South Korea’s Top Three Wireless Telecommunications Operators Found with Colluding Biddings

Aug 12, 2019

It is shown that collusion between wireless telecommunications operations within public exclusive line projects have been taking place meticulously and methodically for many years. Many believe that there are still many cases of collusion that have not been exposed aside from twelve cases that are already exposed.
Collusion shakes up the foundation of a bidding system. It is considered as the most malicious act out of unfair trades due to the fact that it increases spending of national budget through illegal methods and limits competitions.
Above all else, wireless telecommunications operators must put in efforts to eradicate collusion and there needs to be preventive measure to prevent collusion from happening again.
Some say that there is a need to look into possible factors that may cause collusion within public bidding system.
◊Wireless telecommunications operators choose successful bidders, sidekicks, absentees in advance
Based on agreement between telecommunications operators, they decided to choose particular successful bidders in advance so that other competitors cannot participate in a bidding. Not only did operators that did not participate receive compensation from the one that won a bidding, they also allowed sidekicks to participate in biddings to avoid suspicions and to prevent failure in biddings.
KT, LG Uplus, and SK Broadband had had meetings continuously and started to discuss about collusion since two months before Ministry of the Interior and Safety announced ‘National Information Telecommunication Network Backbone Line Establishment Project’.
They decided to have LG Uplus and SK Broadband not participate in the project so that KT can obtain the project.
On the other hand, KT decided to participate as a sidekick in ‘National Information Telecommunication Network International Internet Line Establishment Project (1st classification and 2nd classification), which was also held in similar time, so that LG Uplus and SK Broadband can obtain orders for 1st classification and 2nd classification respectively.
As part of their agreement, KT leased few lines of LG Uplus’ disaster restoration network that were necessary for ‘National Information Telecommunication Network Backbone Line Establishment Project’ and paid LG Uplus $3.29 million (4 billion KRW). LG Uplus leased few lines of SK Broadband for its project and paid SK Broadband $1.65 million (2 billion KRW).
In case KT failed to obtain ‘National Information Telecommunication Network Backbone Line Establishment Project’, KT requested Sejong Telecom to participate as a sidekick over the phone.

Wireless telecommunication operators choose a successful bidder in advance and have other operators not participate in a bidding. <Wireless telecommunication operators choose a successful bidder in advance and have other operators not participate in a bidding.>

◊Systematic collusion becomes a national practice for operators
Such method of collusion also took place in the same year when Ministry of Science, ICT and Future Planning announced ‘Base Network Line Business Selection Service’ in June. Three operators either met in person or talked over the phone between March and May of 2015 and agreed to have KT win the bidding for this project.
KT paid compensation to SK Broadband and LG Uplus for not participating in the bidding process by paying them fees for leasing their internet lines. To prevent any failure in bidding, Sejong Telecom participated as a sidekick once again.
For ‘Conscription Administration National Information Telecommunication Service Establishment Project’ in 2016, they changed their method of collusion. LG Uplus did not participate in the corresponding bidding process so that KT can successfully bid for the project.
However, SK Broadband did participate in the bidding process but failed in the bidding as it was the only one to participate in the first bidding. It later participated as a sidekick in the second bidding so that KT can successfully bid for the project. This method was done to erase any suspicion from the outside.
Although SK Broadband had a higher score than KT when it came to competitive price by 0.0377 points, it had 1.3178 points lower score than KT when they were evaluated for their respective technologies which resulted being eliminated from the bidding.
FTC (Fair Trade Commission) believes that SK Broadband submitted a poor proposal on purpose so that it would receive a lower score on evaluation of its technology. As part of operators’ agreement, KT leased six lines from SK Broadband and paid SK $494,000 (600 million KRW) for two years of lease.
It is confirmed that three operators had carried out collusion like it is a normal practice for all other projects that are now exposed.
◊Collusion breaks down the foundation for bidding system
According to a law related to fair trade and regulation on monopoly, an act that unfair limits competitions through any measures such as contract, agreement, and resolution is prohibited. This includes an act that decides a successful bidder, bid price, and successful bid price in advance during a bidding or an auction.
Such collusion limits competitions within markets. If competitions do not take place smoothly, successful bid price will go up as a result.
If final bid price becomes higher, this prevents an ordering organization from reducing its budget. This means that citizens will have to pay more taxes to individual businesses.
In case of twelve projects that involve collusion, average bidding rate compared to predetermined price is 97.32%. This means that a business obtains a project for $0.080 (97 KRW) when the corresponding project’s predetermined price is $0.082 (100 KRW). This rate is noticeably different from bidding rate of a normal information communication project that sits between 70 and 80%.
“Collusion causes huge damage from the fact that it directly impacts how much South Korean citizens have to pay on taxes.” said a representative for a wireless telecommunications operator. “Since collusion has existed as a practice for long time, we need KT, LG Uplus, and SK Broadband to put in their own efforts to resolve this issue.”
Some point out that wireless telecommunications operators are not completely at fault for collusion. They think that unreasonable bidding system that does not consider ecological profits incited these operators to carry out collusion.
There is a need for reexamining how public exclusive line projects are handled. Public exclusive line project currently has an operator establish network and an ordering organization leasing corresponding network for a certain period. Service providers are desperately trying to win projects as they can be faced with sunk cost if they are eliminated from a next project.
This is the reason why they are willing to carry out collusion and this is why there needs to be fundamental solutions for preserving sunk cost and others.
Staff Reporter An, Hocheon | hcan@etnews.com

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