There are fierce competitions for frequencies as duration of frequency use is about to expire. 80% of frequencies that are currently owned by mobile network providers will become available in 2021.
Because South Korean Government is preparing to completely revise its Radio Wave Act, mobile network providers are trying to have allocation of frequencies take place more favorable towards them. Because this issue can bring or take away hundreds of millions of dollars, it is likely that both South Korean Government and mobile network providers will not take any step back.
◊Radio Wave Act to go through major changes
There is no scheduled plan for auction or reallocation of frequencies in 2019. However, mobile network providers are still taking necessary actions behind the scenes while paying careful attention towards South Korean Government’s policies on frequency.
Mobile network providers are taking such actions because they know that policies on frequency will go through major changes in the near future. Ministry of Science and ICT (MSIT) is planning to go through a complete overhaul on Radio Wave Act since it was established in 2000. This is the reason why mobile network providers are trying to apply their interests to revised Radio Wave Act as much as possible.
Reason why South Korean Government gave a notice to changes on Radio Wave Act is because it wants to prepare for 5G network and the Fourth Industrial Revolution. MSIT announced its ‘third Radio Wave Promotion Basic Plan’, which is the highest plan in radio wave field that is established every five years, in January and stated that it prepared a plan that would completely restructure Radio Wave Act.
Fact that duration of frequency use is set to expire in 2021 is another reason why mobile network providers are so busy behind the scenes.
Duration of use of 330MHz, which is 80% of 410MHz currently owned by three mobile network providers, is set to expire in 2021. Because expired frequencies need to be reallocated back to original owners or auctioned off, how they are going to be allocated has a huge impact on spending and competitive structure of these mobile network providers.
“2021 is when we focus our investments into 5G infrastructures.” said a representative for a mobile network provider. “It will be a huge burden for us to carry out large-scale investments when it is difficult for us to make additional growth within 2G, 3G, and 4G markets.”
◊Cost of reallocation to be the biggest issue
Mobile network providers made a suggestion to MSIT not to apply past bids when it is going to reallocate frequencies. According to Radio Wave Act, past bid for same or similar frequency can be considered when calculating a cost for frequency to be reallocated.
However, mobile network providers have an issue with this clause because they believe that it is unfair to apply past bid when they expect that 3G and 4G markets will start to shrink as number of 3G and 4G users starts go down.
This regulation is important for frequencies that are used for LTE, which still has many users, as there is a high chance that these frequencies will be reallocated.
SK Telecom purchased 1.8GHz bandwidth (20MHz) for $843 million (995 billion KRW), which is doubled the amount of lowest competitive price ($377 (445.5 billion KRW)), during South Korea’s first auction for frequencies in 2011.
In 2013, KT purchased 1.8GHz bandwidth (15MHz), which is good for broadband, for $763 million (900.1 billion KRW) that is three times more than the amount of lowest competitive price ($245 million (288.8 billion KRW)). KT, which already had frequencies in this bandwidth, had to secure this bandwidth additionally to win in competitions for LTE broadband at any cost. This is the reason why bid skyrocketed.
Mobile network providers are asking MSIT to apply their actual current sales and calculate cost of reallocation. They believe that cost of reallocation of frequencies needs to be calculated based on current sales as it is possible to calculate actual sales from 3G and 4G network.
Radio Wave Act’s Article 14 needs to change in order to change a regulation that considers past bids when calculating a cost for reallocation.
◊Mobile network providers disagree on how cost of allocation is to be calculated
Mobile network providers have different opinions on how cost of allocation of frequencies through an auction is to be calculated.
How lowest competitive price is calculated is the main issue.
KT and LG Uplus state that mobile network providers cannot compete against one another at a same bid during an auction. They believe that a mobile network provider with most sales needs to pay more.
On the other hand, SK Telecom believes that such method is the reason why there are misunderstanding on fundamental purpose of this auction system. “Auction system for frequencies was established to have more effective distribution of frequencies by putting a price according to market principles.” said a representative for SK Telecom. “Tying one’s amount of sales to a price on frequency will make distribution of frequencies in effective and thus goes against fundamental purpose of auction system.”
Radio Wave Act’s Article 11 needs to be changed to apply one’s actual sales to lowest competitive price during an auction. Phrase ‘estimated sales’ needs to be changed into ‘actual sales’.
MSIT is going to introduced revised Radio Wave Act shortly and start gathering opinions. There needs to be institutional improvement by June of 2020 in order to reallocate or auction off frequencies that are set to expire in June of 2021.
As a result, MSIT is focused on accomplishing institutional improvement because it believes that there will not be opportunities for many years when opinions from mobile network providers are not applied to its revised Radio Wave Act.
Because there is a chance for a drop in tax revenue if MSIT changes how cost of allocation is calculated, South Korean Government is taking a careful stance on every process. There is a high chance that cost of reallocation will go down if MSIT does not consider past bids.
On the other hand, there is a chance that cost of allocation of all frequencies can be either same or be higher than before if a mobile network provider with most sales pays the most price. It is estimated that the cost can increase by about $254 million (300 billion KRW) for the next ten years.
French Government is utilizing an auction system for frequencies based on such method to fix any imbalance regarding sales and profits of businesses.
“We need to maintain a principle of redeeming appropriate price for each frequency.” said a representative for MSIT.
Staff Reporter Kim, Yongjoo | kyj@etnews.com