Analysts Not Sure Who Will Win Korea 3G Phone Licenses

date: 12th December 2000

The South Korean government will announce Friday the three service providers of third generation mobile phones, but market analysts are still uncertain who will be the winners.

Third generation mobile phone service, known as IMT-2000 service, will provide high-speed multimedia services including video and audio services on a mobile phone handset.

The Ministry of Information and Communications will select two providers of wideband code division multiple access (W-CDMA) service, which is widely used outside the U.S., along with a third, who will provide the CDMA 2000 service.

Four consortia led by South Korea's SK Telecom Co. (SKM), Korea Telecom Corp. (KTC), LG Electronics Co. (Q.LGE) and Hanaro Telecom Inc. (Q.HRO) submitted their bids for the business licenses on Oct. 31.

Out of the four bidders, only Hanaro opted for the CDMA 2000 technology, while the remaining three opted for the W-CDMA technology.

While analysts agree that telecommunications giants SK Telecom and Korea Telecom have better cash-flow conditions and a better know-how in the telecom businesses than LG Electronics, they are cautious in predicting that they will win the two W-CDMA service licenses.

"It is a quite sensitive issue," says Yang Jong-in, a senior analyst at Dongwon Securities Co. "It is difficult to say SK Telecom and Korea Telecom will beat LG Electronics because each company has its own advantages and disadvantages."

Yang says state-run, fixed-line communications giant Korea Telecom has a strong cash-flow while SK Telecom has a dominant share in the domestic mobile phone service market. But LG Electronics is the one which developed the W-CDMA system technology for the first time in South Korea.

Another plus for SK Telecom and Korea Telecom is their large number of existing subscribers, an important factor in initiating IMT-2000 business, analysts say.

Even though Hanaro is the sole bidder for the CDMA 2000 service, analysts are uncertain whether it will win the license because of its ambiguous plan to raise funds.

If Hanaro doesn't get the license, the government will call for new bids early next year.

"Capability to raise funds is important because winners of the IMT-2000 service will have to invest huge chunk of money into their business for the next few years," says Yang.

He says each of the winners will have to give to the government KRW1.3 trillion ($1=KRW1,190.5) and invest around KRW1.5 trillion for the next three to four years.

 
   Share Prices To Change After Govt Selection 
 

 

Meanwhile, investors are expected to stay away from telecommunications shares until the government announcement on Friday, analysts say.

After a rally last week, shares of Korea Telecom, SK Telecom, LG Electronics and over-the-counter market listed LG Telecom and KT Freetel, are expected to lose some ground on profit-taking and then go their different ways after the government selects the winners, they say.

SK Telecom climbed 19.5% in the past six trading sessions, and Korea Telecom gained 14%, while LG Electronics rose 12%.

"But, their stock prices will differ after the government's announcement," says Yang. "Share prices of winners can surge by around 20%, while stock prices of losers can fall by that much."

The 3G license race prompted SK Telecom to form a consortium in October with 783 domestic telecommunications and Internet-related companies. The consortium will set up a company named SK IMT with an initial paid-in capital of KRW300 billion and SK Telecom will be the largest shareholder with a 48.6% stake.

Similarly, LG Electronics formed a consortium called LG IMT-2000 with 767 domestic companies. The new company will also have an initial paid-in capital of KRW300 billion and LG Electronics will hold a 50% stake.

The Korea Telecom-led consortium, which includes 636 companies, will set up a company called KT IMT whose initial paid-in capital will be KRW500 billion. Korea Telecom, the state-run telephone monopoly, will hold a 28.5% stake in the new company.

Meanwhile, the Hanaro Telecom-led consortium will set up a company named Korea IMT-2000 Corp. with a paid-in capital of KRW200 billion.

All consortia plan to launch 3G services in May 2002 if they win the licenses.

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