Obstacles to KT privatization

Is a bigger Korea Telecom desirable for the development of the communication and broadcasting industry?

Korea Telecom, which secured the business license for satellite broadcasting, following its acquisition of the IMT-2000 business license, has built a foothold to leap forward as one of the world¡¯s comprehensive communication enterprises.

If Korea Telecom, a public corporation, governs the market, however, it is expected to cause friction with private enterprises. In particular, there are worries that the structural adjustment and privatization will become more difficult if its new business arms become bigger.

Korea Telecom plans to be fully privatized by selling the government¡¯s 59 percent equity both at home and abroad through June 2002. Accordingly, the future of the domestic communications market will be dependent largely on who will purchase Korea Telecom.

Is it possible for a specific enterprise to purchase Korea Telecom? As Korea Telecom acquired the business licenses for IMT-2000 and satellite broadcasting consecutively, its ownership structure after the privatization is attracting keen interest. If a specific enterprise possesses it, the ranking in the domestic business circle will change abruptly and a controversy over the special favor will be brought about. LG Group, which lost these two major business licenses, is reportedly considering its acquisition of Korea Telecom equity to be sold as a means of survival.

However, the possibility is low that a specific enterprise will secure the managerial rights to Korea Telecom. Because the government plans to limit the equity holdings of any single company in the process of privatization under the principle of separating ownership with management.

Kim Han-Suk, head of the Korea Telecom privatization team, denied the possibility that a specific enterprise would claim managerial rights, saying, ¡°We will prevent the abrupt transfer of managerial rights at an early stage in the process of privatization and ban the structure governing the enterprise by a specific person.¡±

Korea Telecom prefers a stabilized stock ownership structure, under which minority shareholders possess about 5 percent equity, but it is also considering a completely dispersed structure, under which many shareholders aiming at only capital gains possess.

Is privatization difficult or not? The upgraded value of Korea Telecom following its consecutive acquisition of business licenses is a green light. The government is expected to sell the equity 25.6 percent and 33.4 percent respectively, planned next year in two phases -- at a high price. Actually, foreign enterprises, which had kept a wait-and-see attitude over the acquisition of Korea Telecom business license, are expected to actively participate in the equity purchase this time, casting a bright prospect for the introduction of foreign capital.

However, a problem lies in the disposal of the equity in the domestic market. It is feared that the purchasing power of Korea Telecom equity in the domestic market is insufficient under the present circumstances.

¡°The high value of Korea Telecom in the future is a good factor, but the problem lies in whether or not and who will purchase it in the domestic market,¡± Prof. Kim Sang-Tack of Ewha Womans University said. ¡°Accordingly, Korea Telecom is mulling over ways to create a privatization fund in case of the domestic disposal.¡±

Is it possible for to privatize Korea Telecom on an installment basis? Korea Telecom has a negative view on privatization through an installment-based disposal. It will be less helpful to Korea Telecom, which is in the process of privatization, according to a Korea Telecom official.

¡°Although Korea Telecom is a large shareholder with a 18 percent equity, it has no meaning, except its equity participation,¡± the Korea Telecom official said regarding the business license for satellite broadcasting.

Korea Telecom officials have suggested as a good example British Telecom, which rejected the installment formula in the process of the privatization, citing national losses.

Profitability of satellite broadcasting:

The Korea Digital Satellite Broadcasting (KDB) consortium plans to provide customers with a set top box valued at 270,000 won at 150,000 won (on a 12-month installment basis) or free of charge in an attempt to secure many subscribers as early as possible. According to its assertion, Korea Telecom will record deficits of 360 billion won in the first fiscal year and 280 billion won in the second fiscal year, but enjoy net profits in the fifth fiscal year, registering cumulative profits in seven years.

However, the plan seems to be optimistic, so it is feared that Korea Telecom will shoulder a bigger burden. KDB said it would pour a total of 2.4 trillion won over the coming five years, but there are few among the present shareholders who can bear such an enormous amount of investment. As a result, Korea Telecom is expected to shoulder a considerable portion of the future capital, generating another problem.