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[Opinion] Telecom `Big Bang`

Posted January. 22, 2009 08:39,   


In the mid-18th century after the Industrial Revolution began in Britain, several core industries triggered a significant advance in the world economy. The invention of the steam engine sparked the development of the textile industry, overcoming the limitations of power sources in an agricultural society. The rail industry in the 19th century was the final achievement of the first Industrial Revolution. Telecommunications and electronic, which saw robust growth in the late 20th century, ushered in the information era.

The telecom sector is poised to become a battleground as KT, Korea’s largest telecom company, will merge with subsidiary KTF, the country’s second-largest mobile carrier. KT President Lee Seok-chae said, “The decision to merge the two, which is in line with the global trend of fusion between mobile and fixed telecom services and broadcasting and telecom, will lead to new services and jobs.” Not so fast, said SK Telecom President Jung Man-won. “The growth of the telecom industry based on fair market competition will be completely blocked, as the dominance of KT and KTF in fixed line and mobile telephony services will expand,” Jung said. While urging the government to block the merger, the three telecom affiliates of the LG Group warned that if the merger goes through, an environment to ensure fair competition is needed, indicating a stance different from SK’s.

A “Big Bang” is expected in the domestic telecom industry if KT, the biggest fixed line service provider, merges with KTF, the second-largest mobile carrier, following last year’s takeover of Hanarotelecom, a fixed line telecom service provider, by SK Telecom, Korea’s top mobile carrier. The KT-KTF merger will create a telecom giant with 19 trillion won (13.8 billion U.S. dollars) in annual sales, 23.6 trillion won (17.2 billion US dollars) in assets, and 38,000 staff. SK Telecom and SK Broadband will probably merge as well, and LG Telecom, LG Dacom and LG Powercomm could seek a merger to keep up. Chances are high that the SK and LG groups will seek to create telecom giants of their own to directly compete with KT.

As is often the case for issues of that nature, both supporters and opponents of such mergers make legitimate points. It is difficult, however, to translate the reasoning of those for and against the mergers into general gains and losses from the perspective of the national economy. The Korea Communications Commission and the Fair Trade Commission must decide whether to approve the deals. It is essential for them to use wisdom to ensure the continued growth of the telecom industry, which is all the more important in the wake of the era of media fusion, and the best interest of consumers. The economic impact of such mergers must be considered while avoiding the possible cries of unfair competition.

Editorial Writer Kwon Soon-hwal (shkwon@donga.com)