International Business: SOUTH KOREA
SEOUL FINALLY DIALS COMPETITION'S NUMBER
Car salesman Lee Ki-Hoon spends long hours commuting to different companies to sell fleets of vehicles. He thought a cellular phone would allow him to stay constantly in touch despite Seoul's monstrous traffic jams. But the top-of-the-line $1,200 Motorola cell phone he bought is now locked away in his office drawer because of poor service from Korea Mobile Telecom. "After six months, I gave up," laments Lee. "You can hardly get connected. If you do, there's a good chance you won't be able to complete the call."
Help, though, may be on the way, partly thanks to U.S. government complaints about Korea's closed market. To appease Washington but also to make Korea's industry stronger, Seoul has unveiled a two-step plan to open the country's $8 billion telecom market. Initially, the government will allow domestic companies to compete in all major telecommunications service areas except local calls and low-orbiting satellite communications by the end of 1996 (table). That will help them gear up for the second stage, when the government says it will let in foreign competitors around the end of 1997.
GLOBAL EXPLOSION. As a result of the gradual opening up, service already is starting to improve. Korea Mobile Telecom, which hasn't coped well with a nearly tenfold increase in subscribers, to 960,000 in the past five years, in August placed an order for $100 million worth of equipment from AT&T to improve its switching and connecting. The company, which was taken over by Sunkyong Ltd. from the government in 1993, faces new competition from Shinsegei Mobile Telecom. That rival, a consortium led by Korea's steel giant Pohang Iron & Steel Co. (POSCO), will begin providing cellular service in April, 1996, using technology developed by Qualcomm Inc., of San Diego.
The reason the government is stepping up the pace of liberalization is its fear that Korea might not be able to take advantage of the global explosion in information and computer technology fast enough. Experts say Korea should be providing video-on-demand and home shopping through online services at a competitive price to most of its population. But access to international services, such as CompuServe, still must be routed through a domestic provider, which costs a subscriber 30 cents a minute at a speed of only 2,400 bits per second, whereas 14,400 is standard elsewhere.
The deregulation plans also call for reshaping state-owned Korea Telecom, a long-distance operator as well as the sole provider of local services. As a first step, the government will expedite the carrier's privatization and grant it full managerial autonomy. Once privatized, the company, with $6.8 billion in annual revenues, will be freed from regulatory shackles.
Korea Telecom does have one homegrown competitor, privately held DACOM. It already offers international calls and plans to begin domestic long distance in 1996. This step-by-step process of introducing second players to challenge state-owned monopolies leads most foreign experts to believe the government's plan to take further steps is serious. "They've had a very pragmatic and structured approach in introducing this kind of managed competition," says Ken Zita, a telecom consultant with Network Dynamics Associates Inc. in New York. "That's something other governments in the region are looking at."
One of the most controversial questions when it comes to telecom liberalization is what role Korea's big conglomerates, or chaebol, should play. Because of concerns that the groups are too powerful, there are entry barriers and restrictions on ownership of even the privatized providers. The Samsung and LG groups, for example, can each own no more than their 10% shares of DACOM, because they also manufacture equipment.
But as the government gears up for the next round of opening, there are at least 10 conglomerates, including Samsung, LG, Hyundai, and Daewoo, as well as steel giant POSCO, scrambling for a piece of the action. Korea expects to invest $50 billion over 15 years, which will be difficult without bigger chaebol participation.
There also will be a role for foreigners, even while they are still barred from offering phone service. That's because the Koreans need capital and a wide range of technologies that only foreigners have, says Park Jong-Hyun, an analyst for LG Securities in Seoul. So big U.S. and European players may be able to form more joint ventures in online services and cellular and personal communications services. For example, three U.S. companies--Air Touch, Southwestern Bell, and Qualcomm--already have a combined 20% stake in Shinsegei Mobile.
Making early inroads may prove critical. By the end of 1997, the Koreans hope that some of their telecom service providers will be tough enough to compete against AT&T, BellSouth, or Cable & Wireless of Britain in such countries as India, Vietnam, and China. That means they also will be more potent competitors at home. So even though the Koreans are gradually opening to outsiders, they clearly want to keep most of the important gains within the family.
KOREA'S TIMETABLE FOR PHONE DEREG
CELLULAR PHONE SERVICE: Complete deregulation this year
INTERNATIONAL LONG-DISTANCE CALLS: One new provider will be selected in 1996
PCS SERVICE: Five new providers to be selected by 1996
WIRELESS DATA SERVICE: Three new providers named by 1996
DOMESTIC LONG-DISTANCE CALLS: One new provider to be selected by 1996
SATELLITE COMMUNICATIONS: Details to be announced in 1996
LOCAL PHONE SERVICE: One new provider to be selected by 1997
DATA: BUSINESS WEEKBy Laxmi Nakarmi in Seoul