Korean local operators resist merger talks - Company Business and Marketing

CommunicationsWeek International, June 18, 2001 by Michael Newlands

The Korean government will this week attempt to broker a merger by three of the country's main competitive telecoms suppliers but is already running into resistance from the companies it wants to marry.

Newly appointed communications minister Yang Seung-taik is pushing for a merger of LG Telecom, a subsidiary of industrial holding company Lucky Goldstar, with Hanaro Telecom and Powercomm, a spin-off from the Korea Electric Power Corp., which owns a national fiber optic network.

But Lucky Goldstar and Hanaro, smarting from a previous state-inspired attempt to combine their semiconductor businesses, would prefer to see a telecoms operating consortium with a foreign participant tipped to acquire BT's holding in LG Telecom.

Yang is offering to guarantee market share for the new company in a bid to entice LG and Hanaro to compete together with Korea Telecom and SKT, the dominant operators in fixed and mobile services.

"To make the market competitive, there is a need to adjust the market shares of each player," he said. "The government will implement asymmetric regulations on leading companies for this purpose."

An enlarged company would also be offered the prospect of a license to operate a third-generation mobile network, which both LG Telecom and Hanaro have separately bid for without success.

The government is determined to have networks based on both the wideband code division multiple access standard (W-CDMA), evolved from Europe's global systems for mobile, and the CDMA200 standard, evolved from CDMA. Korea is a world leader in the manufacture of CDMA equipment and handsets and has the world's largest CDMA network, but three successful mobile operators put in bids to provide a W-CDMA service, which is expected to account for 80% of the international 3G market.

The most likely overseas partner for LG Telecom and Hanaro is Telesystem International Wireless (TPN) of Montreal, which local analysts say is in negotiations to buy BT's 24.1% stake in LG Telecom.

But the main stumbling block is the issue of how much influence Hanaro can wield in a consortium that would result in a de facto merger of the companies.

Hanaro's president Shin Yun-sik told minister Yang the consortium should have at least one vice president and two executive directors from Hanaro. "It is hard to make progress," said Lim Byung-yong, chief executive of Lucky Goldstar. "Hanaro [just] doesn't want to join an LG-led 3G consortium."