Korean Phone License Bidders Refuse to Blink on Tech Choice
--From AOl.-- Cooters
Seoul, Oct. 25 (Bloomberg) -- SK Telecom Co., Korea Telecom Corp. and the LG Group are sticking to their choice of technology for new mobile phone services, even at the risk of being excluded from the future of Asia's third-largest cellular market.
The bidders for three new mobile phone licenses said they will ignore a government ruling stipulating that, if all three chose the same standard, the weakest proposal would be disqualified, keeping the loser out of the next round of cellular phone technology.
Prior to the ruling, each of the three bidders, who must submit business plans for appraisal before the end of the month, seemed certain to win a license. They said they will choose a technology called Wideband Code Division Multiple Access, W-CDMA, over Qualcomm Inc.'s rival CDMA2000 standard.
``If they all go with W-CDMA then one of them will get hammered,'' said Jeff Kahng, an analyst at CSFB Securities in Seoul, referring to the companies' stocks. The choice of technology ``won't make any differences to the fundamentals, it's just that everyone has focused on it.''
The so-called 3G licenses will be awarded before the end of the year and will entitle the winners to use broader frequencies needed to provide new services that will let users access the Internet quicker. That will in turn allow providers to charge their customers for video conferencing or downloading data.
If only two licenses are awarded this year the government said it would hold another competition for the third sometime in the first half of next year. Spokesmen for SKT, Korea Telecom and LG Group said, one day before the proposal submission period begins today, that their groups will specify W-CDMA.
The bids will be graded according to several criteria including the strength of the bidder's finances, technology and track record in the industry, resulting in speculation as to who will make the strongest proposal.
The Bidders
LG Group's bid, which is being led by LG Electronics Co., has received criticism from some analysts who have expressed concern the group can't easily afford the license fee -- up to 1.3 trillion won ($1.1 billion) -- and the cost of building a network.
They also point out LG Telecom Co., one-quarter owned by British Telecommunications Plc., has less than half the cellular subscribers of its nearest rival after missing out on a round of acquisitions in the industry earlier in the year.
``Lots of people are writing off LG in terms of balance sheet and subscriber numbers,'' said CSFB's Kahng. Still, ``in terms of technology development, SK Telecom and Korea Telecom are service providers, while LG is an equipment maker.''
LG Electronics, through its acquisition of LG Information and Communication Ltd., said it is ahead of domestic rivals Samsung Electronics Co. and Hyundai Electronics Industries Co. in the development of a W-CDMA network, having concentrated its research on that technology.
Samsung, Korea's largest mobile phone maker, lobbied the government to force one service provider to use CDMA2000 as it said it's up to two years behind in the development of W-CDMA equipment. The government capitulated.
Still In Front
SK Telecom Co. is sticking with its choice of W-CDMA for two reasons. First, the chances of securing a long-negotiated equity investment from NTT DoCoMo Inc. depend on it using a technology Japan's No. 1 mobile company helped develop.
Second, SKT, which has dominated the market since it began mobile phone service in 1984, believes it can continue to do so if it uses the same platform as its rivals, depriving them of the opportunity to emphasize technology in their marketing.
Korea's first mobile company has 56 percent of Korea's 26 million users on its books. In the first three months of the year it signed up new customers at twice the rate of its rivals -- as many as 426,000 in January - thanks to a new youth-oriented marketing campaign.
Up until the last quarter of 1999, SKT was the only Korean cellular provider to have ever made a profit.
Government Influence?
The government's status as owner of the largest block of shares in Korea Telecom Corp., the country's dominant fixed-line phone service provider, hasn't enabled it to convince the company to change its stance.
KT is bidding along with its two cellular affiliates, Korea Telecom Freetel Corp and KT M.com Co., which together hold 30 percent of the market. KT beat out a rival bid by LG earlier this year to buy what was then Hansol M.com.
KT and its affiliates said they will keep half the license and try to sell 15 percent of it to an overseas telecommunications company.
KT itself said it will own 34 percent of the ``Korea Telecom IMT2000 Consortium,'' while Korea Telecom Freetel Corp. will take 10 percent and KT M.com Co. will take 5 percent.
SK, KT and LG all said their choice of W-CDMA was based on the calculation it will be adopted by over 80 percent of the world's cellular providers and therefore more appropriate for global roaming, the ability to use the same handset in multiple countries.
Still, some analysts see the choice of technology as ultimately irrelevant to the service providers and more of a political decision by the government, aimed at pleasing Samsung and other equipment exporters.
``It's become more of a sentimental and political consideration,'' said Colin MacCallum, a telecommunications analyst at HSBC Securities in Hong Kong. ``Actually whether a company takes W-CDMA or CDMA2000 isn't going to make that much difference to operations.''
Still, shareholders may ignore these considerations and continue to sell shares on concern a company may be cut off from future earnings if it fails to get a license in this round of bidding.
``The share price could fall on sentiment but I think sentiment has overshot and it could be a buying opportunity,'' said HSBC's MacCallum.
SK Telecom shares are down 32 percent this year and KT's have slumped 60 percent, while LG Electronics have lost 63 percent this year.
The government will accept applications from Oct. 25 to 31.
Oct/24/2000 19:42 ET |
