Foreign Capital to Face Tougher Telecom Merger Criteria

The Ministry of Information and Communication (MOIC) is planning to introduce a measure that would require key telecommunication service providers like SK Telecom, KTF, LG Telecom, KT, and Hanaro Telecom to adopt a tougher merger standard, laying emphasis on whether a merger would harm public interests.

The measure is expected to block foreign hedge funds or short-term profit takers from acquiring and eventually disinvesting in Korean telecoms.

The MOIC recently submitted to the National Assembly’s Science, Technology, Information and Telecommunications Committee an officially revised M&A policy notification. The ministry said, “The recently revised telecommunications law stipulates that if the largest shareholder is to change or any shareholder obtains more than 15 percent of a named telecom, then government permission is required.” This will requires a revision of the policy setting up detailed criteria for mergers.

The revised policy emphasizes whether a merger would harm public interest; whether the merger would increase the efficiency of the economy by increasing employment, and whether the merger would facilitate the local economy and foster small and medium companies.

Officials in the ministry said, “Given the telecom industry is one of the key industries of the nation, the measure is designed to protect those working in the industry from speculative mergers.”

The revision differentiates M&As within the telecommunication industry from ones involving non-telecom companies to minimize the possibility of the transfer of market-controlling position to non-telecom companies, or the possibility of potential damage to the economy.

Any merger involving companies having little influence on the nation’s telecommunications market with annual sales of less than 10 billion won would go through a simpler evaluation process, officials said.

A merger task force created by the MOIC made the revisions at the beginning of this year. The ministry is set to finalize consultations with related agencies, including the Fair Trade Commission, to implement the new measure next month. Yet, some quarters of the industry warn, “The revision based on the vague standard of ‘serving public interest’ could hinder even productive mergers.”

bookum90@donga.com nex@donga.com