PART I 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.  8