Global Insight Perspective | |
Significance | The Korean antitrust body has given conditional approval to the acquisition of Hanaro Telecom by SK Telecom. |
Implications | The conditions were set to prevent a virtual market monopoly by SK Telecom. |
Outlook | The deal could trigger further industry consolidation in a highly competitive market. |
While giving the go-ahead to the acquisition plan, the Fair Trade Commission (FTC) said SK Telecom should not give any preferential treatment to Hanaro Telecom, the country's second-largest fixed-line operator, in providing bundled telecoms services, the AFX financial news provider reports. The regulator also requested that SK Telecom, which controls about half of the country's 40 million mobile subscribers, should allow its smaller rivals to use its mobile frequency band. SK Telecom agreed in December to buy 38.89% of Hanaro for 1.087 trillion won (US$1.15 billion) from two U.S. investors, Newbridge Capital and the American International Group (AIG). Along with its existing stake, SK Telecom would become Hanaro's largest shareholder, with a 43.59% stake. In response to the FTC's decision, SK Telecom expressed its regret, saying the commission's demand could limit possible synergies from the acquisition. The company said the Hanaro acquisition is "an inevitable choice" amid an evolving trend in the industry whereby fixed-line, mobile and other communication services are bundled at discounted prices, and telecoms and broadcast services are seen as eventually converging. SK Telecom also added that the decision could reduce possible benefits to consumers.
Worried about the synergy of the merger, SK Telecom's smaller rivals had asked the government to attach "reasonable conditions" to ensure competition when the regulatory body approves the merger deal. LG Telecom, the smallest mobile operator, was the most aggressive in condemning the deal, even though it also has sister firms in the telephone and broadband internet industries—LG Dacom and LG Powercom. The company sent out several press releases since late last year urging the MIC and the FTC to tighten control over SK Telecom. In the latest claim, LG said it should be allowed to share SK Telecom's 800-MHz radio frequency band. KT Freetel, the second-ranked mobile operator, took a rather indirect tactic, as the firm is also preparing to forge a closer partnership, or even a merger, with its parent, fixed-line giant KT Corp.
The Ministry of Information and Communication (MIC) is scheduled to make a final decision on the deal on Wednesday (30 February), based on the advice from the FTC. The final decision is likely to disadvantage SK Telecom to some extent and force it to share its mobile spectrum with smaller telecom firms.
Outlook and Implications
The FTC's limitation on bundled-services offerings from SK Telecom and Hanaro is aimed at ensuring fair competition and should prohibit SK Telecom from using its dominance in the mobile market to secure a leadership position in the fixed-line telecoms service segment, and the new bundling and convergence-product business areas. Hanaro provides traditional telephony, broadband internet and the "Hana TV" video-on-demand service, with plans to roll out real-time IP TV services soon. Nevertheless, the two companies could still enjoy other synergies, such as sharing distribution channels, joint marketing and dealing with content providers. The deal could trigger further consolidation in the Korean telecoms industry. As mentioned above, the fixed-line leader, KT Corp, and its mobile unit, KT Freetel, will be seeking government approval for more operational integration. The two companies have remained largely independent on the operational front so far.