Risk Management

Risk Management Policy and Process

TWM established “Risk Management Policy” in 2011, and was revised by the Board of Directors for the second time in 2020 as the highest guiding principle for risk management. In advance to achieve the benefits of prevention, TWM actively plans risk management policies, organizational structures and risk management systems to address the risks that the company’s operations may encounter to. . In 2015, the existing risk management structure intergraded with control mechanism.

In addition, the "Risk Management Committee" was established and approved by the board of directors to strengthen the risk management mechanism in the company.

The Internal Audit Office performs risk assessment at the end of the year periodically. The risks are evaluated for importance and probability and gave their risk value by Internal Audit Office.

The level of risk value as the basis will be used to arrange an audit plan for next year.

Risk Management Scope

TWM integrates and manages various important risks that may affect operations and profits by proactive and cost-effective manner along with a response mechanism from the three-level risk management.

The company's important risks include "Operating risk", "Risks related to privacy and information security", "Innovation risk"... and so on. Please read the detail content in the company's annual report.

Risk Management Structure

Risk Operation

TWM sets up "Risk Management Committee" for supervising and strictly controlling risk management related issues, and promotes a risk management-oriented management model to achieve the goal of improvement continuously.

The Risk Management Committee is hold at least once every six months, and communicates with various functional committees as Operations and Management Committee”, “Occupational Safety and Health Committee”, “Communication Quality Assurance Committee”, “Environmental Management Committee”, “Privacy and Information Security Management Committee” , “CSR Committee” and “Innovation Management Committee” and other special committees to discuss the issues of risk management regularly , for accurately control risk issues in different fields.

In the event of a major event or proposal, each responsible unit shall report it to a meeting of operation management or each management committee to decide the necessary measures. Each functional committee not only proactively focus and identify the potential risk issues within internal and external for the company, but bring up appropriate solutions.

The operation record of the “Risk Management Committee” is coordinated and submitted by the Internal Audit Office to the chairman for approval. The Internal Audit Office follows up the status of operation and report to the Board of Directors at least once a year to ensure that relevant risk issues are effectively managed.

The company has proactively promoted the mechanism of risk management since 2011.

The followings are the status of main operating over the years.

• Formulated Risk Management Policy in 2011
• The Risk Management Committee was established in 2015
• Revised the Risk Management Policy in 2017
• The Risk Management Policy was revised the second time in 2020 and approved by the Board of Directors. The company implements the detection, analysis and identification of risk items within the scope of risk management, and strengthen the objectives of crisis prevention and resolution with rapid recovery to effectively control risks.

Risk Management Procedure

Risk Management Matrix

Analysis of Key and Emerging Risks and Opportunities

*Emerging risk

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Category	Key Risks	Explanation of Risk	Trend	Possible impacts to TWM	Actions/Countermeasures (mitigating risks & seizing opportunities)	Actual projects	Control KPI
Regulatory	Legal Compliance	Information protection-related fines and penalties Intellectual property rights and patent disputes	on the decline	It is estimated that network and spectrum sharing mechanism which has been included in the “Telecom Management Act” will be enforceable in July 2020. The act allows for more effective resource utilization and relax the telco operators’ construction obligation. NCC is drawing up the relevant rules and regulations. It gives the telco operators more flexibility in future spectrum sharing and network deployment. NCC released the White Paper on Communication Policy in February 2020, as an important reference for the legislation of the Convergence and Communication Law. Relevant regulations and policies, such as “the Internet Audiovisual Services Law (Draft) ” and the adopting of an arbitration mechanism in “the Cable Radio and Television Act”, will affect the development of the industry. NCC completed the first 5G spectrum auction in February 21, 2020. The telco operators are expected to launch 5G services in the third quarter of 2020 at the soonest.	TWM will actively communicate with the administrative or legislative authorities to promote the regulatory and policy environment toward beneficial to industry developments. Provide the competent authority the advice for the policy planning for the Convergence and Communication, to improve the development of the industry. To obtain the 5G license, TWM will submit the relevant application and filings to the relevant authority and put into the construction and inspection as soon as possible.	5G service launch project	Execute 5G service launch project
	Policy and legislation changes	Amend the regulations of one fixed and one flexible day off per week , labor, human rights, environment, energy, sustainability, and IT issues. Lower the barriers to entry for new entrants.
Network bandwidth resources	Climate change/ natural disasters*	Climate change would result in elevated average temperature, Maximum temperature along with more frequent and extreme weather events such as typhoons and rain storms with higher intensity.	Remaining stable	Increase in elevated temperature and rainstorm intensity may lead to greater possibility of equipment damage and additional operating costs for TWM. We have employed the TCFD framework to measure financial impact from climate risks. The total loss due to typhoon in 2019-2030 is estimated to reach up to NT$58 million. Demand on air-conditioning for machine rooms is growing as periods of excessively high temperatures prolonged. This may cause more electricity consumption and higher operating cost. Extra labor costs and working hours are needed for rebuilding destruction of natural disasters. Climate change and extreme weather result in the unstable supply of power and water, leading to interruption in our operations.	Increase climate resilience by introducing high temperature resistant and moisture resistant equipment. Reinforcing the Standard Operating Procedure (SOP) of emergency repair as well as recovery after major disasters and holding disaster prevention drill regularly. Adding back-up electricity generators to the stations located in natural disaster hotspots.	ISO14001 Smart Energy Conservation ISO50001	Renewable Energy Consumption Energy intensity Energy conservation Set up of the backup generator
	Telecommunication technology innovation*	Rapid development in technology and the shift to digitization means changing business models and innovated products and services.	On the rise	NB-IoT occupies LTE 700Mhz frequency band resources may affect the quality of data services provided by TWM. The development in 5G applications intensifies competitions within the ICT industry. TWM needs to continuously invest more resources in building 5G-related infrastructure, which affects operating costs.	Introduction of Guard-Band NB-IoT technology improves the efficiency of LTE 700Mhz frequency resources and the LTE network rate. Establish a 5G experimental network and perform integration tests with various manufacturers and terminals in the actual network.	Taiwan Mobile inked an MOU for 5G technology with Nation Taiwan University, and Apply for a 5G wireless technical project of the Ministry of Science and Technology.	None
Information security	Information privacy and security*	Information leakage affects reputation Consumer doubts rise Emerging services and product ranges increase personal information leakage	Remaining stable	The company provides customers with various telecommunications and value-added services. In the future, innovative services (such as 5G) and product range will continue to increase. In addition, domestic and foreign security/privacy standards (such as domestic information security law and EU GDPR) will become more strict. If the customer's personal information is leaked carelessly, the Company shall bear legal responsibility and seriously damage the Company's image.	In 2004, the ISO 27001 "Information Security Management System (ISMS)" were required to be followed by the new BS 10012 and ISO/IEC29100 privacy framework standards, and were integrated into the corporate operating procedures, such as the personal data file violation and control.	Promote international standards for security management and privacy protection, set up 5G cyber security task force to strengthen multi-dimensions control measures.	Legal and customer litigation disputes
Business operation	Occupation safety	Work-related injury prevention measures to protect key field technicians If there is any defect in the contractor's operation safety, it will destroy goodwill.	On the rise	Increasing work-related injuries may cause physical and psychological damage to employees and may affect company operations. If there is any defect in the contractor's operation safety, it will destroy goodwill.	Strengthen occupational safety education and training for employees, and provide safety and health care and training especially for employees who apply for work injury. Stablish standard operating procedures and provide appropriate personal protective equipment Build Safety Health and Environment Standard Operating Procedure compliance to contractor，and implementation management and supervision.	Establish an occupational safety and health management system (ISO 45001)	Disabling injury Frequency Rate dropped 10%
Market	Alternative and emerging business models	Shortening product lifecycle and increasing cost Offering products or service updated with market trends	Remaining Stable	It is hard to maintain the revenue due to the intense competition in the market. More of the users terminate the contract in advance since other companies offer better bonus.	TWM try to increase customer loyalty by labeling users in groups and offer special discounts, so as to strive for user renewal and prevent rent withdrawal, or to provide more diversified contracted products or roaming services due to the recently increasing popularity of backpacking.	Myfone mix & match red & green combo Roaming share plan	KPI management
	Intensified Competition	Irrational price competition cause the loss of profit and damage to goodwill New competitors Saturated telecom market	On the decline	Taiwan telecom industry has been trapped into a price competition. And the new 4G business (T-Star/Line Mobile) are actively added to the project and offers low-priced unlimited 4G data plans. This will also make it more competitive.	In response to market competition, the Company attracts the young users with short-term contract (12 months) in the online store and cooperates with momo.com, the e-commerce unit of the TWM family, to change the product model binding with contract and allow users to have diverse choices.	EC-499 sim only plan Myfone mix & match momo mix & match	KPI management
	Changing customer requirements*	unlimited plan commonly subscribed decrease the revenue increase in cellular data usage	Remaining Stable	Due to the popularization of 4G and cheap unlimited Internet access, more and more users use VOIP to replace traditional voice call. This makes revenue from traditional voice calls decline. And increase of Internet access volume is unable to enhance sales revenue.	TWM will develop more mobile value-added services to expand our revenue base, for instance, video products in the mySeries, contract of smart household appliances (e.g., Nest mini), wearable device services, etc.	Myfone mix&match One Number service myAir service	KPI management
	Demographic changes*	Aging society and low birth rate cause a change in demand and reduce staffing needs	On the decline	Low birth rate and aging society are impacting the Taiwanese society. The declining population growth rate and the older age structure reduce the demand for mobile service, which cause a decrease in revenue.	Senior users rarely replace existing phones with new ones and it is difficult to stimulate phone plan renewals for this group of consumers, we changed the contractual model and launched the myfone mix & match service to allow for more choices. Child’s first cell phone is increasingly becoming an earlier, and pricier, decision for parents, so TWM has launched both prepaid and postpaid plans to satisfy their needs.	Myfone mix&match Prepaid kids Monthly kids plan	KPI management
Innovation management	Innovation kinetic energy growth	Sluggish innovation spoils market share Lack of R&D resource defers innovation Lack of cross-industry alliance	Remaining Stable	Even if the telecom network has been evolving from 4G to 5G, telecom companies still have to face the relentless challenges of OTT app from start-up companies. If TWM could not positioned itself in a good place of value chain beside dumb pipe, the consequence would be sluggish growth or even decay on revenue and profit.	Enhance partnership with star-up companies, which are invested or incubated by AppWorks Search for cross-industry cooperating business with companies in Fubon group. Expand business footprint in Southeast Asia	Partnership with AppWorks’ Star-ups TAMI DMP (Data Management Platform) M+ Payment project with Taiepi Fubon bank momo’s investment in Southeast Asia	User Penetration and Revenue