Efforts by the South Korean government to license a fourth mobile carrier appear to have failed, as the Ministry of Science, ICT and Future Planning announced that none of the three applicants—Sejong Telecom, K Mobile and Quantum Mobile—met the criteria for the license. The companies were reported to have been incapable of raising funds and presented no detailed plans to run the business. The announcement came after months of bidding and assessments. The government has been trying since 2010 to bring in a fourth player to the mobile market, which is dominated by SK Telecom, KT and LG Uplus.
This is the seventh time in a row that the Korean government has failed in its efforts to add a fourth MNO (the most recent was in May 2015). This galling fact should give policymakers an occasion to pause and reflect. South Korea is one of the most technologically developed and saturated mobile markets on earth. As such, its operators have been finding it very difficult to grow and develop new business, instead relying on poaching customers from each other. The government says it wants to promote better service, lower costs and increase competition; thus the desire to add another operator to shake things up.
However, the draconian policies of the Korean Communications Commission, the regulator, over the past several years tend to discourage qualified entrants. The KCC has been imposing fines and other penalties the three operators for what it terms unfair competitive practices, in particular the practice of offering handset subsidies. The punishments meted out by the government have been quite severe, to the point of causing MT to suspend all business for seven days in 2013. We believe that concerns about operating in such an environment deter the best companies from entering the competition. Instead, the three firms that participated in this round “lacked credibility and viability of their fund-raising plans, and they also lacked detailed plans on ways to establish networks and provide services,” according to the Ministry’s statement. One might imagine that the government’s standards are unrealistic, but in fact it lowered its requirements in the wake of the previous failures. Even so, the candidates still failed to make the grade. All three are small or midsize companies with limited capital and technological capacities. Major businesses such as Hyundai Department Store Group that already have involvement in the telecom sector through cable or MVNO operations have declined to apply.
Rather than lowering its standards further, we suggest that if the government were to adopt a less threatening attitude toward mobile market participants, potential new participants would feel more inclined to get involved. There may even be an opportunity here for a foreign entity with deep pockets to enter the South Korean marketplace.
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The Tarifica Telecom Industry Research Department