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Uncertainties to ease on rejection of mobile carrier candidates’ bids
Telecom Service Industry
Uncertainties to ease on rejection of mobile carrier candidates’ bids
  • By Jung Min-hee
  • February 1, 2016, 04:30
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Given the MSIP’s recent announcement that it has rejected bids by firms vying to become Korea’s fourth mobile carrier, uncertainties surrounding telecom players’ share prices should ease. While concerns remain in play that the telecom service industry’s growth momentum will be tepid in 2016, we anticipate seeing a short-term rebound in sector share prices.

Mobile carrier aspirants fail to receive government approval

On Jan 29, 2016, the Ministry of Science, ICT and Future Planning (MSIP) announced that it has rejected the bids of three companies (Sejong Telecom, K Mobile, and Quantum Mobile) that had been vying to become the country’s fourth mobile carrier. The government said that it turned down the proposals due to a lack of ‘feasibility’ and ‘reliability’.

Concerns towards potential licensing of new telecom player to subside for now

We believe that concerns towards potential licensing of a new telecom player will subside for now as: 1) The domestic telecom industry is already saturated (in terms of the number subscribers to domestic telecom services); and 2) the telecom industry needs to spend trillions of won in order to run mobile networks; and 3) as recently recognized by the government, there is a high entry barrier to Korea’s telecom industry.

As noted above, the MSIP viewed Sejong Telecom, K Mobile, and Quantum Mobile’s proposals as lacking viability. In detail: 1) Quantum Mobile’s plans to build networks in 85 major cities and provinces in Korea within a one-year period was viewed as not being realistic; 2) Sejong Telecom’s plans to build networks in only some parts of the country (Seoul, Gyeonggi) was viewed as not fitting within the thrust of being a national mobile carrier; and 3) concerns were raised towards K Mobile’s unclear ownership structure.

▶Benefiting from eased uncertainties, anticipate short-term rebound in sector share prices

As of Jan 29, the combined market capitalization level of the three telecom service players (SKT, KT, and LGU+) has declined to W28.3tn, representing a 10.2% drop from the level in early December (W31.4tn). However, while concerns remain in play that the telecom service industry’s growth momentum will be tepid in 2016, we anticipate seeing a short-term rebound in sector share prices in response to the dissipation of uncertainties in the run up to the government’s recent decision regarding the mobile carrier aspirants’ bids (an issue that had been strongly weighing on shares of telecom service players).