Fair Trade Commission Approves the Merger between SK Broadband and t-broad and LG Uplus’ Acquisition of CJ HelloVision on Condition

Nov 11, 2019

Fair Trade Commission (FTC) has approved the merger between SK Broadband and t-broad and LG Uplus’ acquisition of CJ HelloVision on condition. This is the first example of FTC approving a business combination between a telecommunications company and a cable TV company and it is also the first time FTC approving two cases of business combination between paid broadcasting companies.
Although FTC has levied few corrective actions, it did not levy strict conditions such as prohibition of cross-selling and others that were expected.
Because FTC has come to a conclusion that these business combinations will not cause a huge issue on monopoly and fair trade, it is likely that these business combinations will also pass evaluations from Ministry of Science and ICT (MSIT) and Korea Communications Commission (KCC).
FTC stated that while it approves the merger between SK Broadband and t-broad, SK Telecom’s acquisition of shares of t-broad’s Nowon broadcasting, and LG Uplus’ acquisition of CJ HelloVision’s shares, it is going to levy corrective actions until the end of 2022 in order to protect consumers’ options.
Through common corrective actions, FTC has prevented cable TV license fee from increasing any further as it exceeds the inflation rate. It has asked protective measures for 8VSB (a method of watching digital broadcasting through analog fee) subscribers and it has prohibited voluntary reduction of the number of entire cable TV channels and preferential channels by consumers.
It is also prohibiting paid broadcasting companies from rejecting a request from a current subscriber who wants to convert or extend a contract of a low-cost plan and forcing a current subscriber to convert to an expensive plan. It is also requiring companies to provide information on all broadcasting plans and prohibiting companies from forcing digital transformation.
Through its evaluation, it has decided to separate the broadcasting market into 8VSB and digital paid broadcasting market (digital cable TV, IPTV, satellite broadcasting). Regarding the telecommunication field, it looked into restriction on competition by separating the field into mobile telecommunications retail and wholesale markets, high-speed internet market, wired telephone market, and international telephone market.
Regarding LG Uplus’ acquisition of CJ HelloVision, it has come to a conclusion that there is restriction on competition regarding mixed combination between the 8VSB market and the digital paid broadcasting market. Regarding the merger between SK Broadband and t-broad, it has come to a conclusion that there is restriction on competition regarding vertical combination within the digital paid broadcasting market on top of its conclusion regarding LG Uplus’ acquisition of CJ HelloVision.

Fair Trade Commission has approved the merger between SK Broadband and t-broad and LG Uplus’ acquisition of CJ HelloVision on condition.  It has only levied few corrective actions and not strict conditions that were expected.  Chairman Cho Sung-wook of Fair Trade Commission is announcing the results from Fair Trade Commission’s evaluation. <Fair Trade Commission has approved the merger between SK Broadband and t-broad and LG Uplus’ acquisition of CJ HelloVision on condition. It has only levied few corrective actions and not strict conditions that were expected. Chairman Cho Sung-wook of Fair Trade Commission is announcing the results from Fair Trade Commission’s evaluation.>

FTC is presuming that there will be restriction on competition within the digital paid broadcasting market in 11 areas such as Seodaemun-gu out of 23 broadcasting service areas of t-broad when SK Broadband and t-broad merge. It also stated that the rest of 12 areas will not be free from restriction on competition.
It is also presuming that there is a possibility of an act of restriction on competition such as increase in cable TV cost and reduction of number of channels as the current structure of competitions weakens due to a merger between a cable TV company and an IPTV company. After analyzing UPP (Upward Pricing Pressure), it believes that there is a chance that t-broad’s digital cable TV price will go up.
It is seeing that the 8VSB market is not safe from mixed business combination as HHIs (Herfindahl-Hershman Index) of 23 broadcasting services areas and the digital paid broadcasting market are higher than 5,000 and 2,500 respectively. HHI, which is used to measure market concentration, is a number that results from summing the market share of each company competing in a market after squaring the market share, and a market is considered as extremely concentrated when HHI is above 2,500.
Because t-broad has not increased its 8VSB price because it fears losing customers to IPTV, FTC presumes that there is a high chance that t-broad will increase its 8VSB price after the merger.
Regarding LG Uplus’ acquisition of CJ HelloVision, FTC stated that the acquisition is not safe from mixed business combination as HHIs of CJ HelloVision’s 23 8VSB broadcasting services areas and 22 digital paid broadcasting markets are over 5,000 and 25,00 respectively.
It predicts that there is a high chance that CJ HelloVision will either increase its 8VSB price or reduce the number of its channels in 23 broadcasting services areas after business combination.
However, FTC does not see any restriction on competition within the mobile telecommunications market. It explained the LG Uplus’ market shares within the mobile telecommunications market including the resale phone market will only increase by 1.2% to 21.9% (third place) after it acquires CJ HelloVision. It also analyzed that CJ HelloVision’s independent business nature has also weakened.
“We had carried out a detailed and fair evaluation considering the fact that the paid broadcasting market is changing rapidly and is comprised of fierce competitions.” said Chairman Cho Sung-wook of FTC. “Our decision will promote innovative competitions and prevent damage such as limited choice for consumers within the 8VSB market.”
FTC had heavily focused on restriction on competition according to Fair Trade Act. While it is going to look for its own measure regarding small to midsize PP (Program Provider) fee and home shopping commission, it is going to request for reviews from relevant departments.
“We respect FTC’s decision and we are going to fulfill its corrective measures faithfully.” said LG Uplus. “We are going to do our best in order to vitalize fair competitions within the paid broadcasting market as well as the resale phone market.”
It is now up to MSIT and KCC to perform their evaluations. Both departments are going to evaluate public interest of business combination and impact of business combination on markets according to Telecommunications Business Act and Broadcasting Act. Although new terms and conditions can be implemented by these departments, there is an overall feeling that the acquisition and the merger will be approved at the end. It is expected that final decisions will be made at the end of this year or early next year.
Staff Reporter Park, Jinhyung | jin@etnews.com & Staff Reporter An, Hocheon | hcan@etnews.com

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