Dacom urges merger of LG telcos; partners unenthusiastic

LG subsidiary Dacom Corp. said yesterday that a merger of the three telecommunications affiliates of LG Group is inevitable. But the two other affected players, LG Telecom and Powercomm Inc., as well as LG Group headquarters, are saying it is too early to integrate.
Jung Hong-shik, chief executive of Dacom, said at a press conference yesterday that it would be the most realistic way for all three companies to survive.
“The telecommunications industry is in the convergence era,” he said. “The three firms, whose major businesses are different, should adapt to the fast changes in the industry [through cooperation].”
Dacom focuses on long-distance and international phone services, Powercomm on broadband communication network facility rentals and LG Telecom on mobile phone service.
Dacom recently proposed to group headquarters that the three telecommunications firms merge, and form a small group within LG Group.
But officials from the group headquarters and LG Telecom said it would be difficult to undertake the proposal in the near future because there are so many issues to discuss, such as the timing and terms of the merger.
An LG Telecom official said improving competencies through restructuring should come first. “It is better for the three to cooperate for now,” he added.
“Dacom, which is in a difficult situation, is pushing the merger unilaterally,” a Powercomm official complained.
Dacom is facing difficulties as Hanaro Telecom recently started long-distance and international phone services. Analysts say it should cut its debts by 500 billion won ($434 million) from the current 1.2 trillion won to survive.
LG Telecom improved its sales and profits last year, but is still too small to compete with rivals SK Telecom and KTF. Market analysts say that LG Telecom must increase its number of subscribers to 6.2 million in order to secure stable income. LG Telecom’s subscribers currently number 5.8 million. Furthermore, the debt-equity ratio of LG Telecom is high and the company is expected to lower its service fees in the second half of the year.
Powercomm is the most stable company among the three. It is profitable and its debt-equity ratio is not bad.
Separately, Dacom said yesterday that it posted 520.9 billion won in sales and 20.4 billion won in ordinary profit for the first half of this year. It also said that it is planning to start pilot local call services in October and will commercialize the service in January.

by Chung Sun-gu