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Editorial

[South Korea] Amendments to Korean telecom license framework taking shape

  • Legislators have put forward an advanced draft of amendments to the Telecommunications Business Act, Korea‚Äôs main telecom statute.

  • The draft amendments, proposed on March 29, 2018, would finalize changes anticipated since August 2017, so as to relax license requirements and foreign ownership restrictions for telecom carriers.

  • Amendments seem likely to pass within 2018, with effect 6 months following passage.

  • Various standards will depend on further regulations, for which Ministry drafting is expected in coming months.

In follow-up to tentative rule changes announced by the government in August 2017, Korean lawmakers have proposed significant amendments to the Telecommunications Business Act (TBA) that would ease a number of important requirements for the conduct of telecom-related services. Mainly espousing draft rule changes that were unveiled by the Korean Ministry of Science & ICT (MSIT) in August 2017, the proposal would convert the existing license requirement for ‚Äúcore‚ÄĚ businesses (owning lines, cable landing stations or other telecom facilities) into a simpler registration process ‚Äď basically collapsing it into the existing system for facility-leasing telecom service providers. The amendments will also newly permit 50%+ foreign ownership of telecom ‚Äúcore‚ÄĚ businesses, except for some threshold of ‚Äúlarge-scale‚ÄĚ operators (to be better defined in ensuing regulations).

Differing from the original government plan unveiled last August, however, the current bill would exclude a requirement upon telecoms, including mobile and other carriers meeting some threshold, to implement a reduced rate structure. This controversial part of the plan as of August 2017 had evidently held up progress on the wider package of amendments, and has been dropped in the current version.

Sponsored by a group of ruling party lawmakers, the current bill seems likely to pass, pretty much intact, by some time in 3Q or in 4Q 2018, though this is uncertain. If passed late this year, the amendments to the TBA would normally take effect around 6 months after promulgation, thus possibly around mid-2019.

Following are highlights of the proposed amendments, generally coinciding with the MSIT plan of August 2017, aside from the jettisoning of the concept of the reduced telecom rate structure.

 

Changeover to registration instead of license regime

Under the bill, ‚Äúcore‚ÄĚ telecom enterprises that use their own (self-owned) telecom lines and facilities to offer telecom services, sometimes termed common carriers) would be subject to a simplified registration procedure, as applies currently to telecom services that use leased facilities , ‚Äúspecial category telecom‚ÄĚ or secondary businesses). ‚ÄúTelecom services‚ÄĚ means broadly any service for transmitting sound, images or other data, unmodified, including internet connectivity as well as mobile and landline phone.

Under the current TBA, a core business, such as a line operator or mobile carrier, must get a license from the MSIT, which is a relatively challenging process involving broad agency discretion and typically 2 to 6 months for review. In contrast, a secondary business, such as a mobile virtual network operator, requires only a registration with the MSIT, which involves simpler requirements with little scope for agency discretion, and 1 to 2 months of processing.

Under the bill, telecom core businesses, like secondary businesses, will require a registration, rather than a license. This involves a variety of substantive criteria, but it should be straightforward in terms of agency process. With this collapse into a registration-only system, a number of requisites will likely be modified. For example, the range for capitalization requirements (varying with the scale of business) in the current registration system may change. However, in overall structure, the registration system will resemble the existing one for secondary businesses.

 

Majority foreign ownership to be permitted, with exception for ‚Äúlarge scale‚ÄĚ operators

The bill would generally allow 50% or more foreign ownership even in core (facility-owning) telecom businesses, as well as secondary businesses (which are already open to majority foreign ownership). However, this would be subject to constraint in the case of ‚Äúlarge scale‚ÄĚ core enterprises.

At present, aggregate foreign ownership in core enterprises (such as KT, SK Telecom and other such carriers) is generally capped at 49%, while there is no such cap for secondary businesses. However, companies headquartered in Korea free trade agreement (FTA) counterparty jurisdictions, such as the US and EU, are permitted to hold over 49% in core enterprises indirectly, through a Korean subsidiary, so long as the subsidiary is seen by the MSIT to satisfy ‚Äúpublic interest‚ÄĚ, in terms of data security, consumer interests and so forth.

The pending bill will eliminate the 49% foreign ownership ceiling, across the unified registration-only system (core and secondary enterprises), except in the case of a category of ‚Äúlarge scale‚ÄĚ telecom businesses. This restricted ‚Äúlarge scale‚ÄĚ category corresponds to what were major core businesses, and will probably include the likes of KT, SK Telecom and LG Uplus. However, the present bill (like the August 2017 plan) does not include specific criteria for the restricted category; these will have to await a later Presidential decree.

In the FTA situation, under the bill (as under the existing rules), US-headquartered and other FTA-covered companies could own 50%+ of any telecom business in Korea, through a local subsidiary. However, in the case of a ‚Äúlarge scale‚ÄĚ target, this would be subject to satisfying the ‚Äúpublic interest‚ÄĚ assessment.

 

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