Public Procurement Service Impose Light Punishment on Three Major Telecommunications Operators for Participating in Collusion

Sep 30, 2019

Not only does collusion, which corresponds as an obstruction to bidding, shake up bidding system but it also shakes up the foundation of a fair competition. Because it increases spending of national budget through limited competitions and it leads to private companies looking for their own interest, it is classified as a more wicked act than bribery.
However, collusion is still taking place almost everywhere due to loose sanctions. There needs to be execution of strict laws and improvement to systems to pull out the root of illegal acts.
◊Is six months disciplinary action adequate?
Public Procurement Service’s (PPS) sanctions against collusion by wireless telecommunications operators are causing controversy regarding fairness and the duration of sanctions.
Collusion by wireless telecommunication operators had taken place methodically during 12 biddings for establishment of exclusive lines of public institutions that had taken place between April of 2015 and June of 2017. Amount of orders received during this period is $134 million (161.394 billion) excluding additional tax.
According to enforcement regulations, companies that win biddings through collusion are given sanctions that limit them from participating in public biddings for two years. Because KT (9), LG Uplus (4), and SK Broadband (1) bid successfully 14 times during 12 biddings, it was expected that they would be given sanctions for two years.
However, PPS imposed sanctions on them that would last for only six months. Duration of sanctions, amount of successful bids, and number of successful bids are not proportional to each other.
However, considering the fact that Seoul-si imposed sanctions on the successful bidder of a bidding for Traffic Management System (worth $20.8 million (25 billion KRW)) that had lasted two years, which was the first time that two years of sanctions were imposed, it will be inevitable for the measure taken by PPS to avoid controversies.
Some say it is difficult for them to comprehend how all three telecommunications operators were given six months of sanctions when the levels of their participation and interests they were seeking from collusionwere all different . PPS made its decision to impose same duration of sanctions on all three telecommunications operators because they all committed an illegal act.
However, Fair Trade Commission (FTC) imposed $4.77 million (5.743 billion KRW), $3.24 million (3.895 billion KRW), $2.72 million (3.272 billion KRW), and $347,000 (417 million KRW) on KT, LG Uplus, SK Broadband, and Sejong Telecom respectively in April and reported KT to South Korean prosecutors.
There is a difference to the amounts of fines since KT bid successfully 9 times while Sejong Telecom’s participation in collusion was insignificant. Amounts of fines handed out by FTC are clearly contrasted to how sanctions handed out by PPS on KT, SK Broadband, and LG Uplus are all same.

Public Procurement Service Impose Light Punishment on Three Major Telecommunications Operators for Participating in Collusion

◊Leniency program may had an impact on PPS’ decision
According to limited standards on qualifications of unlawful businesses participating in biddings, the director of a central government agency can reduce the duration by half after considering motive, information, and number of times of an offense done by an unlawful business.
However, many believe that there is not any issue such as motive, information, and number of times that can reduce the duration of sanctions on KT, LG Uplus, and SK Broadband for their participation in collusion. This is because they had methodically participated in collusion for many times and for many years.
It seems that the duration of sanctions was reduced because two of three telecommunications operators admitted to collusion through leniency program (system that reduces punishment for voluntary report) while they were being investigated by FTC.
Enforcement Decree of the Fair Trade Act allows reduced corrective actions on a business that goes through leniency program. It seems that the level of sanctions on the last telecommunications operator that did not go through leniency program was reduced as it cooperated in the latter part of an investigation by FTC.
It seems that PPS also considered the fact that telecommunication network business for South Korean public institutions could be difficult if all three operators are imposed sanctions that would last at least a year at the same time.
Major projects such as National Information Telecommunication Service 4.0 (GNS 4.0), LTE-$, and comprehensive network for National Police Agency are currently scheduled. PPS had to consider this when it was deciding on the duration of sanctions.
However, there is a need to go back and see whether telecommunications operators are committing collusion as they please because they know that they will not be given harsh sanctions even when they are caught with collusion.
“It is likely that PPS came out with its decision after considering many factors.” said an expert. “However, its sanctions will not be much effective as they are light punishment compared to collusion carried out by telecommunications operators.”
◊Duration of sanctions causing issues
Sanctions on unlawful businesses stated by State Contracts Act and Local Contracts Act were introduced to secure fairness within public biddings. They play important roles in preventing unfairness and collusion in many different areas such as construction, electric work, and IT work. They can be means for ordering organizations to crack down unlawful acts.
However, continuous unlawful acts raise questions about effectiveness of these sanctions.
Although maximum of two years of sanctions can be imposed, provision that allows the director of an institution to reduce the duration of sanctions by half is a problem. This is because motive and information can be interpreted arbitrarily anytime the director of an institution wants. There needs to be an improvement that makes clear basis and reasons for reduced duration public.
There is also a need to look into whether three months or six months duration is effective for sanctions. This is because an unlawful business can adjust the timing for sanctions to be imposed through injunction lawsuit if it is facing an important bidding or contract around the time sanctions are imposed.
“If the duration of sanctions is at least a year, it will be difficult for a business to predict public biddings that may take place after a year and this will lead to a business being hesitant on adjusting the timing of execution of sanctions.” said a representative for a telecommunications operator. “There needs to be preventive measures against the duration of sanctions being less than a year.”
Staff Reporter An, Hocheon |

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