Proposed changes to the Telecommunications Business Act would

simplify and significantly relax license requirements, and ease foreign

ownership restrictions for telecom carriers.

The amendments also aim to require common carriers, especially

mobiles, to offer a more affordable consumer telecom rate structure, under

standards to be decided.

The amendments seem likely to pass largely as-is by 1Q 2018,

possibly coming into effect by mid-2018. A number of standards will depend on

further regulations, for which drafts should issue in the coming months.

The Korean Ministry of Science & ICT (“MSIT”) on August 23,

2017 announced draft amendments to the Telecommunications Business Act (the

“TBA”) that aim to relax a number of procedures and requirements for obtaining

telecom licenses. In a key change, for telecom facility-owning or “core”

businesses, the proposal would convert the existing license requirement into a

simpler registration – basically collapse it into the existing system for

facility-leasing telecom service providers. The amendments will also newly

permit 50%+ foreign ownership of telecom “core” businesses, except for a

yet-to-be-defined threshold of “large-scale” operators. In a much anticipated

section of the draft bill, the amendments would require major telecoms,

including mobile carriers, to adopt a reduced rate structure, though this

depends on criteria that remain in a non-public drafting phase.

While open to comment now, and in some respects highly

controversial among dominant telecoms in Korea, the draft bill is expected to

pass the National Assembly, largely in this shape, by 1Q 2018 if not late 2017.

Following are highlights of the proposed amendments.

Changeover to registration

instead of license regime

Under the draft amendments, telecom enterprises that use their

own (self-owned) telecom lines and facilities to offer telecom services (기간통신사업, sometimes termed common

carriers; we refer to them here as core businesses) would be subject to a

simplified registration procedure, as applies currently to telecom services

that use leased facilities (별정통신사업, “special category telecom” or secondary businesses). “Telecom services” here means broadly any

service for transmitting sound, images or other data, unmodified, including

internet connectivity as well as mobile and landline phone.

Under the current TBA, a core business, such as a line operator

or mobile carrier, must obtain a license from the MSIT, which is a challenging,

uncertainty-laden process involving broad agency discretion and typically 2 to

6 months of review. In contrast, a secondary business, such as a mobile virtual

network operator, requires only a registration with the MSIT, which involves

simpler requirements with little scope for agency discretion, and 1 to 2 months

of processing.

Under the draft amendments, telecom core businesses, like

secondary businesses, will require a registration, similar to the existing

secondary business registration. This involves a variety of substantive

criteria, but in principle registration must follow so long as the criteria are

met. (There remain elements of agency discretion, but much less so than with

the license system.) With this collapse into a registration-only system, a

number of requisites for registration will likely be modified. For example, the

range for capitalization requirements (varying with the scale of business) in

the current registration system may change, and the obligatory hiring of

certified engineers – a notable to-do for smaller secondary businesses – will

probably expand for core businesses. However, in overall structure, the

registration system will resemble the existing one for secondary businesses.

Majority foreign ownership to

be permitted, with exception for “large scale” operators

The proposed amendments would generally allow 50% or more

foreign ownership even in core (facility-owning) telecom businesses, as well as

secondary businesses (which are already open to majority foreign ownership).

This would be subject to an exception in the case of “large scale” core

enterprises.

At present, aggregate foreign ownership in a core enterprise

(such as KT, SK Telecom and other such carriers) is generally capped at 49%, as

part of the current license regime, while there is no such cap for secondary

businesses. However, companies headquartered in the US, EU and other Korea free

trade agreement (FTA) counterparty jurisdictions are permitted to hold over 49%

in core enterprises indirectly, through a Korean subsidiary, so long as the

subsidiary is seen by the MSIT to satisfy “public interest”, in terms of data security,

consumer interests and so forth.

If amended, the TBA will eliminate the 49% foreign ownership

ceiling, across the unified registration-only system (core and secondary

enterprises), except in the case of a category of “large scale” telecom

businesses. This restricted “large scale” category corresponds to what were

major core businesses, and will probably include the likes of KT, SK Telecom

and LG Uplus. However, specific criteria for the restricted category have yet

to be articulated, awaiting a Presidential decree (or prime implementing regulation)

that will probably emerge in draft form late this year or early 2018.

In the FTA situation, as before, US-headquartered and other

FTA-covered companies could own 50%+ of any telecom business in Korea, through

a local subsidiary, but, in the case of a “large scale” target, this would be

subject to satisfying the MSIT’s “public interest” assessment.

Affordable rate structure for

telecom carrier services

Following on a major policy announcement earlier this year, the

draft bill would require telecom core enterprises (such as mobile and other

carriers, owning their lines and other facilities), provided they meet certain

thresholds of scale, to offer a low price rate structure to customers (or

possibly some defined range of customers). This new general provision of the

TBA would have to be supplemented by rules and standards under a Presidential

decree, a draft of which is likely to come in 1Q 2018 (if not late 2017). The

thresholds for affected carriers will depend on to-be-determined factors like

the scale of the business and market share, but the common understanding is

that the policy targets at least the main mobile carriers.

Structure and mechanisms for a mandatory rate structure are

likewise unspecified in the draft bill, and await implementing regulations. It

is known there are draft rules in a phase of MSIT review and discussion with

industry, subject to tight confidentiality at present. Meanwhile there is

intense controversy surrounding what would represent, clearly, a significant

regulatory intervention in the telecom market.

*This update is intended as

a summary news report only, and not as advice. For legal advice, please

inquire with your contact at Bae, Kim & Lee LLC, or the following authors

of this bulletin

Sangjik LEE

T. 82.2.3404.0650

E.

Kwang Hyun RYOO

T. 82.2.3404.0150

E. [email protected]

Joon Yong PARK

T. 82.2.3404.0693

E. [email protected]