SK Telecom has always been thought to be the natural eventual acquirer of the exploding Korean fixed line ISP, Hanaro Telecom, partly because it has put up some of the money to develop the operation, and partly because everyone knows that the major mobile business needs a fixed line partner for a quadruple play service.
Reports last week that Hanaro had chosen SK Telecom to continue exclusive negotiations, have now turned into quotes from Fair Trade Commission figures that they would now study the plan with a view to giving it a yeah or nay.
SK Telecom needs to compete head on with long term rival incumbent Korea Telecom, which has only 13 million mobile customers, but also 6.3 million broadband internet homes and about 92% of the fixed line voice business in Korea. SK Telecom has 21 million mobile customers, and will almost certainly be allowed to buy more deeply into Hanaro, to improve its fixed line reach against its arch-rival. Another Hanaro shareholder, LG Telecom, was also thought, until recently, to be bidding for the 39.4% of shares which are up for grabs, along with Australian finance group Macquarie Bank.
Hanaro would add around 1.2 million ISP customers to SK Telecom, including a base of 540,000 TV subscribers which pay an extra $10 a month for VoD TV services over their superfast 100 mbps lines.
If it goes ahead, SK Telecom will be acquiring the shares in Hanaro which are held jointly by Newbridge Capital and American International Group, which have decided to get out. We’re not quite sure where that will leave LG Telecom, and whether or not a quad play could be offered immediately, but we would expect SK to continue trying to acquire all of Hanaro, or at least majority ownership.
The consortium of Newbridge Capital and AIG has invested $1.1 billion Hanaro and the stake is said to be worth about KRW 900 billion, slightly less than that, around $970 million, though we think it is unlikely that Newbridge and AIG will let it go at a loss, and believe that deal will complete higher than this.
Back in October Hanaro said that it would use the Sony PlayStation 3 as a set top box for its TV service, with an 80 GB version of the PS3 created purely for the Korean market. The device is likely to be used by both Korea Telecom’s Mega TV and Hanaro’s existing Hana TV. The console will now have a software upgrade to allow existing devices in the field to become a set top for these services, some time this month. The PS3 console will decode H.264 files, and have a simple EPG and conditional access to cope with, none of which is a stretch for the onboard PS3 Cell processor.
The only reason for calling these services IPTV is because the exceptionally high speed of the access lines in Korea means that no-one has to wait too long to begin watching a Video on Demand movie whether downloaded or streamed, when it travels across the public internet. As we understand it there are no IP multicast channels within Korea, because the regulator has not clarified whether or not ISPs, especially those owned by existing telcos, are allowed to offer broadcast TV in competition with existing broadcasters, with the debate going back and forwards between the Ministry of Information and Communication and the Korean Broadcasting Commission, and it will now go in front of the National Assembly.
In response to Hanaro’s success with its Hana TV, Korea Telecom’s MegaTV was launched in August, and it says it already has 50,000 subscribers and will have 300,000 by the end of the year. Both systems offer High Definition content over the internet.