Division of SK Telecom Forecast
The SK Group is expected to accelerate the establishment of an intermediate holding company which will be responsible for its information and communication technology (ICT) business.
The SK Group is considering dividing SK Telecom into an intermediate holding company (tentatively named SK Tomorrow), which will be in charge of the ICT Business Division, and a mobile network operator (MNO) subsidiary.
The proposed intermediate holding company will control SK Hynix, ADT Caps, 11th Street and SK Broadband, as well as the MNO, giving more power to Park Chung-ho, president of SK Telecom.
According to the Korean business world on Dec. 9, Park now takes charge of the content and media sectors in addition to the telecommunication business as he was recently appointed to double as SK Broadband's president. On top of that, Park has also assumed the chairmanship of the Global Growth Committee at the SK Group's Supex Council. Accordingly, Park now exerts his influence on management more widely.
Industry watchers say that Chey Tae-won, chairman of the SK Group, gave Park an important duty in order to establish the intermediate holding company. In August, Park announced plans to establish the ICT intermediate holding company at a closed-door IR conference held on Jeju Island. In October, he also disclosed his intention to establish the intermediate holding company in a CEO seminar of the SK Group.
A dominant view among experts is that SK Telecom took into account the establishment of the intermediate holding company when it recently announced a restructuring plan. SK Telecom reorganized its business structure with a focus on four major business divisions -- MNO, Media, Security and Commerce. These four business divisions overlap exactly with the business areas of SK Telecom, SK Broadband, ADT Caps and 11th Street, respectively, which are projected to be located under the planned ICT intermediate holding company.
In addition, SK Telecom is speeding up the process of establishing the ICT intermediate holding company by spinning off the video platform service Oksusu into a separate corporation, and is planning to increase the size of digital music store Groovers after changing its name.
However, there are many hurdles to clear in order to establish the intermediate holding company. First of all, it will require funds. SK Telecom will have to scale up its stake in SK Hynix to 30% or more in accordance with the Fair Trade Act, which will be revised in the future. Currently, SK Telecom owns a 20.07% stake in SK Hynix. To acquire an additional 10% stake, SK Telecom will need about 4.8 trillion won. The mobile carrier has 2.7 trillion won in cash and cash equivalents but has to spend about 2 trillion won on taking over ADT Caps and using 5G frequencies in the fourth quarter of this year alone.
The company is likely to raise funds by selling existing shares to the public through the re-listing of telecom businesses under the intermediate holding company. It is also a challenge to persuade existing shareholders who oppose the establishment of the ICT intermediate holding company.
"I understand that Chey is interested in securing additional growth engines in the ICT sector by adopting a business model similar to Alphabet (Google's holding company)," said an industry analyst. “The establishment of the ICT intermediate holding company will further expand the SK Group's influence on the domestic ICT sector.”