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SK Telecom's M&A with CJ HelloVision: Deal or no deal? No deal!
07/25/2016 | By Ho-cheon Ahn, Seon-il Yoo (hcan@etnews.com, ysi@etnews.com)

An attempted M&A deal between SK Telecom and CJ HelloVision fell apart. The deal has been reviewed for over seven months - first by the Fair Trade Commission (FTC) and then finally by the Ministry of Science, ICT and Future Planning (MSIP), the final decision maker, which disapproved the combination of businesses.

 

As a result, not only initiatives that have been actively planned for reforming the conventional broadcasting & communication market, but also cable TV industry’s efforts to find ways out through M&A deals have all been put on hold. Also partnerships between the communication and broadcasting industries as well as integration between the industry and ICT will also be thwarted. The FTC will likely face criticism that the decision was a reverse discrimination that goes against the trend in the global broadcasting & communication market that promote aggressive M&A transactions for market expansion.

 

The FTC announced on the 18th that in order to eliminate the risk of restricting competition, it decided to disapprove the proposed M&A deals: acquisition of CJ HelloVision by SK Telecom and merger between SK Broadband and CJ HelloVision. It explained the deals could substantially restrict competition in the relevant market, including paid-in TV service, mobile communication retail/wholesale, etc
 

With respect to how to define markets, the most controversial issue, the FTC explained “CJ HelloVision has 23 broadcasting regions, and cable TV service providers have different market shares and service rates in each broadcasting region. So the competition occurs within the region.

 
The FTC added that, in previous cases of reviewing similar deals involving domestic and global enterprises, the geographical markets of paid-in TV service were also defined for each region. It refuted the criticism that, with regulations on paid-in TV service being applied nationwide, regulating of market shares regionally is like swimming against the stream.
 
It was also forecasted 21 regions out of all 23 served by CJ HelloVision will experience substantial competition restriction, leading the merged company's market shares in the regions to rise as high as 46.9-76.0 % -  up to 58.8% higher than a #2 in the rank, thereby reinforcing its market domination.
 
The FTC’s review found there is a high chance of cable TV service rates going up due to the M&A between the cable TV (SO) and IPTV service provider. This transaction will make the two previous rivals into a team, weakening the market's ability to curb the hike of service rates. The same is expected in the mobile virtual network operator (MVNO) market as well. Acquisition of CJ HelloVision, #1 MVNO, by SK Telecom, #1 mobile network operator (MNO) of the nation, will significantly impede the ability to check competition in the retail mobile market.
 
FTC Secretary General Shin Young-son said, “Because, unlike conventional enterprise combinations in the broadcasting & communication industry so far, the proposed M&A deal involves horizontal AND vertical combinations which is potentially causing anti-competition worries in many routes.” She continued, “We think that it is difficult to take care of all such problems through behavioral remedies or selling a part of the assets."
 
Immediately following the FTC announcement, the MSIP shared its position on this, saying “We reviewed this deal in accordance with four applicable laws, and found the proposed stock acquisition and M&A transaction are prohibited under the ‘Monopoly Regulation and Fair Trade Act‘.” This has apparently eliminated any reason to further review the deal. He added that the next step would be decided through an internal review process. 
 

Serious back blast is anticipated. Much to the disappointment of cable TV service providers who were seeking ways to reform the market and stay competitive through M&A, potential M&A seekers like other telco operators are now all turning their attention away.

For SK Telecom, it became inevitable to revise the schedule of platform expansion, enhancement of content support, etc. which were previously planned. CJ HelloVision also has to move on and find an alternative way to stay competitive.  

In the paid-in TV service market, IPTV will continue to be #1 sector. KT has nearly 30% of market shares, and it, along with its subsidiary Skylife, will remain as a leader in the market for a while. SK Telecom will have to focus on presenting wired and wireless integrated solutions in partnership with SK Broadband, in order to expand its paid-in TV subscriber base. 

 

To deal with this bad news, the cable TV industry is likely to bring the ideas of ‘bundling’ with mobile service back on the table while continue to look for M&A opportunities with other cable TV service provider.

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