Korea withdraws plan to ease barriers for foreign ownership in telecom market

[Image source: Gettyimagesbank]

The South Korean government withdrew its plan to lower the barriers to allow foreign investors to enter the local telecommunications market after judging it to be ineffective, according to a written report submitted by the Ministry of Science and ICT to Representative Lee Jung-mun of the main opposition Democratic Party on Wednesday.

The government held a second task force meeting to promote competition in the telecommunications market on March 29 and relevant authorities reached a consensus that the country’s institutional barriers to foreign capital are not high under the current system, according to the report.

The current law limits foreign ownership in South Korean telecommunications companies to 49 percent. The plan was pursued to promote competition in the domestic telecommunications market.

The participants in the meeting believed that even under the current regulations, foreign capital can enter the domestic telecommunications market by creating a joint venture or private equity fund, as teaming up with a domestic business operator and distributing profits is not subject to merger regulations under the current law.

It is common for private equity funds to be formed for corporate mergers and acquisitions, but they have also been considered one of the means that foreign capital can use to enter the domestic telecommunications market.

In this situation, the participants saw no urgent reason to revise the existing regulations on foreign equity ownership, considering that other countries and industries other than telecommunications have their own foreign direct investment regulations.

[Photo by MK DB]

They also discussed ways to expand regulations - that allow foreigners from countries with which Korea has signed free trade agreements or from member countries of the Organization for Economic Cooperation and Development to indirectly invest up to 100 percent of a local telecommunications carrier’s shares if they have passed public benefit screening - to World Trade Organization member countries, but concerns were raised over security.

“The claim that lifting foreign equity restrictions can lead to lowering entrance barriers for new operators has not been sufficiently verified and may be inappropriate at a time when public awareness of the public obligations of telecommunications companies is growing,” Lee said. “While considering introducing the country’s fourth mobile carrier, we should focus more on ways to foster budget phone operators to promote competition.”

Meanwhile, experts at the task force meeting saw that profitability of the Korean mobile communication market in terms of operating profit was not high compared with other industries. According to data from the Bank of Korea, operating profit margin for telecommunications services in 2021 was 6.62 percent, lower than the average 7.03 percent for all industries.

Task force participants also saw that it would not be easy for companies to enter the telecommunications market, given the initial investment cost and the long investment recovery period at a time of market saturation.

It was learned, however, that this is the opinion of experts participating in the meeting and that the telecommunications authority also secured a report that provide positive analysis on recovering investment cost of new mobile carriers.