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Telecommunications

By Ana Lane,2014-03-26 14:44
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Telecommunications

    TELECOMMUNICATIONS

Overview

Based on Korea’s obligations under the WTO Negotiation Group for the Basic

    Telecommunications Agreement, the Korean government has revised its regulatory framework for the telecommunications sector and liberalized the telecommunications services market. The key laws governing the telecommunications industry went into effect on January 1, 1998, and were amended in 1999 and in 2000. KT (formerly Korea Telecom) was privatized as of May 2002. The Korean government has also raised some foreign ownership limits in the telecommunications sector and introduced new services, including international simple resale, Internet telephony, in-house phoning, and digital broadcasting. The implementation of the New Integrated Broadcasting Law has also liberalized the broadcasting sector of telecommunications and has had a significant impact on the development of the Korean broadcasting industry, particularly on satellite TV broadcasting, which was launched

    in March 2002. The Revised Broadcasting Law passed in March 2004 provides a legal basis

    to introduce Digital Multimedia Broadcast (DMB) service in Korea.

Restrictions in Market

    All of these factors and developments have led to tremendous growth and further projected growth in the telecommunications sector and in a more competitive market environment, making Korea a world leader in wireless telecommunications services and applications. Nonetheless, some restrictions and market access barriers remain for U.S. suppliers. Notably, there is still a 49 percent restriction on foreign investment in Type 1, facilities-based telecommunications firms, which severely limits the market entry opportunities for U.S. telecommunications services firms and equipment suppliers. In broadcasting, restrictions remain for foreign re-transmission channels to 10 percent of the total of all cable and satellite broadcasting channels and foreign investment limits of 49 percent in local System Operators (SOs) and Program Providers (PPs) even though it has been relaxed from 33 percent in March 2004. These restrictions still severely limit market access for U.S. broadcast channels and considerably raise the cost of market entry. The Korean government should fully liberalize investment in the telecommunications sector as soon as possible in order to enhance the competitive environment and allow for unfettered market access.

Government Influence

    Other major concerns are excessive governmental influence in the private sector’s selection of technologies and interference with private sector negotiations involving foreign licensing and technology transfers. Despite the fact that KT has been privatized, there seems to be lingering governmental influence on the choice of sources of equipment and technologies. This influence is often implied in the licensing process for operators and is more clearly evident in localization policies for procurement. It may also be communicated directly or indirectly to the private sector through industry associations, quasi-governmental commissions or other entities. As a result, some U.S. firms with leading-edge technologies have encountered resistance to their efforts to introduce new software and technologies to the market, and some U.S. firms that formerly had a dominant market share have lost significant market share to

Korean firms over the past few years. This development is detrimental to both the Korean and

    the U.S. industries, and it is symptomatic of a less than totally open, competitive market.

    When the market is restricted for U.S. suppliers of telecommunications technologies, Korean

    firms are also restricted in their abilities to develop state-of-the-art, globally competitive

    products in a competitive environment.

Specifically in regard to license negotiations, the Korean government should fully comply

    with the provision of the WTO policy statement of July 1997, which states, Private sector

    companies will independently negotiate transfers of technology with foreign suppliers based

    on the commercial considerations in connection with the purchase or lease of

    telecommunications products or services from the supplier.” AMCHAM also urges the

    Korean government to refrain from making or influencing all selections of technologies,

    allowing free market forces and fair competition to prevail. Moreover, AMCHAM expects

    that the recent privatization of KT will result in a truly competitive environment and the

    internationalization of KT’s procurement practices, providing more market access for U.S.

    suppliers.

Regulatory Issues

With regard to regulatory issues, many long-standing issues remain unresolved. Some notable

    progress, however, was made in 2003. AMCHAM is encouraged that the Korean government

    continues to consult with U.S. industry on requested regulatory changes in EMC, safety

    standards and labeling. Several of these issues have been resolved, eliminating costly delays

    and major barriers to market entry. Although more work remains to resolve these issues

    completely, the Korean government’s high level of cooperation is exemplary and serves as a

    standard for tackling the remaining, long-standing issues.

Market Access: Licensing and Spectrum Allocation

Access to service markets is limited primarily by the processes whereby new service

    providers are licensed and spectrum is allocated for new services. In the Korean

    telecommunications industry, there are often implied licensing requirements that limit the

    purchase of foreign vendors' infrastructure equipment. There are fewer statutory requirements

    regarding the use of local versus foreign vendors than previously, but implied requirements

    still remain.

A potential market access barrier remains in the method by which the Ministry of Information

    and Communication (MIC) awards licenses and designates spectrum allocation. The MIC

    largely controls the spectrum and separates the spectrum allocation from the license to operate

    the spectrum. In addition, there is often an implied link of spectrum allocation to a particular

    technology or service, rather than allowance for competitive suppliers within a category of

    service.

    Recommendations:

    ? Enhance the transparency and fairness of licensing and spectrum allocation processes.

    ? Publish notices of licensing and related spectrum allocation decisions in detail and as

    far in advance as possible.

    ? Develop a clear policy with regard to dominant and incumbent operators.

    ? Separate technology issues and spectrum issues.

    ? Allow telecommunications operators to make technology decisions based on business

    need rather than by government edict.

    ? Make spectrum decisions that will benefit the consumer by encouraging greater

    competition among operators.

    ? Do not arbitrarily exclude foreign participation through the licensing process and

    mandate the Korea Communications Commission and/or the Korea Fair Trade

    Committee to review decisions.

    ? Clarify the role of think tanks like the Korean Information Society Development

    Institute and the Electronic and Telecommunications Research Institute in all

    regulatory decisions.

    ? Encourage such governmental organizations to put the public interest as the top

    priority through open hearings and balanced comments from various interest groups.

Localization Policies

The benefits of liberalization still do not fully filter through to all the players in the market,

    mostly as a result of rigid licensing criteria and overt or implied procurement policies

    requiring localization of related equipment and services. The gains in international

    competitiveness that Korea has realized from the liberalization of trade and investment are

    lost when local manufacturers of telecommunications equipment rely heavily on government

    protection. Such mandatory localization is no substitute for expanded R&D in the domestic

    private sector, and it precludes real competition in the rapidly changing global technological

    frontier.

Even though localization initiatives are believed to promote local innovation, they often

    operate unfairly as de facto subsidies for domestic firms. By limiting competition with foreign

    vendors, the government effectively guarantees profits for a number of local handset vendors

    at the expense of the consumer and the mobile telephone operators. Problems of this kind

    have also arisen with leading-edge equipment used in fiber optics and digital wireless

    networks, for example.

    Recommendations:

    ? Open bidding processes and deregulate sourcing decisions by implementing fair, non-

    discriminatory policy measures.

    ? Ensure that local sourcing is not an expressed or implied requirement for licensing.

    ? Change the goal of the regulatory process from that of supporting large, incumbent

    local businesses to that of providing for the highest quality services and products for

    Korean consumers.

Foreign Ownership Limitations for Domestic Telecommunications Firms and Ministry

    Oversight of the Marketplace

MIC has eased foreign ownership limitations on domestic telecommunications firms faster

    than originally anticipated and agreed to under its WTO obligations. However, Korea’s level

    of liberalization in the telecommunications sector still lags behind liberalization in Japan

where 100 percent foreign ownership is now permitted in all telecommunications services.

    Korea’s MIC currently allows up to 100 percent foreign ownership for simple international

    resale services interconnected to the Public Switch Telephone Network and a limit of up to 49

    percent of foreign ownership in facilities-based wire line and wireless services. The degree of

    the Korean government’s involvement in the business practices of mobile telephone operators

    is surprising, given the recent privatization of KT and the stated desire of the government to

    reduce the amount of de facto government involvement in business. Further liberalization of

    the law and less government involvement will encourage more foreign investment. In addition,

    Korean firms will benefit from the transfer of more managerial and technological know-how.

The recent history of consolidation in Korea’s major wireless operators is illustrative of the

    level of government involvement in this sector. When the government permitted SK Telecom

    to merge with Shinsegi, the agreement was conditional upon their combined market share of

    over 55 percent being reduced to 50 percent by June 2001. Their market share stood at around

    54 percent as of December 2000. To meet the government requirement, they had to shed a

    considerable number of customers. SK Telecom successfully satisfied this requirement by the

    deadline of June 2001. This situation has caused a certain degree of concern regarding the

    transparency and integrity of Korean anti-trust regulation. The government should focus on its

    watchdog role should certain business transactions threaten the general public interest because

    of possible anti-trust practices.

In consideration of the rapid consolidation of telecom industries in other markets (i.e., the

    United States, Japan, Europe, Hong Kong and Singapore), there is a natural expectation that

    there be similar consolidation of businesses in Korea. KTF essentially merged with Hansol

    M.Com in response to SK Telecom’s consolidation with Shinsegi Telecom in mid-2000.

    Therefore, fair guidelines and rules for monitoring the appropriateness of mergers and

    acquisitions and related industry consolidation need to be publicized and implemented by

    concerned regulators such as the Korea Fair Trade Committee and the Korea Communications

    Commission.

AMCHAM believes that excessive government involvement in industry consolidation with a

    lack of sufficient regulatory oversight by an independent entity is problematic and can lead to

    a propensity for inappropriate government involvement in marketing and technology

    decisions. Such practices may decrease the transparency of government policy-making and

    increase the business risks for operators and those foreign firms considering domestic

    investments. Regulatory decisions should be made for the benefit of the consumer, rather than

    for that of Korean suppliers and operators.

    Recommendations:

    ? Improve the transparency and fairness of regulatory processes.

    ? Publicize information on regulatory decisions in detail as far in advance as possible,

    allowing for sufficient time for public comment by interested parties.

    ? Hold public hearings with clear and objective decision criteria outlined to ensure that

    government decision-making is fair and transparent.

    ? Encourage greater competition among operators, and allow operators to manage their

    businesses from a technical, marketing, sales and finance perspective and to assume

    full risks and responsibilities for business decisions.

Support for Dominant Firms and Incumbents

Korean regulators tend to value size and market share above other factors. Within the

    telecommunications sector, there is continuing support and preference for large, local

    incumbents at the expense of newer, smaller venture companies. Moreover, there is no

    regulatory oversight for inappropriate domination of a single sector by one or two large

    incumbents. Regulators do not even begin to question dominance unless a single company

    controls more than 50 percent of a particular market. Such a policy may be too restrictive and

    does not benefit the consumer. It also encourages the tendency of Korean businesses to

    dominate business sectors by controlling market share rather than maximizing shareholder

    value through the profit maximization, innovation, and consumer satisfaction.

    Recommendations:

    ? Develop clear and transparent policies regarding market domination and control by

    individual companies.

    ? Develop a clear policy with regard to dominant and incumbent operators.

    ? Actively encourage innovation among small and venture companies through

    stimulation of more competition.

    ? Realign regulatory goals with the interests of the consumers rather than the interests of

    the large incumbents.

Privatization of Korea Telecom

Korea Telecom was fully privatized as of May 2002. Full privatization should inject much

    needed competition into the market allow many more U.S. suppliers to qualify for KT

    procurement through their locally qualified agents and distributors. Nevertheless, the true

    measure of effectiveness of privatization will be demonstrated through KT’s commitment to

    make the needed changes to its procurement process that will make it fair, transparent, and

    non-discriminatory. AMCHAM notes that as a result of the privatization of KT, U.S. suppliers

    for KT’s procurement of technical equipment no longer are required to establish either a local branch office or subsidiary to qualify to bid.

    Recommendations:

    ? KT procurement practices should reflect those of other private entities in terms of

    fairness and openness, and procurement decisions should be based solely on competitive

    factors.

Korea’s Safety and EMC Requirements and Certification Processes

As a result of the U.S.-South Korean telecommunications talks held in the early 1990s, the

    MIC has taken a series of steps to simplify its type approval/EMC testing procedures.

    Nevertheless, many U.S. suppliers still describe MIC’s procedures as cumbersome and not in

    accordance with internationally recognized norms. U.S. manufacturers of information

    technology (IT) equipment note that MIC and the Ministry of Commerce, Industry, and Trade

    (MOCIE) have to some degree streamlined the safety and EMC requirements and certification

    processes. Yet, MIC and MOCIE still routinely require unnecessary and redundant

documentation and testing to the same international standard for purposes of type

    approval/certification of IT and telecommunications equipment. Many of these requests often

    appear to exceed the minimum level of information necessary as defined in the 1992 U.S.-

    South Korea telecommunications agreement. Pursuant to U.S. industry requests, MIC and

    MOCIE have agreed to make appropriate amendments to the regulations that will alleviate

    many of the industry’s concerns. However, there are still some outstanding issues, which

    include costly delays in MIC’s issuing of an approval number required for product labeling

    and non-acceptance of foreign test lab reports. MIC should eliminate the requirement for an

    approval number, requiring the MIC mark only and should accept any ISO-17025 accredited

    test laboratory report just as Korean test lab reports are accepted in the U.S. through

    accredited testing authorities.

Recommendations:

    ? Continue to bring EMC/Safety standards for IT equipment in compliance with

    internationally recognized procedures and standards.

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