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  • Korea Launches Telecom Probe Amid Industry Slowdown
  • February 23, 1998 (SEOUL) -- There are many signs that the go-go days of the Korean telecommunications industry are over. A growing number of mobile phone users are canceling their subscriptions, unable to afford hefty phone bills.
    Some telecom service providers grappling with cash flow problems are giving up the licenses they fought hard to obtain.

    In yet another sign of trouble, government inspectors have begun a broad investigation into telecom sweepstakes that made Korea a department store of telecom services from code division multiple access (CDMA) digital cellular to outgoing-call-only CT-2. The probe, scheduled for one month until March 10, targets questions behind licensing of 27 telecom consortia in seven service categories.

    In June 1996, the Ministry of Information and Communication gave out the coveted licenses to provide personal communications service (PCS), trunked radio system (TRS), CT-2, line resale, wireless data transmission, paging and international telephone services.

    But Korea's incoming government, to be led by President-elect Kim Dae-jung, believes that the selection criteria for these consortia were not transparent and suspects political influence behind the licensing decisions.

    Aside from politics, many of the telecom deals are now in trouble with mounting losses and a lack of a profit outlook under a regime of the International Monetary Fund (IMF) austerity program imposed on Korea in return for the nearly US$60 billion bailout package.

    Seoul Mobile Telecom Inc. and nine other CT-2 telephone service providers, for example, have given up their stakes, transferring their equipment and subscribers to Korea Telecom. Korea's three PCS operators, which have seen a combined 1.1 million subscribers in the first three months since the deployment of PCS service in October, are reporting about 50 percent drops in new subscriptions in 1998.

    The country's two established cellular providers -- SK Telecom and Shinsegi Telecomm Inc. -- are also losing ground with some 30 percent increase in cancellations. Profit margins are under pressure as they are forced to offer discounts and rebates to lure new subscribers. SK Telecom, Korea's largest and oldest cellular operator and the world's biggest CDMA-based carrier, estimates its net profit fell some 44 percent to 110 billion won in 1997, despite a 23.3 percent increase in sales to 3.3 trillion won.

    The slowdown in the Korean telecom industry is having a global impact. Qualcomm Inc. of the United States has said its earnings will decline due mainly to canceled orders from Korea, which is the largest customer of its CDMA technology, while announcing 700 job cuts.

    Korean telecom firms are also stepping up restructuring to cope with their problems. SK Telecom plans to trim its 4,000-strong workforce by more than 20 percent. Mergers and acquisitions are expected to gather momentum among cash-strapped telecom companies. "Restructuring will take place at an unprecedented pace this year," said Cho Shin, senior analyst at the Korea Information Society Development Institute.

    Foreign giants will play an increasingly important role in the shakeup of the Korean telecom industry as they have growing access to the Korean market under ongoing liberalization. Foreign investors are already demanding a more say in management at SK Telecom. "We will see more and more influence of foreign capital on the Korean telecom industry," Cho said.

    Brief History of Korea's Telecom Liberalization

    February 1994: Shinsegi Telecomm wins second mobile telecom license. March 1995: Dacom designated as second inter-city telephone service provider. June 1996: Ministry of Information & Communication selects 27 consortia in seven telecom sectors. June 1997: Dacom consortium allowed to enter intra-city call market. Onse Telecom permitted to become third fixed-line operator for inter-city calls.

    (James Lim, Asia BizTech Correspondent)

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    Updated: Sun Feb 22 18:50:39 1998