Carriers in deadlock with gov't over frequency reallocation cost

A woman using her smartphone passes by a 5G promotion sign set up in Gwanghwamun Square in Seoul. / Yonhap

By Kim Hyun-bin

Major telecom companies and the Korean government are in a deadlock over the pricing of the frequency reallocation costs of the 3G and Long-Term-Evolution (LTE) networks.

The telecom companies will register for the bidding to reallocate the current frequency bandwidth in November as their 3G and LTE contracts are set to expire in June next year.

SK Telecom, KT and LG Uplus are seeking to continue utilizing the 3G and LTE 310 MHz frequency networks, which are also set to expire next year.

Under the current regulations, the government is expected to impose around 3.3 trillion won for the reallocation of the 310 MHz frequency bandwidth, which telecom companies' claim is way over market price and have been urging the government to be more transparent on the price-setting procedures and come out with a more practical plan.

Telecom companies have conducted their own study and claim a realistic price should be set around the mid-1 trillion won mark.

"Even if telecom companies newly allocate the 3G and LTE frequencies it will cost them around 2.7 trillion won but in case of reallocation of the frequencies currently in use, the cost should be drastically reduced to the mid-1 trillion won mark," an official familiar with the matter said. "The government needs to explain how it came up with the price and be more transparent in its procedures."

According to the three major telecom companies, the imposed frequency bandwidth fees have been increasing at a significant rate over the years.

The government imposed a fee of 4 percent of the telecom companies' total sales for frequency bandwidth in 2012, but that percentage has continued to rise over the years, coming out to 8.1 percent by 2019, nearly double the OECD average of 4.66 percent.

Korea's frequency bandwidth fees are among the highest of the 20 OECD nations researched, recent data shows.

Japan stood at 0.9 percent, the U.S. 2.7 percent and France at 3.8 percent. Only three countries — Italy, the U.K. and Hong Kong — were above Korea at 12.2 percent, 10 percent and 9.5 percent respectively.

The percentages have been increasing although total sales from telecom companies have been on a decline due to huge investments in 5G infrastructure and networks in recent years.

"The pricing does not make sense as telecom companies' operating profits have been affected by hefty investments in 5G," an official familiar with the matter said.

"The Korean government wanted to become the world's first 5G-commercialized country although telecom companies were not fully ready to launch their services. The hesitant move only gained strong backlash from customers for the lack of 5G connectivity."

SKT, KT and LG Uplus are the world's first to commercialize their 5G networks in April 2019.

If the government pushes to enforce their rate, telecom companies will be looking at other options to reduce the cost burden and in the worst-case scenario could be forced to partially halt 3G and LTE service in certain regions.

"Telecom companies overlap their networks, so for example when installing LTE coverage they make it so that the coverage overlaps with the previous network which is 3G, so users can have access to both tiers of coverage in the same location and the services have a backup in case one malfunctions. The same thing applies when setting up 5G with LTE and 3G networks," a telecom official said.

"Technically it is possible for telecom firms to halt 3G or LTE networks where the coverage overlaps to reduce their operating costs."

However, the decision to cut off an existing network will be a great risk to telecom companies as it could result in lack of connectivity for customers in certain regions and also will need prior approval from the government.

"The 3.3 trillion figure that is floating around as an estimated price for frequency bandwidth cost is not correct. We are under review to set the price and receiving opinions from telecom companies and other experts. There is no set price as of this point," an official at the Ministry of Science and ICT said.

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