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[Editorial] KCC’s flawed decision

The Korea Communications Commission has recently selected a consortium formed by Yonhap News Agency as the sole successful applicant for a news-only cable TV channel license. The panel announced on Dec. 31 that among the five bidders, Yonhap News TV alone earned more than the cut-off score of 800 points. But serious questions are being raised about the fairness of the screening process.

First of all, the Yonhap consortium includes two major shareholders whose qualifications are in question ― the Eulji Educational Foundation which, according to a KCC disclosure, owns a 9.917 percent stake, and Eulji Hospital which possesses 4.959 percent.

According to media reports, the Eulji Educational Foundation failed to meet a legal requirement when it committed to invest in Yonhap News TV. Specifically, an educational foundation, when it decides to hold a stake in a private company, is required to have four-fifths of its board seats taken by people who have no connections with its founder. However, at the time Yonhap submitted its proposal, the Eulji foundation’s board was not composed this way.

The foundation appointed two more directors to the board on Dec. 23 to satisfy the requirement. Then it applied for approval from the Ministry of Education, Science and Technology on Jan. 3. The KCC set the deadline for proposal submission at Dec. 1, with changes to proposals accepted by Dec. 8. Evaluation of the proposals started on Dec. 23. These circumstances lead us to suspect that the KCC either failed to check the eligibility of the foundation or ignored its ineligibility to favor Yonhap News TV.

Eulji Hospital is suspected of having violated the Medical Service Act. The law defines medical foundations as a non-profit organization and prohibits them from engaging in profit-seeking activities. The incidental businesses they are allowed to operate are limited to a welfare center for the aged, a funeral hall and a restaurant. If a medical foundation violates this regulation, it faces revocation of its hospital license.

Many legal experts argued Eulji Hospital’s participation in Yonhap News TV runs against the law because the consortium is a for-profit venture. If this is the case, the hospital could lose its license, causing a change in the shareholder composition of the Yonhap consortium. Under the KCC bidding rule, any change in shareholder makeup after proposal submission is a reason for disqualification.

But the KCC said whether the hospital is qualified to invest in a cable channel operator or not is a matter to be judged by the Ministry of Health and Welfare. A ministry official said there is no problem with the hospital’s investment decision because the Medical Service Act does not impose any limitations on a hospital’s investment of its surplus funds in stocks, bonds or other assets. But his interpretation is not shared by other legal experts.

The KCC’s handling of the two Yonhap News TV shareholders is in sharp contrast with its strict application of a controversial rule ― the restriction on dual investment. Under this rule, a company holding a 5 percent stake or more in a consortium is subject to heavy penalties if it invests in another consortium. This rule is viewed as excessive because it not only lacks any legal basis but is not applied to existing TV networks.

However, the KCC applied it strictly to a consortium formed by Herald Media, the publisher of The Korea Herald. The Herald consortium failed because of the penalty the KCC imposed on it on the ground that its largest shareholder, Daesung Group, also invested in another consortium.

The penalty was unwarranted because Daesung Group invested in the Herald consortium only. The KCC penalized it because a company that is nominally a subsidiary of Daesung Group but in effect is separate from it turned out to have participated in a different consortium. Daesung was unaware of the firm’s investment because it has severed ties with the group. The KCC was informed of the actual lack of any ties between the two but nevertheless punished the Herald consortium. Had it not been for the penalty, the Herald proposal could have surpassed the cut-off line and had won a license.

The KCC further stoked suspicions of bias for Yonhap News TV by giving it the highest score among the five news-channel candidates in the category of the willingness to ensure fairness in reporting and act in the public’s interest.

Unlike other newspapers, Yonhap News Agency receives a 30 billion won subsidy from the government each year. The state subsidy is bound to influence the tone of the stories the news agency produces. Hence the frequent criticism that Yonhap stories are pro-government.

This perception is not limited to critics of the news agency; a majority of its employees feel the same way. In a survey conducted by Yonhap’s labor union last September, 65.9 percent of its employees answered negatively when asked if they believed the news agency’s reporting was fair and balanced.

The KCC’s selection of the Yonhap consortium also ignores the fact that the news agency was the founder of YTN. Had it managed the cable TV channel successfully, it needs not have applied for a license second time. Due to its poor management of YTN, the government had to separate the cable channel operator from Yonhap and bail it out by twisting the arms of several state-run corporations to provide equity capital to it. If the news agency had any sense of honor, it should not have applied for a new license.

Under these circumstances, we urge the KCC to nullify its flawed decision to grant a license to Yonhap News TV and start the bidding process again. We also urge it to select another news-only channel operator to replace MBN, which will return its license as its parent company has won the right to operate a general program channel.
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