The Fair Trade Commission said Nov. 8 that it has conditionally approved two separate merger and acquisition deals, one led by SK Telecom and the other by LG Uplus, reshaping the local pay TV industry as it is already undergoing a major transformation toward digital services.
The decision clears regulatory hurdles for a 4.7 trillion won ($4 billion) merger between SKT‘s internet protocol TV service arm SK Broadband with t-broad, the country’s No. 2 cable TV multiple system operator, and for another 800 billion won deal between LG Uplus, the third-largest mobile carrier and IPTV operator, and the No. 1 MSO CJ Hello.
As a condition of its approval, South Korea’s antitrust body ordered the concerned parties to take corrective actions by end-2022 to curtail price hikes and protect consumer choice.
Fair Trade Commission Chairperson Joh Sung-wook speaks at a press briefing Nov. 8 at the Korea Fair Trade Mediation Agency in Seoul.
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“The mergers (between telcos and cable TV MSOs) will address the latest convergence in broadcasting and telecommunications and heightening competition with global entities,” said FTC Chairperson Joh Sung-wook at a press briefing in Seoul on Nov. 8.
“The measures are designed to boost economic growth, while minimizing inevitable concerns about restrictions on competition and unfavorable impacts on consumers.”
The decision came as telecom firms in Korea aggressively pursue a stronger presence in the pay TV market with internet protocol TV services.
While KT has a share of 46.8 percent in the IPTV market, SK Broadband and LG Uplus take up 28.7 percent and 24.5 percent, respectively.
In the meantime, the market share of system operators is declining, given the increasing number of subscribers to IPTV services, who have outnumbered system operators’ cable subscribers since 2017.
According to the Korea Communications Commission, KT had a market share of 31.1 percent in the pay TV market as of end-2018, followed by SK Broadband with 14.3 percent, MSO CJ Hello with 12.6 percent and LG Uplus with 11.9 percent. Smaller MSOs t-broad and D-Live took up 9.6 percent and 6.3 percent of the market, respectively.
Earlier this year, both LG Uplus and SKT sought the FTC’s approval for deals with Korean MSOs, which will reduce the number of involved players from five to two -- SK Broadband and CJ Hello.
LG Uplus has signed a deal to take a 50 percent stake plus one share in CJ Hello from parent company CJ ENM for some 800 billion won, which amounts to the shares’ combined market price plus a management premium of nearly 90 percent. After the acquisition, CJ Hello plans to discuss a merger with its subsidiary CJ Hello Hana Broadcasting.
In the other new business combination, MSO t-broad and two of its subsidiaries, t-broad Dongdaemun Broadcasting and Korea Digital Cable Media Center, will be merged into SK Broadband. The new entity will be under control of SKT and Taekwang Industrial, among others. SKT will buy a 55 percent stake in the remaining t-broad subsidiary, t-broad Nowon.
The antitrust regulator, which rejected SKT’s proposal to acquire CJ Hello’s 30 percent stake for some 500 billion won in 2016, said it had witnessed a “significant structural change” in the market, spearheaded by the shift to digital.
Bae Young-soo, director-general for market structure policy at FTC, told reporters that the current pay TV market in Korea can be divided in two -- digital services versus terrestrial networks under the standard of 8-level vestigial sideband services, which are quickly replacing analog TV services.
“Now that there is a clear-cut line defining a digital pay TV market from the rest, the degree of market impact from (the new) business combination has been significantly lowered, compared with 2016 when the pay TV market was considered one and the new entity’s market impact was estimated to be higher,” he said.
Bae, who also oversaw the SKT-CJH acquisition case in 2016, added that CJ Hello’s potential to become a “maverick” in the domestic market has exponentially weakened.
The FTC decision will be reviewed by the Ministry of Science and ICT and the KCC for final approval.
But both SK Broadband and CJ Hello are subject to a set of corrective measures effective until December 2022, which ban any subscription price hikes that exceed the rate of inflation. The measures also discourage them from infringing the rights of 8-level vestigial sideband subscribers of both CJ Hello and SK Broadband and digital cable TV subscribers of SK Broadband by forcing them to switch plans or by deleting certain channels.
These measures are expected to deter SK Broadband from raising its digital cable TV service rates in the near future, Joh said, referring to an FTC internal analysis.
Meanwhile, the FTC decision allows the firms to engage in cross-selling for the convenience of consumers, Joh said.
The watchdog added that it would discuss policy changes with the ICT Ministry and the KCC concerning the pay TV market players’ transactions with small and midsized providers and with TV home shopping channel operators.
By Son Ji-hyoung (email@example.com)