SEOUL, South Korea-South Korea said it would limit the number of licenses for operating much-coveted third-generation (3G) mobile services networks to three, adopt a modified “beauty contest” that will bring in auction-like revenues and allow a double technology standard that could introduce both European-favored direct spread and U.S.-led multicarrier technology modes.
The Ministry of Information and Communication (MIC), which supervises the licensing process, revealed the details in its initial report, sparking debate among candidates and signaling another round of consolidation in South Korea’s hot telecom market.
The MIC said it would likely cost mobile-phone companies upward of US$900 million each to receive a license to offer 3G service, known here as International Mobile Telecommunications (IMT)-2000, a price analysts said could wipe out profits for years.
Ironically, the ministry said it would set a bid ceiling at 1.3 trillion won (US$1.17 billion) and minimum bids at 1 trillion won (US$896 million) to avert a bidding war.
“We are concerned bidding costs by contestants might be passed on to service users later,” the ministry said.
But analysts said because the bid range is so high, providers that also face hefty start-up infrastructure costs will likely see red for several years, beginning in 2002.
“Assuming the IMT-2000 subscriber base goes into full swing in 2005, I had expected the government might set the license fee at 500-700 billion won,” said Brian Yang, a telecom analyst at Shinhan Securities in South Korea. “At over 1 trillion won, operators are likely to see their break-even point delayed by a year to two.”
The proposed fees dwarf estimates for initial annual revenues. Combined annual revenues by IMT-2000 providers are expected to total 328.3 billion won (US$294 million) in 2002 and 422.4 billion won (US$378 million) by 2004, the state-run Korea Information Society Development Institute forecast.
In the longer term, analysts believe IMT-2000 is a make-or-break race in one of the world’s largest wireless markets, one in which just three providers will likely serve an estimated 10 million 3G subscribers by 2005 and 20 million by 2009.
The draft bidding plan, to be finalized in July, drew criticism from leading players and newcomers alike. Heavyweights Korea Telecom and SK Telecom are expected to bid. “I think the fees for the IMT-2000 service are extremely high,” said Yoo Jae-young, a Korea Telecom spokesman. “When the government awarded PCS (personal communications services) licenses to three candidates in 1997, the license fee was around 110 billion won (US$98.5 million).”
Hanaro Telecom, a telephone and Internet service provider but relative newcomer to the mobile market, was particularly irked by the government’s decision. Hanaro, which is leading a consortium for a license, said the government was supporting existing carriers, while discriminating against new entrants that are at a disadvantage because they lack mobile-phone infrastructure.
Analysts here expect three major telecom players-SK Telecom, Korea Telecom and LG Telecom-to grab the prizes, while smaller firms like Hanaro might lose in the bidding. That prospect is fueling speculation about further consolidation, with Hanaro being a prime target.
Consolidation, in fact, has been proceeding at a breakneck pace. In April, SK Telecom formally announced its takeover of cellular phone provider Shinsegi Telecomm amid controversy over their combined market share of 57 percent or 14 million subscribers. State-run Korea Telecom took a controlling stake in Hansol M.com on 15 June.
Another dimension of the industry’s overhauling at large is that the government opted for a double standard that will allow both wideband-CDMA (W-CDMA) and cdma2000 technology spearheaded by U.S.-based Qualcomm. South Korea’s mobile-phone standard is CDMA, but the government’s proposal might drastically change the current formula as the government offers a free choice to service providers.
Given that Korean operators and handset makers often complain about the huge sum of royalties they must pay for CDMA, 3G licensees are seen as leaning toward W-CDMA rather than cdma2000, according to industry insiders.
