Increasing competition resulting from the ongoing liberalization of the Taiwan telecommunications industry or from alternative means of communication may adversely affect our growth and profitability by causing us to lose customers, charge lower tariffs or spend more on marketing. 

Mobile service providers in Taiwan have been offering 3G mobile services for several years. We face increased competition from some of these mobile service providers starting during the economic downturn, when they began offering free on-net call packages. We have also faced increasing competition from new entrants in the Taiwan telecommunications market in recent years. In particular, multiple licenses to operate fixed line, mobile, paging and other services have been issued by the Republic of China government since 1996. The National Communications Commission opened applications for VoIP (070) phone numbers in November 2005. As of the end of 2008, three Type I service providers—New Century InfoComm Tech. Co., Ltd., or Sparq, Taiwan Fixed Network and us—and two Type II service providers—Taiwan Infrastructure Technology Company and one of our subsidiaries, Chief Telecom—have obtained VoIP phone numbers. Our subsidiary, Chief Telecom, has been granted 070 VoIP phone numbers from the National Communications Commission and has launched its 070 phone-to-phone VoIP service in April 2009. 

We also face increased broadband competition from cable operators. Cable operators have been using low- priced internet access packages to attract new customers in specific areas and buildings in Taiwan. They have also been upgrading their networks to DOCSIS 3.0 in order to provide higher speed internet access. DOCSIS refers to Data Over Cable Service Interface Specification, which is an international telecommunications standard that permits the addition of high-speed data transfer to an existing cable TV system. To counter these developments, we plan to migrate more of our ADSL customers to FTTx services and to provide even higher speed FTTH access. On December 17, 2010, Kbro Co. Ltd., a cable television company, was acquired by Big Rich Media Limited, which is controlled by the same family that controls Taiwan Mobile. We expect this acquisition to increase the competition for our IPTV and broadband businesses, which could make it difficult for us to acquire channels for our IPTV services and result in the deterioration of our broadband market share and revenues. 

Many of our competitors are in alliances with leading international telecommunications service providers and have access to financial and other resources or technologies that may not be available to us. Moreover, as the government continues to liberalize the telecommunications market, such as through the issuance of new licenses or establishment of additional networks, our market position and competitiveness could be materially and adversely affected. We cannot guarantee that our measures to address competition will be effective and our business, financial condition and results of operations may be adversely affected by our competition. 

Increasing competition may also cause the rate of our customer growth to reverse or decline, bring about further decreases in tariff rates and necessitate increases in our selling and promotional expenses. Any of these developments could adversely affect our business, financial condition and results of operations. 

If we fail to maintain a good relationship with our labor union, work stoppages or labor unrest could occur and the quality of our services as well as our reputation could suffer. 

In accordance with our articles of incorporation, besides the managers, deputy managers and human resource directors of our various departments and groups, all of our employees are members of our principal labor union, the Chunghwa Telecom Workers Union. Since our incorporation in 1996, we have experienced disputes with our labor union on such issues as employee benefits and retirement benefits in connection with our privatization as well as the right to protest. Despite having taken measures to improve relations, increase cooperation and ensure mutual benefit with our labor union, such as increasing channels of communications by holding periodic labor resource review meetings and guaranteeing a labor union seat on our board of directions, we cannot assure you that we will be able to maintain a good relationship with our labor union. Any deterioration of our relationship with our labor union could result in work stoppages, strikes or threats to take such an action, which could disrupt our business and operations, and materially and adversely affect the quality of our services and harm our reputation. 

