LG, government in tug of war over 3G mobile Internet phone license

date: 20th January 2001, source: Korea Herald

The LG Group and the government are locked in a heated telecom-license dispute, heightening uncertainties over prospects for the No. 3 chaebol's telecom business, watchers said yesterday.

LG, clamoring for the profitable wideband third-generation, or 3G, mobile Internet phone service license, has threatened to leave the telecom business if its demands are not met.

In contrast, government officials stuck to the stance that the less popular 3G license, based on Qualcomm Inc.'s CDMA2000 technology, is the only one available for the second round of license bidding, slated for March.

In what is viewed as an ultimatum, LG declared its intent to pull out of the telecom market by selling off its mobile phone service unit LG Telecom in a stock market notification Wednesday.

The watchers speculated that the declaration was actually meant to step up pressures on the government to change its licensing policy in favor LG. The group's withdrawal from the telecom business, if implemented, is seen as a severe blow to the government's long-term blueprint for the local telecom industry, as it would trigger a whirlwind of mergers and acquisitions.

"In addition, LG is taking advantage of the obvious fact that LG Telecom networks would be indispensable to the winner of the CDMA2000 3G service license," industry analyst Cho Young-nai said. Indeed, a top LG executive said that the group's actual pullout from the telecom service sector will entirely depend on the government's attitudes towards the less profitable CDMA2000 license.

In this regard, U.S. brokerage Merrill Lynch said in a report yesterday that LG's alleged ultimatum against the government will prove helpful to the share prices of LG Electronics, a de facto holding company for LG's telecom units, in the short term.

"A fierce tug of war is under way between LG and the government, defying any early forecasts for the outcome," said the Merrill Lynch report. A host of other market uncertainties are also blocking any attempt to draw the conclusion, it said.

LG's threat to quit telecom business appears to be a double-edged action intended to press Seoul to give it more leeway in the selection of the 3G standard, it explained. According to sources, the government envisions a grand CDMA2000 consortium comprising LG, Samsung Electronics, POSCO and Hanaro Telecom. But all of the mentioned parties are said to be uninterested in the government proposal. POSCO, for instance, said in its official press release that it is not interested in any type of 3G licenses. The government's alleged proposal to offer special favors to LG's participation in the CDMA2000 bidding has also gone unheeded.

Reversing its earlier position to stick to control of LG Telecom, the group said in its stock market notice that it will consider selling the mobile phone service unit to Korea Telecom, though a relevant contract has yet to be discussed.

LG also said that a comprehensive review of its telecom operations will be under way, hinting at an intention to sell off stakes in Dacom, Hanaro Telecom and other telecom units.

LG Group, built around electronics and chemicals, has selected telecommunications as its path to the future, since its exit from the semiconductor business last year. But it last month lost its bid for the profitable wideband 3G license to SK Telecom and Korea Telecom. The wideband license was viewed as essential to the group's long-term strategy to link it with contents and PC communications provider Dacom Corp. and LG Telecom.

Foreign brokerages, like UBS Warburg, said at that time that pullout from the telecommunications service and shift to the manufacturing of the next-generation mobile phone equipment may be the most "reasonable" choice for LG.

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