FTC rejects SKT-CJ HelloVision merger

The entrance to the CJ HelloVision headquarters is seen in Sangam-dong, western Seoul, Monday. The Fair Trade Commission made a final decision not to approve the merger of SK Telecom and CJ HelloVision. / Yonhap

By Yoon Sung-won

The Fair Trade Commission (FTC) made a final decision not to approve the SK Telecom (SKT) takeover of CJ HelloVision (CJH), Monday.

Reconfirming its earlier tentative ruling against the merger and SKT’s acquisition of CJH shares, the antitrust agency said the disapproval was “inevitable” to ease concerns about limitation of competition in the pay broadcasting and telecom markets.

“Unlike previous cases in the broadcasting and telecom sectors, this combination of businesses is both horizontal and vertical and thus may limit competition,” FTC Secretary General Shin Young-son said, Monday. “We think that it is difficult to take care of all such problems through behavioral remedies or selling a part of the assets.”

Expressing regret over the disapproval, both SKT and CJH said they will accept the decision.

“We have done our best to emphasize the appropriateness of the takeover so far,” SKT said in a statement. “But it is deeply regrettable that we could not persuade the related government agency and ended up receiving the disapproval.”

CJH said, “Though we respect the FTC’s judgment against the merger, at the same time we feel a deep regret considering the reality and the future that the cable television industry faces.”

CJH said its business operations have been undermined as the antitrust agency’s review process was prolonged for more than seven months.

“Our operating profit and future potential have all been endangered due to stagnation of investments and performance,” it said. “We will concentrate on normalizing our business for now, aiming at internal stabilization.”

KT and LG Uplus, which had strongly opposed the merger plan, welcomed the final disapproval.

“We have grave concerns over possible aggravation of a monopoly in the telecom and broadcasting markets and the subsequent impediment to consumer benefits,” KT and LG Uplus said in a joint statement. “We have continued to argue that the merger should be prohibited and we believe that the FTC’s decision has reflected our concerns.”

Last Nov. 1, SKT signed a contract to acquire 30 percent of CJH’s stock and merge it with the telecom company’s subsidiary SK Broadband. It reported the business combination to the FTC a month later.

The antitrust agency said the merged entity of SK Broadband and CJH would hold the largest market shares in 21 out of 23 broadcasting zones in Korea and thus could disturb normal competition.

As the nation’s largest cable television service provider, CJH already is the top player in 17 broadcasting zones.

The FTC also said CJH could raise cable TV service fees once its competitors disappear.

SKT and CJH have insisted that the pay broadcasting market should be recognized as a national unit when considering possible limitations of competition. However, the agency made its decision based on regional market analysis because consumers cannot watch pay broadcasting services of other regions unless they move to other broadcasting zones.

The FTC also said the SKT-CJH merger would worsen the monopoly in the telecom market because SKT and CJH are the nation’s top mobile carrier and budget mobile service provider, respectively.

The agency stressed that CJH’s growth in the budget mobile service sector has led SKT, KT and LG Uplus to cut their telecom fees.

It also said SKT’s absorption of CJH’s 4.15 million cable TV subscribers and 28 percent of the nation’s total budget mobile service user base would help it strengthen its market dominance.

“Our action will prevent possible damage to consumers by fundamentally prohibiting limitation of competition in the pay broadcasting and telecom markets as well as the correction of a monopolized market structure,” the FTC secretary general said.

Meanwhile, the Ministry of Science, ICT and Future Planning hinted that it will not take any follow-up actions following the antitrust watchdog’s disapproval.

“Following the FTC’s judgment to prohibit the merger and stock acquisition, the business combination of SKT and CJH has become impossible,” the ministry said. “Under the Telecommunications Business Act, the Broadcast Act and the Internet Multimedia Broadcast Services Act, there will be no practical benefit for us to continue proceeding with the review process.”