Essays

Telecommunications In Korea

.. government, the value added services are defined as any serviced offered over the telecommunications transmission facilities of General Service Providers which employ such computer processing applications as: conversion of content, code, protocol or similar aspects of a subscriber’s transmitted information, provision of additional, different or restructured information, and computer processing involving a subscriber’s interaction with stored information (Jeong 4). The Understanding also illustrates the examples of value added services as follows: code or format conversion, protocol conversions, store and forward, facsimile communications which involve store and forward or one of the functions listed above, database, remote computer service, electronic mail, electronic data interchange, message handling service, value-added facsimile service and voice mail. Business Sectors Open to Foreign Investment With the enactment of the Basic Telecommunications Law and the Public Telecommunications Basic Law, KTA and DACCA has provided only data communications, lease circuit, and international voice telecommunications services. For any additional services, MOC approval is required.

General Service Providers are closed to foreign investment. In addition, no one shareholder may hold more than 10 percent equity interest in General Service Provider companies. Equipment manufacturers are not allowed to own more than a 3 percent equity interest in General Service Provider companies. Also under the Basic Telecommunications Law and the Public Telecommunications Basic Law, three Korean telecommunications companies, KMTC, KPTC, and KOTIS were licensed as Special Service Providers. Special Service Providers are open to one-third foreign investment. In addition no one shareholder, domestic or foreign, may hold more than a one-third equity interest in any Special Service Provider company.

No one equipment manufacturer or government-invested enterprise may hold more than 10 percent equity interest in Special Service Provider company. In August 1992, the MOC initially issued a preliminary license for mobile telephone services as a competitor of the Special Service company, KMTC. For the license, six consortia associated with eleven foreign concerns such as GTE, Hutchison, Bodafone, Bell Atlantic, U.S. West, Southwestern Bell, Swedish Telecom, Qualcom, Pactel, Mannesmann, Nynex and BT. Since the selected consortium returned the license to the MOC because of political turmoil involving the selected licensee, the MOC will issue another request for proposal within this year.

At the same time as the selection of the licensee for mobile telephone services, nine preliminary licenses for regional paging services were issued to nine consortia out of forty-one. Although foreign investment is allowed, no significant foreign service concerns were involved with the forty-one consortia except Millicom. As of February 1992, there exists 30 value added providers, 13 of which are joint venture companies. AT&T, IBM, EDS, and AMCOR from the United States maintain a minority interest in their joint ventures with Korean partners. Out of 30, only 4 Value Added Service Providers are registered to provide international value and services. These companies are Asiana Air, STM (joint venture between Goldstar and EDS), SDS (joint venture between Samsung and IBM), and Trans World Net (Joint venture with Global Communications).

In contrast to the telecommunications services, foreign investment in manufacturing telecommunications equipment may be freely made without any restrictions on foreign equity ratio, etc. For example, Motorola has maintained a wholly-owned subsidiary for manufacturing equipment in Korea. Such investment, however, must pass through the Ministry of Finance (MOF) approval process under the Foreign Capital Inducement Law (FCIL) that is generally applicable. One issue related to the value added services is shared use of leased circuits. Currently, while the shared use of Network Service Providers’ domestic leased circuits for data communications is permitted without any restriction on the relationship among the users, the shared use of Value Added Service Providers’ domestic leased circuits for voice communications, international leased circuits for voice communications, and international leased circuits for data communications is permitted only within the group of entities which maintains a close business relationship. The scope of close business relationship includes affiliates with 30 percent equity interest and business partners which account for 20 percent of the total value of transactions.

Users of Network Service Providers’ services within the same close business relationship are free to attach exchange equipment. Currently only one end of a domestic leased circuit for data communications is currently allowed to be connected with the public Network Service Provider network. Requirements for Joint Venture Like any foreign investment in Korea, a foreign investor must obtain approval from or file a notification with the Ministry of Finance and the Foreign Capital Inducement Law. More specifically, foreign investment for those industrial sectors on the negative list or which are subject to local equity participation requirements need approval from the Ministry of Finance. For such approval, a foreign investor must submit a detailed business plan and a joint venture agreement. The business plan must state the marketing plan, the financial plan and other prescribed items.

The joint venture agreement should provide the rights and obligations of each party to the joint venture. If the amount of investment is three million U.S. dollars or more, the joint venture agreement will be reviewed by the Korean Fair Trade Commission to determine whether it contains any unfair provisions according to the Anti-monopoly and Fair Trade Law. The following terms will be regarded as unfair trade practices: the joint venture company is unreasonably required to purchase raw materials, parts, equipment, related goods, etc., from the foreign investor or its designee; the joint venture company is prohibited from, or is required to obtain prior approval for exporting any product it manufactures to areas other than those were the foreign investor is engaged in ordinary sales activities or those where the foreign investor has granted exclusive sales rights to a third party; the joint venture company is required to export any product it manufactures only through the foreign investor or its designee, except where the foreign investor or its designee assumes an obligation to accept such product at internationally reasonable prices and conditions at the appropriate time; and in light of the generally accepted practices in international agreements of this nature, the contractual conditions are unreasonably disadvantageous to the domestic investor (Jeong 6). The Korean Fair Trade Commission might regard as unfair such provisions where a foreign investor elects directors in excess of the equity ratio or a foreign investor has the tie-breaking vote in a 50/50 joint venture. The minimum amount of foreign investment is 50 million Korean won (approximately U.S. $60,000).

With Ministry of Finance approval, a foreign investor can incorporate a joint venture company in accordance with the Korean Commercial Code. A joint venture company establishing itself as a value added service provider must register with the Value Added Service Providers by satisfying several requirements under the Telecommunications Business Law. These requirements are as follows: the financial requirement – the minimum capital is 50 million won;telecommunications facilities requirement – maintenance of certain major telecommunications facilities and satisfaction of the safety and reliability standards; and technical capability requirement – retention of a minimum of two technicians (Jeong 6). Along with an application form, the documentation for registration is limited to those to confirm the above. A registered Value Added Service Provider must notify the MOC of standardized contracts with the customers.

An interconnection with networks of Value Added Services’ required a notification to the MOC. Interconnection between a Value Added Service Provider’s network and a Network Service Provider’s network would be governed by a standardized contract of the Network Service Provider. Where no standardized contract of an Network Service Provider is available for the type of interconnection requested by a Value Service Provider, a special interconnection agreement may be made subject to the approval of the MOC. Furthermore, operating agreements between a registered Value Added Service Program in Korea and service providers in a foreign country are subject to MOC approval. Protection of Technology Korea has a full range of intellectual property rights: patent, trade secrets, utility model, design, trademark, copyright on literary works and computer software and sui generis right to layout designs. Korea is also relatively effective in enforcing and protecting those rights in the unfortunate event that such rights are infringed in Korea.

An invention that meets the industrial applicability, novelty, and the non-obviousness requirements can obtain a patent right for 15 years after the date of registration. Regarding certain medicines and agricultural and technical materials, the Korea Industrial Property Office (QUIP) may extend the term of the patent right for up to 20 years. A device that cannot meet the high level of creativeness needed for an invention is protected under the Utility Model Law for 10 years after the date of registration. A design of shape, pattern, or color, or any combination of these in an article which produces an aesthetic impression on the sense of sight is protected for 8 years after registration. Regarding the protection of trade secrets, the Korean government promulgated the revised Unfair Competition Prevention Law in December 1991.

The Presidential Decree finalized the effective date of the revised Unfair Competition Prevention Law as December 15,1992. Thus any misappropriation of trade secrets can be prevented by an injunctive order. Monetary damage claims can also be filed against the infringer. A trademark is also protected for 10 years upon registration and such registration is renewable as long as the trademark is used in Korea. The Copyright Law protects authors’ moral rights during their life and economic rights for their life plus 50 years. Computer programs are also protected by the Copyright Law and the Computer Program Protection Law for a term of 50 years after the creation of the program concerned. Registration or publication is not necessary for the copyright protection of authors’ work and computer programs.

Internationally, after Korea acceded to the World Intellectual Property Organization on March 1, 1979, and the Paris Convention for the Protection of Industrial Property on May 4, 1980, it joined various international treaties: the Patent Cooperation Treaty on August 10, 1984, the Universal Copyright Convention and the Geneva Monogram Convention on October 1, 1987 and the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purpose of Patent Procedure on December 24, 1987. Regulation of Public Service Providers Under the Anti-monopoly and Fair Trade Law, market dominant enterprises cannot exercise their market power abusively by, for example, unreasonably determining the market price of their goods or services. Furthermore, this law also regulates unfair concerted activities, and other unfair trade practices in general. However, as long as any enterprise is regulated by other laws, it is exempted from the Anti-monopoly and Fair Trade Law. Since the Basic Telecommunications Law and the Telecommunications Business Law strictly regulate public telecommunications service concerns, the Anti-monopoly and Fair Trade Law would not be applicable to such extent.

Under the Basic Telecommunications Law and the Telecommunications Business Law, in cases where a Network Service Provider competes with a Value Added Service Provider in the provision of value added services, the Network Service Provider is prohibited from engaging in any anti-competitive conduct such as cross-subsidization, predatory pricing, unauthorized disclosure of customer-proprietary network information without the customer’s authorization, undue delay in announcing technical changes to its network or network interface, or discriminatory access to network services of functions. Thus, the MOC is in the process of developing a policy on competition safeguards, including the open network service provision and cost-subsidization. Under the Basic Telecommunications Law and the Telecommunications Business Law, KTA and DACCA, the two general service providers, are also strictly regulated as common carriers. They must report service rates and standard terms and conditions of their service contracts to the MOC. Although the Law Concerning Standard Terms and Conditions is generally applicable to standardized contracts, it is irrelevant to the extent that such contracts are approved by the MOC.

They also cannot refuse to provide their services without justifiable grounds under the Telecommunications Business Law. Chapter 5: Literature Review Eun-Ju Kim states that policy determines a nation’s telecommuncations competence (Kim 118). She states that policy in the field of telecommunications has changed from regulation to liberalization. Government produced policy change aimed at encouraging managerial efficiency in state-owned industries through reducing government intervention (Kim 120) She further states that the primary policy in the 1980’s can be summed up as the introduction of liberalization or decentralization through separating the functions of policy making and operating facilities and services in the field of telecommunciations under political economic transformation. These different entities created by the government in turn contributed to the development of basic telecommuncation facilities by making steady investments.

Kim refers to the separation of telecommunications responsibilities from direct government supervision to other entities such as KTA, DACOM, and ETRI. Through these entities, research and development was made possible. To introduce progress and enhance the telecommunication infrastructure, the Korean government encouraged competition. In this regard, the MOC intended to introduce fair competitive policy at various levels from the early 1990s except for local voice services which will still be monopolized by KT. As a first step, KT for the first time began to compete with DACOM to provide international telephone services from December 1991.

The MOC is planning to license other domestic and foreign companies to enter the telecommunication competition. On the basis of the new competition policy, a variety to low-cost services are expected to be developed and provided; small and medium-sized companies will be promoted; and various companies including the government will participate in regional and international organizations through which they can extend cooperation among members. Competition will add to lower-cost and higher quality telecommunications products and services. The government also restructured its Ministry of Communication (MOC) to mainly monitor and guide the various telecommunications actors as well as setting an overseeing telecommunications policies. Its responsibilities of operating day-to-day telecommunications business was delegated to separate entities. ETRI has gone ahead with globalization of research and development.

It has expanded and consolidated technological cooperative relations with both developed and developing countries and established international joint research programs. Liberalization has enabled KT to promote the domestic telecommunications industry by making maximum use of its procurement power. For example, KT has been installing facilities at the rate of 1 million telephone lines annually since 1980, producing a current total of about 17 million lines. This investment has enabled KT to provide a stable market for local industries, and to help them upgrade their product quality by implementing such measures as demand forecasting system and quality assurance system. All in all, the implementation of its industrial policy reflects Korea’s determination to achieve a suitable mix of high-quality labor-intensive traditional industries and skills-intensive heavy and chemical industries.

Such a mix is regarded as allowing Korea to prosper in the 1990’s among the developed or industrialized countries that are moving into high-tech industry and information-intensive activities. The Telephone Bond Law was enacted in December 1961 in order to raise the capital required for expanding and improving telecommunications facilities (MOC 143). This law was replaced by the Provisional Law for Developing Public Telecommunications Facilities in December 1979, which in turn was repealed in January 1988 when the demand for basic telecommunications facilities was deemed satisfies. Changing policies and infrastructures go hand in hand with a set of regulatory reforms in the field of telecommunications. The concept of deregulation or liberalization is based on the view that, in a free market, exchange between individuals will lead to an efficient or optimal allocation of resources.

E. Arnold and K. Guy state government intervention – whether through regulations, policies or R & D (research and development) investments – seems to be a rule rather than the exception in the processes of liberalization, privatizations and deregulation. Thus, they state that the participation of the government is necessary to liberalize the telecommunication industry. J.

Browett agrees with Arnold and Guy stating that changes in telecommunications in Korea can be said to have been initiated and implemented by the government. An illustration given was that a policy was adopted by the government to upgrade the priority of investment in telecommunications during the 5th Five-Year Economic Development Plan in 1982 to 1986. As a result, telecommunciations investment was increased from 3% of total national fixed assets in the 1970s to 7% in the 1980s. The Telecommunications Basic Law was largely revised to encourage all parties concerned to invest in research and development into more sophisticated technologies and more relevant socioeconomic policies in the highly competitive telecommunications environment. KT has reinvested more than 50% of its total profits in the development of telecommunications facilities. After being privatized, common carriers and operators in several countries have tended to increase rather than decrease their tariffs to provide high-quality services, which require financing of high-tech facilities.

However, it is also worth noting that Korea lowered its telephone tax from 15% to 10% in accordance with the revised Telephone Tax Law in January 1988. The current tariffs for a local call have been fixed at 30 won (about US $0.37) for both a subscriber’s telephone and a public payphone per three minutes – relatively cheaper than the rates prevailing in developed countries. Owing to the introduction of competition in international calls between KT and DACOM, furthermore, the tariff for international calls was reduced up to 3% by DACOM and 7% by KT. This information shows that privatization can be the answer to effective and affordable telecommunication services. He further goes on to state that economic factors, which are intertwined with government policy, have also influenced the introduction of a decentralized or liberalized industry in Korea. The government is aware that growth can be achieved only if Korea remains highly competitive exporter and makes substantial progress in technological development.

He believes that decentralized decision making may become the most effective means of achieving the efficient allocation of resources especially in a rapidly changing and highly competitive telecommunications environment (800). Competition between companies creates a business environment of efficient resource management and better access to capital for investment so that the sector assumes its rightful key role in the socio-economic developments to nations (198). Furthermore, competitiveness cannot be maximized under bureaucratic intervention. Thus, liberalization is an important ingredient to progress in the telecommunications industry. According to R.M. Martin, liberalization has made the shaping of policy more pluralist, increased the scope for lobbying by distributional coalitions, and given management incentives to evolve their own strategies for acquisition of larger market shares (88).

Because companies are more free to function away from government regulations, they are able to develop a more effective telecommunication market. Liberalization or decrease in government control allows companies to freely research and develop their own telecommunication products. Through their acquisition of profits away from government control, companies have the incentive to produce better quality, lower cost products and services. Myung-Jung Kim also supports liberalization and privatization of the telecommunications industry as in the broadcasting industry. She advocates the private system stating that the new media industry is so vast in scope that state or public organization alone is more than a match for its investment demand. A private system should be adopted to induce private capital and vitality. From a corporation’s standpoint it is a golden opportunity for industries such as cable, satellite, and production and distribution of programs. She goes further to state that deregulation of program content will be positively adopted to satisfy program need caused by the introduction of multi-media and multi-channels. Hyeon-Dew Kang states that government needs to reduce regulations to attract investors in the broadcasting industry.

Also public investment will make it possible to inflow enormous capital, help providing sufficient programs, and provide management skills for operating broadcasting system. He further states that it is necessary to assure diverse types of ownership under a flexible structure where it can combine one broadcast stations and others, broadcasters and telecommunicators, and newspapers and broadcasting so as to meet the current trend of globalizing the broadcasting industry (241). In particular, it can help cope with the opening trends of broadcasting market by strengthening domestic corporates’ predominating positions. Friedland and Westlake also advocate deregulation as the means to technological progress in telecommunications. They state that deregulation – a trend that began in the mid-1980s – could be critical to the success of national economics ..

Deregulation was supposed to deliver goods by fostering efficiency through competition (66). They further go on to say that liberalization has taken root in South Korea and some local firms are already world-class players. For governments and the commercial operators, the basic issue is how to achieve the most effective form of competition. To this effect, they quote a Washington based privatization consultant, The general path is that you separate the regulatory apparatus from the operation of the telephone system. Next, you corporatise the telephone system operator.

The next step is privatization and the development of a profit mentality at the old operator. Finally, you license private common carriers or niche players (67). Thus, the expert advocates that privatization is the way to healthy competition which leads to progress. In their publication, Friedland and Westlake illustrate countries that have licensed second carriers that have seen great improvement in service. Japan was an example of this success.

Japan, the first Asian country to open its domestic long-distance market to competition, captured 22% of the market from the established state-controlled provider to three private carriers. Because of this transfer to private carriers, rates on long distance calls have been cut five times since 1988, and are now around 60% cheaper than when liberalization began. They go on to state that the benefits of liberalization, however, are not merely confined to the industry itself .. Better communications spur greater economic activity overall, which in turn produces further growth in telecommunications (67). CONCLUSION In the decade after the development of the telegraph, the first telecommunication tool, Korea has rapidly developed its telecommunications industry to become a serious competitor to more developed countries. The deciding factor to this conclusion, is the government policies which changed from an authoritarian controller to a more liberalized overseer.

Government policies became less regulatory. The turning point from a tight government control to a more liberalized industry began with the delegation of powers to the Korean Telecommunications Authority. This separated powers from one entity to two. Then the Korean Telecommunications Authority delegated powers to other companies as ETRI and other research and development companies. Then as time went on, the government allowed private companies to join in the telecommunications industry.

This liberalizing action and deregulation led to the competition necessary for progress. Competition is the factor which invigorates technology. It gives companies the reason to develop quality equipment and service at more affordable prices to the public in order to compete with other companies. Also private companies are able to allocate their own resources, relieving the great burden on the government. Liberalization and deregulation is the process which Korea’s telecommunications industry underwent.

I believe it is the factor which has brought Korea’s telecommunications industry where it is today. Liberalization and deregulation means that the government had reduced its regulations on telecommunications companies so that the industry looks attractive to perspective companies. It gives private companies an incentive to begin telecommunications business to Korea. Thus, these companies answer Korea’s telecommunications problems. Korea is serves as an illustration of a country which underwent many changes in telecommunications government policies.

The loosening of government reigns can be seen in the media sector. The great increase in newspapers and periodicals after June 29 1987 Declaration of freedom of the press serves to show how deregulation can lead to increase in production. Korea still has a long way to go. Its sight on satellites as an answer to telecommunications is still tentative. Although it has not yet caught up with the more developed countries, it is filled with the telecommunication tools as pagers, cellular phones, and other value added services. Korea is booming on the telecommunications superhighway. Technology Essays.