[THE INVESTOR] The Fair Trade Commission has unexpectedly put the brakes on mobile giant SK Telecom’s plan to acquire CJ HelloVision, a leading cable TV operator. The decision was ill-advised as it deters the development of the nation’s broadcast industry.
Last November, SKT agreed to acquire a 53.9-percent stake in CJ HelloVision from CJ Group for 1 trillion won ($870 million). It planned to merge the cable TV operator with SK Broadband, an affiliate that provides Internet TV services.
The deal was expected to benefit both SKT and CJ Group, as it would allow the mobile carrier to launch a powerful media platform encompassing mobile, cable and IPTV services. It would also help CJ Group focus on broadcast content production after disposing of its cable TV business, which has been losing ground to IPTV and satellite TV services.
Yet the FTC has come out against the deal after seven months of review. The antitrust watchdog opposed it on the grounds that if SK Broadband and CJ HelloVision merged, the resulting company would dominate 21 of the nation’s 78 cable TV broadcasting zones.
The commission’s objection, however, was not well-founded. It used an old regulatory standard to block the merger. The Ministry of Science, ICT and Future Planning, which oversees pay TV services, no longer regulates cable TV operators in terms of the number of broadcasting zones where they are dominant.
Regulating cable TV operators based on broadcasting zones is unfair, as their competitors in the pay TV market -- IPTV and satellite TV providers -- are not restricted by those zones.
The Science Ministry applies a uniform rule to all three types of pay TV providers: A company’s share of the entire pay TV market, including those of its subsidiaries, should not exceed 33 percent.
SK Broadband has a 12.05 percent of the market with 3.4 million subscribers, while CJ HelloVision controls 13.72 percent with 3.8 million viewers. Their combined market share is 25.77 percent, well below the ceiling set by the Science Ministry.
Furthermore, even if the two companies are merged, they do not emerge as the largest player. KT, the leader in IPTV service, would still remain the market leader with a share of 29.34 percent when including the share of its affiliate KT Skylife, which monopolizes satellite TV services.
In reviewing the SKT-CJ deal, the FTC appears to have been influenced by vehement opposition from terrestrial TV stations and SKT’s rivals in mobile service.
The three terrestrial TV stations -- KBS, MBC and SBS -- fiercely opposed the deal, as it would further erode their weakening clout in the broadcast industry.
The three terrestrial TV companies are already competing with pay TV providers over broadcast content. They thought competition would further intensify if the cash-laden mobile operator invested heavily in content production after acquiring CJ HelloVision.
While the three TV stations may not welcome heightened competition in broadcast content, it is something that should be encouraged to make the domestic broadcast industry more competitive.
SKT’s two rivals in mobile services, KT and LG UPlus, also campaigned ferociously against the deal. They were concerned that their rival would be able to attract their customers who are among CJ HelloVision’s subscribers by offering products that bundled mobile, cable TV and other services.
Their concern is not unfounded, but it cannot justify blocking the deal.
The FTC is to hold a meeting later this month to finalize its view. It should make a decision based on economic logic and in line with the global trend toward convergence between telecommunications and broadcasting.