By Tony Brown

A merged KT and KTF could end up dominating South Korea’s telecoms landscape.

Like the little boy who cried wolf in the old fairytale, South Korean telecoms firms SK Telecom (SKT), SK Broadband (SKB) and LG Telecom (LGT) look like they might finally pay the price for years of crying for help when none was needed.

The three operators have long taken the view that their best form of defense in the regulatory battlefield was to block every regulatory break sought by fixed-line giant KT by complaining loudly to the government.

Those tactics have worked reasonably well for much of the last decade, but now the companies seem to have run out of luck as they try to block the merger of KT and mobile subsidiary KTF.

As usual, the operators are protesting to block the merger, claiming that it would place a merged KT/KTF in a dominant market position, but the Korean Communications Commission (KCC) seems set to dismiss their complaints as nothing more than the usual obstructionism and approve the merger.

The irony is that this time, the three operators really do have good reason to be fearful of a merged KT/KTF but have little political capital left with which to pressure the KCC to reject the deal.

A KT/KTF merger is dangerous for its rivals in both the broadband and mobile markets because it would finally give the merged entity the chance to properly integrate its products as a bundled offering for subscribers.

KT already resells KTF’s mobile services and offers bundled offerings to subscribers, though with only a limited discount because of the KCC’s tight restrictions on the discounts it can offer on bundled services.

But the KT/KTF cooperation deal has never felt particularly convincing in its implementation and has always seemed like a stopgap solution – and not completely unintentionally, in my humble opinion.

For KT, which has long considered a merger with KTF to be its best chance to get into the lucrative mobile market, there has never been much incentive to make a mere cooperation deal with KTF successful because it could have compromised its chances of proceeding to a full merger.

But now KT’s longstanding dream of merging with KTF looks set to become a reality, with the economic and political climates aligning nicely to make it hard for the KCC to reject the proposed merger, given that KT is able to argue that a merger will bring considerable cost savings.

Moreover, with a single management team rather than the separate structure now in place, the merged KT/KTF can finally have a genuine chance of operating as a full-service operator.

Perhaps a key reason for KT’s big push for a merger is the fact that it is seeing momentum in the broadband and IPTV markets shift significantly toward its own services at the expense of SKB and LG Dacom.

The main factor behind its confidence is the fact that KT is the only operator in the broadband market with the financial muscle to both roll out a nationwide high-speed broadband network and pay for the type of high-quality content needed to build a substantial IPTV-subscription base.

By contrast, SKB has access to reasonable-quality content via parent company SKT’s recent acquisitions in the content sector but has a Seoul-centric broadband network that cannot hope to match KT’s nationwide network.

LG Dacom and sister company Powercomm have deployed an impressive network infrastructure in most of the country’s major markets, but – and it is a big but – they are a long way behind KT in terms of IPTV infrastructure in terms of both subscription count and quality of IPTV content.

It is beginning to feel as though KT has begun to inexorably tip the pay TV market in its favor and as though its huge financial powers have finally persuaded the cable channels – long resistant to KT’s presence in the pay TV market – that they have no choice but to cast their lot with KT.

With the broadband and IPTV markets moving so surely in its favor, KT appears to have decided that the time is finally ripe to take on SKT’s longtime dominance of the mobile market, where KT has effectively been more or less a frustrated spectator.

SKT is well aware that KT has long stared avariciously at the mobile market – hence its fierce protestations to the KCC about the proposed merger – and knows that a merged KT/KTF would do all it could to end SKT’s market leadership.

But providing an improved bundled service offering alone is unlikely to be enough to shift the mobile market decisively in KT/KTF’s favor on its own, given that local subscribers have treated their mobile subscriptions as distinct from their residential broadband and pay TV subscriptions.

Nonetheless, with its longtime exclusive grip on the so-called golden spectrum in the 800MHz band soon to come to an end, SKT knows that a merged KT/KTF will be pushing hard for a share of the spectrum to improve its position in the mobile market.

What is more, KT holds the ace of its near-nationwide WiBro network up its sleeves to help in it a head-to-head battle with SKT, which has turned its back on WiBro in favor of HSPA.

The country’s HSPA networks have proved extremely popular for mobile subscribers but are rapidly getting congested as mobile subscribers access both voice and data services, causing a fair amount of congestion.

By contrast, with only a couple hundred thousand subscribers on its WiBro network, KT still has plenty of room to feed the voracious appetite of local subscribers for mobile broadband services – if it can provide the right hardware at a reasonable price.

KT has been waiting a long time to provide a full service offering to the country’s mobile and broadband subscribers, and it is getting a golden chance to do so via a merger with KTF – which it feels it cannot afford to miss.

The crucial question is how SKT, LGT and LG Dacom will respond to the situation.

LGT looks to be in a hopeless situation. Its lack of a WCDMA technology-migration path is looking ever more painful for its future growth prospects as its rivals gain traction with their HSPA services.

SKT must decide how much it is willing to spend on making SKB a genuine threat to KT in the broadband and IPTV markets.

At the moment, SKB provides willing but limited opposition to KT in the broadband and IPTV sectors, and unless the operator is willing to spend big – a tough prospect in the current market environment – on extending its reach in the broadband market, a merged KT/KTF could well become kingpin.