By Kim Tong-hyung
Staff Reporter
KT, the country's biggest telephone company, announced plans to merge with KTF, the No. 2 wireless carrier, creating a mighty industry giant whose sales will dwarf its competitors.
The declaration was met by fierce opposition from rivals, such as mobile telephony leader, SK Telecom, who claim that the much-anticipated consolidation, if approved, would deprive them of a fighting chance.
The merger agreement was finalized in separate board meetings between KT and KTF Tuesday. KT could file its application for the merger with the Korea Communications Commission (KCC), the country's broadcasting and telecommunications regulator, as early as Wednesday, company officials said.
``Our competitors are opposing the merger, but there have been precedents in other countries were the top fixed-line carrier merged with the top wireless carrier,'' said Lee Suk-chae, chief executive of KT, in a news conference.
``I don't know what the problem is. KT has been struggling as the fixed-line telephony market continues to diminish, and the company's profit is just half the level of what the No.1 wireless carrier earns,'' he said.
Lee said the combined company will target 20.7 trillion won (about $15 billion) in sales for 2010 and contribute in generating 30,000 new jobs in the industry over the next five years.
Lee, who succeeded Nam Joong-soo as the president and CEO of KT earlier this month, finds himself in unusual situation. As the country's minister of information and communication in 1996, it was Lee who oversaw KT spinning off its mobile unit, which became KTF, after acquiring a license for wireless services.
``It's a completely different situation now,'' Lee said.
``KT was the state-run company that was heavily regulated by the government and the boundaries between fixed-line and wireless telephony had been clear. Now, the advancement in digital technology is blurring those boundaries, but Korean telecommunications companies have been behind the curve,'' he said.
KT controls about 90 percent of the country's fixed-line telephony customers and nearly 45 percent of broadband Internet subscribers.
Absorbing KTF, its wireless affiliate that owns about 32 percent of mobile telephony customers, would make KT a company with close to 19 trillion won (about $13.8 billion) in revenue, based on financial data for 2007, and around 38,000 employees. In comparison, SK Telecom, its closest rival, has targeted 12 trillion won in sales for 2008.
The KCC will have 60 days to make the decision, although the deadline could be delayed by 30 days. Granting approval by regulators, and then shareholders, KT is optimistic about the merger being completed as early as May.
``We will take a hard look at the issues, including how the merger could impact the telecommunications market and the health of competition, as well as whether it would benefit consumers,'' said a KCC official.
Regulators will surely get an earful from SK Telecom and other smaller telecommunications carriers who aren't too happy about competing with a bulked-up KT in any market.
The idea of allowing KT to leverage its dominance to the wireless sector is a scary thought for rivals. The combined company will control about 51 percent of the country's telecommunications subscribers in fixed-line and wireless telephony and broadband Internet, and around 45 percent in revenue, according to SK Telecom officials.
``KTF is a company that benefited from the government regulating SK Telecom's market share to allow fair competition,'' said an SK Telecom official.
``Now, KT claiming that its merger with KTF doesn't hurt the competition is absurd.''
An official from SK Broadband, the fixed-line telephony and broadband Internet company, also called for the government to take a harder look on the anti-trust concerns.
``No matter what they do, it will be harder for smaller carriers to build a network that could rival KT's,'' said an SK Broadband spokesman.
``We will look like taxi companies that were also forced to build roads,'' he said.
The KCC seems certain to give its blessing to the KT-KTF marriage, considering the Lee Myung-bak government's pledge to create a ``global media company'' and the strengthening trend of convergence that is blurring the boundaries between traditional telecommunications sectors.
A trickier process could await with the Fair Trade Commission (FTC), which was responsible for the establishment of KTF in the first place, ordering KT to spin-off its mobile unit after the company acquired a wireless license in 1996. Now, the antitrust watchdog is about to review the very move that it said would hurt competition 13 years ago.
In allowing SK Telecom to acquire a controlling stake in fixed-line carrier Hanarotelecom, now SK Broadband, in February last year, the FTC had required the company to allow other companies to use its 800 megahertz spectrum.
KT's telecommunications rivals, who don't have a prayer of stopping the consolidation, are more interested in what regulators impose as the preconditions for the merger.
SK Telecom has been claiming that KT should be asked to spin off its local loop operations. KT has a dominant ownership of the country's phone lines, and SK Telecom is concerned that the superiority in infrastructure will allow its rival an edge in mobile telephony.
Wireless operators rely much on KT's fixed-line infrastructure to interconnect its base stations and pay the company connection rates. Thus, a merger with KT will allow KTF to reduce costs by around 18 percent, SK Telecom said.