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FTC's role in SK Telecom's Takeover of Shinsegi Telecom

Apr 24,2000
"How can we win the battle? It looks like the battle between David and Goliath."

"In order to start restructuring the mobile phone service industry and raise national competitiveness, the takeover is inevitable."

These are the voices of PCS phone service companies and SK Telecom concerning the takeover of Shinsegi Telecom by SK Telecom, and it looks bad that the Fair Trade Commission(FTC) is trying to work things out.

That is why the FTC asked SK Telecom to submit data that would prove the takeover would raise efficency in the market and Korea's national competitiveness. An official from the FTC said that he is spending countless nights thinking whether the takeover will create more efficency or have the side-effects of a monopolized market.

The FTC needs to remember that their original objective was not to raise the effeciency of the market nor national competitiveness. What the people of Korea expect from the FTC is to have them ensure that fair trade can take place in the market and keep the market competitive.

With the FTC's basic philosophy of keeping prices down and ensuring market competitive, a lot of people are wondering how the case of a company running at the top of the industry taking over a competiting company is to help the market.

There are occasions where mergers between companies in monopolized markets are allowed. First is when the company that is being taken over is in a serious state of insolvency. The case where Hyundai Motors took over Kia Motors is a good example. Another case when takeovers are allowed is when there is contestability in the market, but there must be no barrier to stop other companies from entering the market.

However, the mobile phone service industry in Korea is going through neither of these situations. All of the mobile phone service providers are earning huge profits and without large-scale investments in equipment, making it impossible to start competing in the market.

Everyone is hoping it isn't true, but PCS service providers are predicting the takeover will be allowed based on the assumption that SK Telecom will follow the orders set by the Ministry of Information and Communication (MIC). Not too long ago, the MIC asked SK Telecom to reduce their share of the market by reducing subsidies for new cell phones.

This plan had problems of its own. To a company that works on enlarging its share of the market, it is absurd to ask a company to reduce their share. Also, there is nothing the government can do if the market share does not fall. This is not helpful for the welfare of the consumers nor is it helpful for the PCS service providers that started off late.

All eyes are on the FTC to see if they can come up with a perfect plan. Would SK Telecom try to takeover Shinsegi Telecom if the MIC put a ban on eligibilty for the IMT-2000 plan to service providers with over 50 percent share of the market.




by Kim Jung-soo




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