Legislators

have put forward an advanced draft of amendments to the Telecommunications

Business Act, Korea’s main telecom statute.

The draft amendments, proposed on March 29,

2018, would finalize changes anticipated since August 2017, so as to relax

license requirements and foreign ownership restrictions for telecom carriers.

Amendments

seem likely to pass within 2018, with effect 6 months following passage.

Various

standards will depend on further regulations, for which Ministry drafting is

expected in coming months.

In follow-up to tentative rule

changes announced by the government in August 2017, Korean lawmakers have proposed

significant amendments to the Telecommunications Business Act (TBA) that would

ease a number of important requirements for the conduct of telecom-related

services. Mainly espousing draft rule changes that were unveiled by the Korean

Ministry of Science & ICT (MSIT) in August 2017,

the proposal would convert the existing license requirement for “core”

businesses (owning lines, cable landing stations or other telecom facilities)

into a simpler registration process – basically collapsing 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

some threshold of “large-scale” operators (to be better defined in ensuing

regulations).

Differing from the original

government plan unveiled last August, however, the current bill would exclude a

requirement upon telecoms, including mobile and other carriers meeting some

threshold, to implement a reduced rate structure. This

controversial part of the plan as of August 2017 had evidently held up progress

on the wider package of amendments, and has been dropped in the current

version.

Sponsored by a group of ruling

party lawmakers, the current bill seems likely to pass, pretty much intact, by

some time in 3Q or in 4Q 2018, though this is uncertain. If passed late this

year, the amendments to the TBA would normally take effect around 6 months

after promulgation, thus possibly around mid-2019.

Following are highlights of the

proposed amendments, generally coinciding with the MSIT plan of August 2017,

aside from the jettisoning of the concept of the reduced telecom rate

structure.

Changeover to registration

instead of license regime

Under

the bill, “core” telecom enterprises that use their own (self-owned) telecom

lines and facilities to offer telecom services, sometimes termed common

carriers) would be subject to a simplified registration procedure, as applies

currently to telecom services that use leased facilities , “special category telecom” or

secondary businesses). “Telecom services” 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 get a license from the MSIT, which is a relatively challenging process involving

broad agency discretion and typically 2 to 6 months for 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 bill, telecom core businesses, like secondary businesses, will require a

registration, rather than a license. This involves a variety of substantive

criteria, but it should be straightforward in terms of agency process. With

this collapse into a registration-only system, a number of requisites will

likely be modified. For example, the range for capitalization requirements

(varying with the scale of business) in the current registration system may change.

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

bill 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). However, this would be subject

to constraint in the case of “large scale” core enterprises.

At

present, aggregate foreign ownership in core enterprises (such as KT, SK

Telecom and other such carriers) is generally capped at 49%, while there is no

such cap for secondary businesses. However, companies headquartered in Korea

free trade agreement (FTA) counterparty jurisdictions, such as the US and EU,

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.

The

pending bill 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, the present

bill (like the August 2017 plan) does not include specific criteria for the

restricted category; these will have to await a later Presidential decree.

In

the FTA situation, under the bill (as under the existing rules),

US-headquartered and other FTA-covered companies could own 50%+ of any telecom

business in Korea, through a local subsidiary. However, in the case of a “large

scale” target, this would be subject to satisfying the “public interest”

assessment.