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Telecommunications

By Julie Bennett,2014-03-26 15:36
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Telecommunications

    Telecommunications

    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. 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.

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% 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% of

    the total of all cable and satellite broadcasting channels and foreign investment limits of 33% in local System Operators (SOs) and Program Providers (PPs).

    These restrictions also severely limit market access for U.S. broadcast channels and considerably raise the cost of market entry. AMCHAM believes

    that 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.

    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 Korean Telecom 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

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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, as follows: “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 Korea Telecom will result in a truly competitive environment and the internationalization of KT’s procurement practices, providing more market access for U.S. suppliers.

In regard to regulatory issues, many long-standing issues remain unresolved;

    however, some notable progress was made this year. AMCHAM is encouraged

    that the Korean Government continues to consult with the 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.

1. 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 telecom 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. 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 allowing 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

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    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.

2. 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.

    3. Foreign Ownership Limitations for Domestic Telecom Firms and Ministry Oversight of the Market Place

    MIC has eased foreign ownership limitations on domestic telecom firms faster than originally anticipated and agreed under its WTO obligations. However, Korea’s level of liberalization in the telecommunications sector still lags behind liberalization in Japan where 100% foreign ownership is now permitted in all telecommunications services. Korea’s MIC currently allows up to 100% foreign ownership for simple international resale services interconnected to the Public Switch Telephone Network and a limit of up to 49% foreign ownership in

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    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 Korea Telecom 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. 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% being reduced to 50% by June 2001. Their market share stood at around 54% 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 if certain

    business transactions might 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., USA, Japan, Europe, Hong Kong and Singapore), it is fairly

    natural to anticipate similar consolidation of businesses in Korea. KT Freetel 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 fairly by concerned regulators such as the Korea Fair Trade Committee and/or 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 troublesome 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 that may be considering domestic investments. Regulatory decisions should be made for the benefit of the consumer, rather than for the Korean supplier or 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

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    decisions.

4. Support for Dominant Firms and Incumbents

    Korean regulators tend to value size and market share above other company

    attributes and qualifications. Within the telecommunications sector, there remains tacit support or favor towards 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% of a particular market. Such a definition may be too restrictive and does not benefit the consumer. It also

    encourages the predilection of Korean businesses to dominate business sectors by controlling market share rather than maximizing shareholder value through the growth of profit, supported by innovation, and for the benefit of the

    consumers. The Korean economy of the future will need far more incentive for innovation and quality than simply size.

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.

1. Privatization of Korea Telecom

    AMCHAM is pleased to note that 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. However, 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.

Recommendation:

    - 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.

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6. Korea’s Safety and EMC Requirements and Certification Processes

    As a result of the U.S.-ROKG talks involving telecommunications held in the early 1990’s, the Ministry of Information & Communication (MIC) has taken a series of steps to simplify its type approval/EMC testing procedures. However, many U.S. suppliers still describe MIC’s procedures as cumbersome and not in harmonization with internationally recognized norms. U.S. manufacturers of 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. However, 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/telecom equipment. Many of these requests often appear to exceed the minimum level of information necessary as defined in the 1992 US-ROKG telecom agreement. As a result of the U.S. industry’s requests, MIC and MOCIE have cooperatively agreed to make appropriate amendments to the regulations that will alleviate many of the industry’s concerns. However, there are still some outstanding issues, as outlined below.

    - There are costly delays in MIC’s issuing of an approval number required

    for product labeling. MIC should eliminate this requirement and require the

    MIC mark only.

    - MIC does not accept foreign test lab reports. MIC should accept any ISO-

    17025 accredited test laboratory report just as Korean test lab reports are

    accepted in the U.S. through accredited Test Certification Bodies. - MIC requires all products in a family series to be tested. MIC should follow

    the internationally accepted standard guidelines and accepted practices of

    testing that require testing for only the worst-case configuration for family

    series compliance.

Recommendation:

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

    with internationally recognized procedures and standards.

7. Korea’s Broadcasting Law

Korea’s Broadcasting Law, which was implemented in March 2000, has had a

    significant impact on the overall development of Korea’s broadcasting industry and market. The law enabled the launch of terrestrial digital broadcasting in

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    2001, the launch of satellite TV services in 2002, and the planned introduction of digital cable TV services in 2003. The number of channels in Korea is growing rapidly, and associated with that growth is an unprecedented demand in programming, much of which can be foreign programming. However, the law includes significant restrictions in terms of investment, direct re-transmission, foreign programming quotas, advertising, and language localization, all of which seriously limit market access for U.S. firms

    Foreign firms are restricted to 33% equity investment in System Operators (SOs) and Program Providers (PPs) for cable TV and satellite TV, and foreign investment in news PPs is prohibited. A planned revision to the law will increase the limits of foreign equity in SOs and PPs to 49%. The law restricts the number of foreign direct re-transmission channels to 10% of total cable and satellite broadcasting channels. The Korean Government plans to allow up to 20% only in several special economic zones, which are suburbs of Seoul. Although this is a welcome development, it should apply countrywide and not be restricted to a limited area. Overall the restriction on foreign re-transmission channels means that many foreign channels are blocked from the market as a result of the huge investment needed to enter the market through a local presence. The law also restricts foreign programming content for satellite and cable TV with respect to total programming as follows: movies, 70 percent; animation, 60 percent; popular music, 40 percent; and all others, 50 percent. Moreover, a country sub-quota restricts an individual country to 60% of the total foreign programming quota. Foreign re-transmission channels are restricted to the use of subtitles and are not presently allowed to use voiceover. Proposed amendments to the law would allow voiceover. Perhaps the most restrictive limitation on foreign re-transmission channels is that they are not allowed to raise revenues through local advertisements, thus limiting their viability over the long term. The planned revisions to the law are currently on hold in the National Assembly and are expected to pass in 2003.

    Recommendations:

    1. Further liberalize investment and re-transmission opportunities in the

    broadcasting sector to introduce more competition, foreign investment, and

    quality foreign programming.

    2. Eliminate artificial restrictions on foreign programming and the country

    sub-quota.

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3. Permit foreign re-transmission channels to earn local advertising revenues.

4. Lift restrictions on voiceovers.

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