ATM industry ablaze with claims of unfair practices

Former industry leader Chungho ComNet, the first domestic firm to produce ATMs in Korea, has fallen on hard times.

However, as local ATM manufacturers are battling for stakes of a stagnant market, Chungho’s dependence on Japanese parts may have crippled its competitiveness beyond repair.

The domestic market for money-dispensing bank machines is a small but strongly contested one.

Just three players share a market worth 130 billion won ($115.7 million) in annual revenue. And now all three, conglomerate-affiliated competitors Nautilus Hyosung and LG N-Sys, and mid-sized ATM manufacturer Chungho ComNet, are locked in a heated battle over alleged antitrust practices.

Late last month, the latter company reported its two competitors to the Fair Trade Commission for price-fixing, dumping and other violations of antitrust regulations.

“The competitors’ unfair practices have become excessive, such as selling at below normal prices, price-fixing, extending the free maintenance period and even paying for clients’ company get-togethers or interior redecorations,” said a spokesperson of Chungho ComNet.

“Such illegal practices are not just aimed at increasing revenue, but also market share and driving Chungho ComNet’s operations off the rails.”

However, Chungho’s competitors are crying foul.

“In the ATM market, where banks make up the entirety of demand, suppliers do not have as much bargaining power as banks,” said a spokesperson of LG N-Sys. “And because the manufacturer that offers the lowest price wins the contract, we don’t engage in price-fixing.”

Chungho ComNet’s accusations come as the company is seeing its losses snowball. Its operating profit wound down 123.7 percent last year based on reported losses of 31.6 billion won.

This follows a pretty poor 2010, when the company was in the red with yearly losses of 19 billion won - a stark contrast with the situation at Nautilus Hyosung and LG N-Sys, which reported 2010 operating profits of 28.3 billion won and 15.1 billion won, respectively.

Chungho has been paring down its operations recently, selling its factory in Guro District, western Seoul, while letting 50 of its 600 employees go this year as part of a voluntary retirement program.

But things have not always been so dire for the company. Established in 1977, it successfully rode the wave of Korea’s initial adoption of ATMs, which began in 1975, and maintained a leading position until the mid-1980s.

With LG Group and Hyosung Group joining the market in 1981 and 1987, respectively, the market hit its heyday during the 1990s as the number of ATMs in Korea rose from fewer than 10,000 in 1992 to more than 80,000 in 2003, according to the Bank of Korea.

However, the market reached saturation point around 2007-2008, with replacements for older machines making up the bulk of yearly orders. Manufacturers began aggressively cutting prices, with a single ATM - which cost around 24 million won before 2009 - costing an average of 15.2 million won in 2010 and 13.2 million won last year.

Amid such hostile market conditions, Chungho has suffered further from the high cost of the yen as it imports all of its key parts from Japan.

“Chungho ComNet lost its price competitiveness as it failed to create its own key parts such as the bill recycling module (BRM), unlike us or LG [N-Sys], which have successfully produced domestic modules,” said a spokesperson for Nautilus Hyosung.

Although Fair Trade Commission officials have reportedly begun investigating Chungho ComNet’s claim by visiting LG N-Sys and Nautilus Hyosung, the clashes within the cramped industry are expected to continue as the 2009 FTC investigation into price-fixing in the ATM manufacturing industry took two years to conclude.

By Lee Jung-yoon [joyce@joongang.co.kr]