Korea unveils proposed changes to telecom license framework

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  • Proposed changes to the Telecommunications Business Act would
    simplify and significantly relax license requirements, and ease foreign
    ownership restrictions for telecom carriers.

  • The amendments also aim to require common carriers, especially
    mobiles, to offer a more affordable consumer telecom rate structure, under
    standards to be decided.

  • The amendments seem likely to pass largely as-is by 1Q 2018,
    possibly coming into effect by mid-2018. A number of standards will depend on
    further regulations, for which drafts should issue in the coming months.

The Korean Ministry of Science & ICT (“MSIT”) on August 23,
2017 announced draft amendments to the Telecommunications Business Act (the
“TBA”) that aim to relax a number of procedures and requirements for obtaining
telecom licenses. In a key change, for telecom facility-owning or “core”
businesses, the proposal would convert the existing license requirement into a
simpler registration – basically collapse it into the existing system for
facility-leasing telecom service providers. The amendments will also newly
permit 50%+ foreign ownership of telecom “core” businesses, except for a
yet-to-be-defined threshold of “large-scale” operators. In a much anticipated
section of the draft bill, the amendments would require major telecoms,
including mobile carriers, to adopt a reduced rate structure, though this
depends on criteria that remain in a non-public drafting phase.

While open to comment now, and in some respects highly
controversial among dominant telecoms in Korea, the draft bill is expected to
pass the National Assembly, largely in this shape, by 1Q 2018 if not late 2017.
Following are highlights of the proposed amendments.

Changeover to registration
instead of license regime

Under the draft amendments, telecom enterprises that use their
own (self-owned) telecom lines and facilities to offer telecom services (기간통신사업, sometimes termed common
carriers; we refer to them here as core businesses) would be subject to a
simplified registration procedure, as applies currently to telecom services
that use leased facilities (별정통신사업, “special category telecom” or secondary businesses). “Telecom services” here 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 obtain a license from the MSIT, which is a challenging,
uncertainty-laden process involving broad agency discretion and typically 2 to
6 months of 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 draft amendments, telecom core businesses, like
secondary businesses, will require a registration, similar to the existing
secondary business registration. This involves a variety of substantive
criteria, but in principle registration must follow so long as the criteria are
met. (There remain elements of agency discretion, but much less so than with
the license system.) With this collapse into a registration-only system, a
number of requisites for registration will likely be modified. For example, the
range for capitalization requirements (varying with the scale of business) in
the current registration system may change, and the obligatory hiring of
certified engineers – a notable to-do for smaller secondary businesses – will
probably expand for core businesses. However, in overall structure, the
registration system will resemble the existing one for secondary businesses.

Majority foreign ownership to
be permitted, with exception for “large scale” operators

The proposed amendments 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).
This would be subject to an exception in the case of “large scale” core
enterprises.

At present, aggregate foreign ownership in a core enterprise
(such as KT, SK Telecom and other such carriers) is generally capped at 49%, as
part of the current license regime, while there is no such cap for secondary
businesses. However, companies headquartered in the US, EU and other Korea free
trade agreement (FTA) counterparty jurisdictions 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 “public interest”, in terms of data security,
consumer interests and so forth.

If amended, the TBA 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 “large scale” telecom
businesses. This restricted “large scale” category corresponds to what were
major core businesses, and will probably include the likes of KT, SK Telecom
and LG Uplus. However, specific criteria for the restricted category have yet
to be articulated, awaiting a Presidential decree (or prime implementing regulation)
that will probably emerge in draft form late this year or early 2018.

In the FTA situation, as before, US-headquartered and other
FTA-covered companies could own 50%+ of any telecom business in Korea, through
a local subsidiary, but, in the case of a “large scale” target, this would be
subject to satisfying the MSIT’s “public interest” assessment.

Affordable rate structure for
telecom carrier services

Following on a major policy announcement earlier this year, the
draft bill would require telecom core enterprises (such as mobile and other
carriers, owning their lines and other facilities), provided they meet certain
thresholds of scale, to offer a low price rate structure to customers (or
possibly some defined range of customers). This new general provision of the
TBA would have to be supplemented by rules and standards under a Presidential
decree, a draft of which is likely to come in 1Q 2018 (if not late 2017). The
thresholds for affected carriers will depend on to-be-determined factors like
the scale of the business and market share, but the common understanding is
that the policy targets at least the main mobile carriers.

Structure and mechanisms for a mandatory rate structure are
likewise unspecified in the draft bill, and await implementing regulations. It
is known there are draft rules in a phase of MSIT review and discussion with
industry, subject to tight confidentiality at present. Meanwhile there is
intense controversy surrounding what would represent, clearly, a significant
regulatory intervention in the telecom market.

*This update is intended as
a summary news report only, and not as advice. For legal advice, please
inquire with your contact at Bae, Kim & Lee LLC, or the following authors
of this bulletin

Sangjik LEE

T. 82.2.3404.0650

E.

 

Kwang Hyun RYOO

T. 82.2.3404.0150


E.
kh.ryoo@bkl.co.kr

 

Joon Yong PARK

T. 82.2.3404.0693

E. joonyong.park@bkl.co.kr

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