YOU ARE AT:Archived ArticlesDEREGULATION PRESENTS OPPORTUNITIES FOR SK TELECOM

DEREGULATION PRESENTS OPPORTUNITIES FOR SK TELECOM

NEW YORK-South Korea’s telecommunications marketplace is in the throes of a gradual but deliberate deregulation that is presenting opportunities and challenges for SK Telecom Co. Ltd., the largest wireless carrier.

“Korea will be almost wide open with free competition, but Korea is different from the behavior happening here,” Jung Uck Seo, president and chief operating officer, said during a recent interview. “I’m not so sure vicious competition is so good for the consumer if your businesses are bleeding and there is no money to reinvest in technology and human resources.”

Until April 1996, when Shinsegi Telecomm Inc., a Code Division Multiple Access cellular carrier, commenced operations, SK Telecom was South Korea’s only cellular provider. SK Telecom introduced CDMA cellular in January 1996. As of March 31, SK Telecom had 2.21 million analog and 1.1 million digital cellular subscribers, a combined number that gives it approximately a 90 percent market share.

“There were a lot of rumors about CDMA only being good in rural areas, but we have proved it in urban areas,” Seo said.

SK Telecom remains the country’s only nationwide paging operator, but it has had competition from 10 regional paging carriers since July 1993. It had nearly 6.8 million paging customers as of March 31, or just more than half of the paging market.

“As far as paging is concerned, some people think it’s just a declining business because it’s not growing as fast as the others,” Seo said. “We are one-way now. In the future, we are thinking about two-way and about high-speed data, which is ready technologically but awaiting good market timing.”

In Seo’s view, there always will be a solid market for paging as a stand-alone service. “I don’t think paging, PCS (personal communications services) and cellular will merge,” he said. “It’s good as an idea, as a toy, but it doesn’t work in practical terms. I like a multicolored(-ink) pen, but I don’t have it because if I lose it, I lose everything.”

However, Seo does see a convergence of mobile and fixed wireless services. The South Korea Ministry of Information and Communication has announced it will award in June a second license to provide local fixed-line service. “We will have a second carrier coming in, and we will join the consortium,” Seo said. “It has already been determined, but we are awaiting a public announcement from the government.”

Unlike Manhattan Island, which Seo called, “the largest copper mine in the world,” South Korea lacks an equivalent wireline telecommunications infrastructure. Therefore, it “will depend on wireless for faster rollout” of its second fixed-line telephone service.

“There used to be more mobile to landline traffic; now mobile to mobile is more prevalent,” Seo said. “There is local, long-distance and overseas mobile traffic if you can afford the tariff, but tariffs will go down over time.”

Today, Korea Telecom is the government-controlled monopoly wireline carrier. Korea Telecom owned a majority interest in SK Telecom until late 1994, by which time it had sold all but 20 percent of its interest in the wireless carrier. The South Korean government, “is likely to request Korea Telecom dispose of its remaining shares when market conditions are appropriate,” said the preliminary prospectus for SK Telecom’s $230 million Yankee note issue, sold in the United States last month.

Proceeds of the debt issue are to be used in part to fully build out SK Telecom’s CDMA network nationwide. It anticipates closing out this year with 1,700 CDMA cell sites, more than double the 698 in operation at the end of 1996. The company purchases its primary digital cellular equipment from LG Information and Communications Co. Ltd., Hyundai Electronics Co. Ltd. and Samsung Electronics Co. Ltd. Samsung also is SK Telecom’s principal paging equipment supplier.

“The public debt offering (also) is part of a globalized strategy for outside investors,” said Seo, whose company’s stock trades on Korea and London stock exchanges and as American Depository Shares on the New York Stock Exchange. “Don’t be surprised if there will be outside (members of the) board of directors.”

SK Telecom’s majority owner today is Yukong Ltd., which is part of the Sunkyong Group, a South Korean private sector conglomerate involved in telecommunications and petrochemicals. Until late March, SK Telecom was called Korea Mobile Telecommunications Corp.

“Korea Mobile Telecommunications is misleading because it gives the impression of cellular and paging only,” Seo said. “SK Telecom is more dynamic and open-minded.”

The Ministry of Communication and Information allocated the carrier 10 MHz of spectrum in the 1700 MHz band in Seoul to experiment with PCS. If the government allocates spectrum for commercial PCS service, SK Telecom plans to integrate its PCS service with its existing services through dual-band handsets or other technologies.

“SK Telecom already provides PCS service in 800 MHz; if the right time comes, we’ll move it upstairs to 1.8 GHz,” Seo said. “PCS is nothing new for us.”

The company also began offering wireless cable television on an experimental basis in September. It also has invested about $83.5 million in Iridium LLC, an international consortium founded by Motorola Inc. to develop and deploy global mobile satellite services. Motorola, along with Lucent Technologies Inc., are its primary analog cellular equipment providers.

Asked if SK Telecom planned to diversify into production of CDMA equipment, Seo said, “possibly; if the time comes, why not?

“We want to be the most competitive company in Korea first and then go outside. We are aggressive, but we are also conservative. This isn’t a toy game. We must be careful.”

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