchased the 3G equipment for the first time. Nokia submitted a bid of NT$12 billion (US$406 million) while a rival bid from Canada’s Nortel was only NT$8 billion (US$270 million). Yet, CHT chose Nokia, citing reasons such as the better quality of the base stations and the consistency of the infrastructure which would benefit future development, Next reported.
In late 2005, CHT decided to purchase more 3G equipment during the following year, Next wrote. The department of supply originally was to go through an open tendering procedure, sending inquiries to vendors. Ericsson, the world’s largest telecom equipment provider, reportedly submitted a bid of NT$2.1 billion (US$71 million).
However, in 2006, decision makers abandoned the public procurement procedure and decided to bargain with Nokia alone. The result was a NT$3.1 billion (US$105 million), or 1 billion higher than Ericsson’s price, according to Next.
Not only was the price CHT paid to Nokia higher than the one asked by rival Ericsson, but it was also more expensive than what local competitor Taiwan Mobile Co. paid to Nokia for similar products, Next said.
CHT paid 50 percent more for 3G equipment from Nokia than Taiwan Mobile, the second largest telecom operator in the country, according to a calculation made depending on the number of base stations, Next wrote.
The magazine said that the higher quality of Nokia’s 3G products did not form a sufficient explanation for the difference of prices, especially the higher one paid by CHT compared to Taiwan Mobile. In addition, problems were found during the operation of base stations and other products supplied by Nokia, Next reported.
At the time, Mao told the Legislative Yuan that the main reason for CHT’s choice of Nokia as its main supplier was that its products showed consistency in its different stages, which would benefit future development. However, Next reported that about NT$15 billion of equipment purchased in 2002 and 2006 were in fact not compatible with some NT$35 billion (US$1.18 billion) worth of equipment bought in 2007.
In addition, CHT, while still a state-owned company, began the commercial operation on July 26, 2005, of the Nokia 3G equipment before it had passed inspection, Next reported. Internal reports pointed out there were many problems with the equipment, including a necessary ‘restart’ during which customers cannot communicate for about 15 minutes. About half of the base stations also experienced failure, Next said, describing it as a huge violation of all consumers’ interests that a state-owned enterprise should make profits using unqualified equipment for profit. According to the procurement contract, Nokia should have completed the first phase of construction of the 3G equipment by January 11, 2004. However, CHT, which was still a state-owned enterprise before August 12, 2005, delayed the acceptance and inspection, Next reported. After privatization, decision makers immediately issued a notification, demanding a meeting over the acceptance on August 18. It finally completed the acceptance and inspection processes between August 22 and September 16, 2005, Next wrote.
The magazine came to the conclusion that the Control Yuan, the nation’s top government watchdog, also needed to investigate the case in detail because at the time, CHT was still a state-run company.
Chunghwa Telecom on Tuesday denied the magazine allegations of corrupt practices, saying the normal procedures had been followed. Rival bidders Siemens, Ericsson and Nortel had filed appeals against the case with the Public Construction Commission but they had all been rejected, CHT officials said.
Mao said he was innocent of any irregularities. The chairman of Chunghwa Telecom did not need to sign off on the deals mentioned in the Next article, Mao told reporters.
His promotion from Transportation Minister to Vice Premier announced last week was one of the major surprises in the current Cabinet reshuffle.
Incumbent Premier Sean Chen is scheduled to offer the mass resignation of his Cabinet this Thursday, with a new team headed by his current deputy, Vice Premier Jiang Yi-huah, likely to be sworn in on February 18.
Mao’s current deputy, Yeh Kuang-shih, will be promoted to succeed him, while another official with a transportation background, China Airlines Chairman Chang Chia-juch, is likely to be appointed Economics Minister. He served as chief of the Civil Aeronautics Administration and as Transportation Vice Minister.