telecommunications by pengxuebo


Several years ago, the Korean government took concrete measures to revise its regulatory
framework for the telecommunications sector and liberalized the telecommunications
services market faster than Korea’s obligations under the WTO Negotiation Group for the
Basic Telecommunications Agreement. The key laws governing the telecommunications
industry went into effect on January 1, 1998, and were amended in 1999 and in 2000.
The laws and subsequent revisions have resulted in plans to privatize Korea Telecom and
other state-owned firms, in an increase in foreign ownership limits in the
telecommunications sector, and in the introduction of new services, including
international simple resale, Internet telephony, in-house phoning, and digital
broadcasting. The implementation of the New Integrated Broadcasting Law has also
liberalized the broadcasting sector of telecommunications and has had a significant
impact on the development of the Korean broadcasting industry, particularly on satellite
TV broadcasting, which is scheduled to be launched in December 2001.

All of these factors and developments have led to tremendous growth and further
projected growth in the telecommunications sector and in a more competitive market
environment, making Korea the world’s leader in wireless telecommunications services
and applications. Nonetheless, some restrictions and market access barriers remain for
U.S. suppliers. Notably, there is still a 49% restriction on foreign investment in Type 1,
facilities-based telecommunications firms, which severely limits the market entry
opportunities for U.S. telecommunications services firms and equipment suppliers. In
broadcasting, there are restrictions for foreign re-transmission channels to 10% of the
total of all cable and satellite broadcasting channels and foreign investment limits of 33%
in local System Operators (SOs) and Program Providers (PPs). These restrictions also
severely limit market access for U.S. broadcast channels and considerably raise the cost
of market entry. AMCHAM believes that the Korean Government should fully liberalize
investment in the telecommunications sector as soon as possible, and before the next
WTO round, in order to enhance the competitive environment and allow for unfettered
market access.

Other major concerns are excessive governmental influence in the private sector’s
selection of technologies and interference with private sector negotiations involving
foreign licensing and technology transfers. This governmental influence on the choice of
sources of equipment and technologies is often implied in the licensing process for
operators and is more clearly evident in localization policies for procurement. It may
also be communicated directly or indirectly to the private sector through industry
association and quasi-governmental commissions or other entities. As a result, some U.S.
firms with leading-edge technologies have encountered resistance to their efforts to
introduce new software and technologies to the market, and some U.S. firms that
formerly had a dominant market share have lost significant market share to Korean firms
over the past few years. This development is detrimental to both the Korean and the U.S.
industries, and it is symptomatic of a less than totally open, competitive market. When
the market is restricted for U.S. suppliers of telecommunications technologies, Korean
firms are also restricted in their abilities to develop state-of-the-art, globally competitive
products in a competitive environment.

Specifically in regard to license negotiations, the Korean Government should fully
comply with the provision of the WTO policy statement of July, 1997, as follows:
‘private sector companies will independently negotiate transfers of technology with
foreign suppliers based on the commercial considerations in connection with the purchase
or lease of telecommunications products or services from the supplier.’ AMCHAM also
urges the Korean Government to refrain from making or influencing all selections of
technologies, allowing free market forces and fair competition to prevail. Privatization of
Korea Telecom (KT) on or before the government’s projected date of June 2002 will
further serve to create a more competitive environment and to internationalize KT’s
procurement practices, providing more market access for U.S. suppliers.

 In regard to regulatory issues, many long-standing issues remain unresolved; however,
some notable progress was made this year. AMCHAM is encouraged that the Korean
Government responded quickly and favorably to industry’s requests to reconsider
regulatory changes in EMC and safety standards that would have caused costly delays
and major barriers to market entry. Although more work remains to resolve these issues
completely, the government’s high level of cooperation is exemplary and serves as a
standard for tackling the remaining, long-standing issues.

1. Market Access: Licensing and Spectrum Allocation
Access to service markets is limited primarily by the processes whereby new service
providers are licensed and spectrum is allocated for new services. In the Korean telecom
industry, there are often implied licensing requirements that limit the purchase of foreign
vendors’ infrastructure equipment. There are fewer statutory requirements regarding the
use of local versus foreign vendors than previously, but implied requirements still remain.
The Ministry of Information and Communication (MIC) granted two licenses for IMT-
2000 or 3rd Generation CDMA (Code Division Multiple Access) adopting asynchronous
W-CDMA technology in December 2000. MIC subsequently granted a third license for
synchronous CDMA 2000 technology for a total of three 3G IMT-2000 service operators.
From all appearances, the MIC made enormous and systemic efforts to ensure fairness
and openness in the selection process. To date, there have been very few complaints
about the selection process for this round. However, licenses are not currently awarded
with a clear statement of the spectrum allocated to that license. MIC largely controls the
spectrum and separates the spectrum allocation from the license to operate the spectrum.

    Enhance the transparency and fairness of licensing and spectrum allocation
    Publish notices of licensing and related spectrum allocation decisions in detail and
     as far in advance as possible;
    Develop a clear policy with regard to dominant and incumbent operators;
    Separate technology issues and spectrum issues;
      Allow telecommunications operators to make technology decisions based on
       business need rather than by government edict;
      Make spectrum decisions that will benefit the consumer by encouraging greater
       competition among operators;
      Do not arbitrarily exclude foreign participation through the licensing process and
       mandate the Korea Communications Commission and/or the Korea Fair Trade
       Committee to review decisions;
      Clarify the role of ‘think tanks’ like the Korean Information Society Development
       Institute and the Electronic and Telecommunications Research Institute in all
       regulatory decisions;
      Encourage such governmental organizations to put the public interest as the top
       priority through open hearings and balanced comments from various interest

2. Localization Policies
The benefits of liberalization still do not fully filter through to all the players in the
market, mostly as a result of rigid licensing criteria and overt or implied procurement
policies requiring localization of related equipment and services. The gains in
international competitiveness that Korea has realized from the liberalization of trade and
investment are lost when local manufacturers of telecommunications equipment rely
heavily on government protection. Such mandatory localization is no substitute for
expanded R&D in the domestic private sector, and it precludes real competition in the
rapidly changing global technological frontier. Even though localization initiatives are
believed to promote local innovation, they often operate unfairly as de facto subsidies for
domestic firms. By limiting competition with foreign vendors, the government
effectively guarantees profits for a number of local handset vendors at the expense of the
consumer and the mobile telephone operators. Problems of this kind have also arisen
with leading-edge equipment used in fiber optics and digital wireless networks, for

    Open bidding processes and deregulate sourcing decisions by implementing fair,
     non-discriminatory policy measures;
    Ensure that local sourcing is not an expressed or implied requirement for
    Change the goal of the regulatory process from that of supporting large,
     incumbent local businesses to that of providing for the highest quality services
     and products for Korean consumers.

3. Foreign Ownership Limitations for Domestic Telecom Firms and Ministry
Oversight of the Market Place
MIC has eased foreign ownership limitations on domestic telecom firms faster than
originally anticipated and agreed under its WTO obligations. However, Korea’s level of
liberalization in the telecommunications sector still lags behind liberalization in Japan
where 100% foreign ownership is now permitted in all telecommunications services.
Korea’s MIC currently allows up to 100% foreign ownership for simple international
resale services interconnected to the Public Switch Telephone Network and a limit of up
to 49% foreign ownership in facilities-based wireline and wireless services, including in
Korea Telecom (KT), which MIC plans to privatize completely by June, 2002. The
degree of the Korean government’s involvement in the business practices of mobile
telephone operators is surprising given the stated desire of the government to reduce the
amount of de facto government involvement in business. Further liberalization of the law
and less government involvement will encourage more foreign investment. Korean firms
will benefit from the transfer of more managerial and technological know-how. The
recent history of consolidation in Korea’s major wireless operators is illustrative of the
level of government involvement in this sector. When the government permitted SK
Telecom to merge with Shinsegi, the agreement was conditional upon their combined
market share of over 55% being reduced to 50% by June 2001. Their market share stood
at around 54% as of December 2000. To meet the government requirement, they had to
shed a considerable number of customers. SK Telecom successfully satisfied this
requirement by the deadline of June 2001. This situation has caused a certain degree of
concern regarding the transparency and integrity of Korean anti-trust regulation. The
government should focus on its watchdog role if certain business transactions might
threaten the general public interest because of possible anti-trust practices. In
consideration of the rapid consolidation of telecom industries in other markets (i.e., USA,
Japan, Europe, Hong Kong and Singapore), it is fairly natural to anticipate similar
consolidation of businesses in Korea. KT Freetel essentially merged with Hansol M.Com
in response to SK Telecom’s consolidation with Shinsegi Telecom in mid-2000.
Therefore, fair guidelines and rules for monitoring the appropriateness of mergers and
acquisitions and related industry consolidation, need to be publicized and implemented
fairly by concerned regulators such as the Korea Fair Trade Committee and/or the Korea
Communications Commission.           AMCHAM believes that excessive government
involvement in industry consolidation with a lack of sufficient regulatory oversight by an
independent entity is troublesome and can lead to a propensity for inappropriate
government involvement in marketing and technology decisions. Such practices may
decrease the transparency of government policy-making and increase the business risks
for operators and those foreign firms that may be considering domestic investments.
Regulatory decisions should be made for the benefit of the consumer, rather than for the
Korean supplier or operators.

    Improve the transparency and fairness of regulatory processes;
    Publicize information on regulatory decisions in detail as far in advance as
     possible, allowing for sufficient time for public comment by interested parties;
    Hold public hearings with clear and objective decision criteria outlined to ensure
     that government decision-making is fair and transparent;
    Encourage greater competition among operators, and allow operators to manage
     their businesses from a technical, marketing, sales and finance perspective and to
     assume full risks and responsibilities for business decisions.

4. Support for Dominant Firms and Incumbents
Korean regulators tend to value size and market share above other company attributes
and qualifications. Within the telecommunications sector, there remains tacit support or
favor towards large, local incumbents at the expense of newer, smaller venture
companies. Moreover, there is no regulatory oversight for inappropriate domination of a
single sector by one or two large incumbents. Regulators do not even begin to question
dominance unless a single company controls more than 50% of a particular market. Such
a definition may be too restrictive and does not benefit the consumer. It also encourages
the predilection of Korean businesses to dominate business sectors by controlling market
share rather than maximizing shareholder value through the growth of profit, supported
by innovation, and for the benefit of the consumers. The Korean economy of the future
will need far more incentive for innovation and quality than simply size.

    Develop clear and transparent policies regarding market domination and control
     by individual companies;
    Develop a clear policy with regard to dominant and incumbent operators;
    Actively encourage innovation among small and venture companies through
     stimulation of more competition;
    Realign regulatory goals with the interests of the consumers rather than the
     interests of the large incumbents.

5. Privatization of Korea Telecom
AMCHAM encourages the Korean Government to fully privatize Korea Telecom (KT) as
soon as possible, and no later than the current projected date of June 2002. Full
privatization will inject much needed competition into the market and will allow many
more U.S. suppliers to qualify for KT procurement through their locally qualified agents
and distributors. Presently, U.S. suppliers for KT’s procurement of technical equipment
must establish either a local branch office or subsidiary to qualify to bid. AMCHAM
believes that qualified U.S. suppliers should be able to bid without the establishment of a
branch office or subsidiary, provided they can meet all other requirements of a tender.

6. Korea’s Safety and EMC Requirements and Certification Processes
As a result of the U.S.-ROKG talks involving telecommunications held in the early
1990’s, the Ministry of Information & Communication (MIC) has taken a series of steps
to simplify its type approval/EMC testing procedures. However, many U.S. suppliers
still describe MIC’s procedures as cumbersome and not in harmonization with
internationally recognized norms. Recently, U.S. manufacturers of IT equipment have
complained that the Korean government’s safety and EMC requirements and certification
processes require a rigorous set of documentation and testing procedures. They have also
noted that both MIC and the Ministry of Commerce, Industry and Energy (MOCIE)
routinely require unnecessary and redundant documentation and testing to the same
international standard for purposes of type approval/certification of IT/telecom
equipment. Many of these requests often appear to exceed the minimum level of
information necessary as defined in the 1992 US-ROKG telecom agreement. As a result
of the U.S. industry’s requests, MIC and MOCIE have cooperatively agreed to make
appropriate amendments to the regulations that will alleviate many of the industry’s
concerns. However, there are still some outstanding issues, including a product labeling
issue: the five lines of text to be included in the manual or product packaging for which
MIC’s procedures remain cumbersome.

    Continue to bring EMC/Safety standards for IT equipment in compliance with
     internationally recognized procedures and standards.

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