In continuation of September issue’s summary on the telecommunications industry policies in Korea, the following paragraphs report on the updates and the rising tension between the mobile network operators (MNO) that are competing to obtain better-quality frequency bands in the frequency spectra auction administered by the Korea Communications Commission (KCC). Refer to last month’s Policies Today for a catch-up of the MNOs involved and the big picture of how the frequency spectra auction is planned to roll out, in the hopes of better accommodating the users of some 160,000 terabytes (160 * 10^15) of data every month.
In essence, KCC is the banker of the monopoly game, and frequencies at auction are the properties for sale, investing in which will offer future income for the MNOs. However, KCC isn’t as good-willed – or in the least, neutral – as the banker in a monopoly game. A number of instances have characterized the KCC and the Ministry of Science, ICT and Future Planning (MSIP) as a group of people that prefer to make money off selling frequencies, an idea so outrageously absurd in the small-scale Korean context of the bloodbath telecommunications industry to the point that the KCC had to turn to US examples of frequency auctions, which by far are going relatively well, given the much larger size and multiplayer nature of the US telecommunications market.
For example, even before the inception of the idea of frequency auctions, a number of people have criticized and warned the KCC that the auctions will backfire, draining money out of the few MNOs that we have now and eventually driving the market to monopolizable conditions. None other than LGU+’s situation better reflects such criticisms. Because of the tremendous amount needed to bid for a mere 20MHz frequency band, an official from the third-rank MNO even said that whoever loses in the auction after making investments on the orders of trillion KRW is bound to wither out of the telecoms scene.
A more recent example of the polarized behavior of the KCC is their decision to reallocate 80MHz out of the 100MHz, whose use by the MNOs are due to expire by December 2016. According to the laws governing the telecommunications industry, the KCC must notify the users of the frequency spectra (i.e., the MNOs) whether it will simply reallocate the same frequency bands to the same companies at a relatively inexpensive rate (approximately 500 billion KRW) or collect all frequency bands in use and put them to auction – which begins at 1 trillion KRW – raising huge sums of government revenue. LGU+ has been pro-competition and insists that all the 100MHz at the 2.1GHz frequency band must be put to auction; however, SKT asserts that the redistribution of frequency spectra can confuse customers and potentially deteriorate the quality of the service provided. Amidst two very contrasting opinions, the KCC opted for the reallocation of 80MHz of the frequency bands in use and put only 20MHz to auction. On the surface, it may at first seem that the KCC just wants to avoid the tsunami of administrative hassle that comes with putting all of the 100MHz to auction, and dealing with the switch of customers from one company’s frequency band to another’s. However, the subtle irony is that the KCC, in its decision to let SKT and KT reuse the same frequency bands over the next 10 years, loses an astronomical value of government revenue that could be earned if all the 100MHz frequency bands were put to auction. By making the decision on the premises of “protecting the customers”, the KCC is contradicting itself from a few years ago, when it was the very organization that copied the idea of frequency band auctioning from the US and haphazardly pasted it onto the Korean market, with the ambition of raising heaps of money.
There goes the saying, “The players are running on a slanted playground.” With the Korean telecommunications market already deformed as it is, shouldn’t KCC be the ones to correct any sources of imperfect competition and not the ones to create more sources? More on the rules of the frequency band monopoly game will be discussed in next month’s Policies Today.