Skylife Participates in HCN Acquisition Battle... Public Responsibility Remains a Challenge

Criticism of National Assembly's Appropriateness
M&A Participation Failed Amid Public Interest Controversy During D'Live
Ruling Party Focuses: "Public Interest Issues of Skylife to Be Addressed in 21st Assembly"

[Asia Economy Reporter Koo Chae-eun] As KT Skylife enters the merger and acquisition (M&A) competition for Hyundai HCN, the issue of 'public responsibility' has come under scrutiny. There are criticisms that it is inappropriate for a satellite broadcasting service, which has a strong public service nature, to participate in a cable TV big deal that requires massive funding. This controversy over public responsibility, which arose during the participation in the acquisition of D'Live, has resurfaced.

Among the preliminary bids for Hyundai HCN that closed last month, Skylife, SK Telecom, and LG Uplus participated, and there are growing concerns mainly in the National Assembly about the appropriateness of Skylife's participation in the acquisition. On the 24th, Ahn Jeong-sang, senior expert of the Democratic Party of Korea, said, "Skylife, which has strong public characteristics, entering the cable TV capital acquisition for profit was an issue in the 20th National Assembly's Science, Technology, Information and Broadcasting and Communications Committee's bill subcommittee," adding, "Once the committee is formed, similar concerns may arise in the 21st bill subcommittee."

The issue Ahn referred to in the 20th National Assembly's committee was Skylife's attempt to acquire D'Live. At that time, the National Assembly, led by the ruling party, argued that "KT Skylife, which should prepare for an era of unification and economic cooperation, participating in the cable TV acquisition is inappropriate." When controversy arose, former KT Chairman Hwang Chang-gyu visited the National Assembly's ruling and opposition party secretaries and, after providing an oral explanation on 'measures to strengthen Skylife's public nature,' submitted materials stating, "Due to concerns from the National Assembly and government, we will completely halt cable TV M&A through Skylife."

Meanwhile, regarding Skylife's push to acquire Hyundai HCN, a staff member from the office of Assemblyman Byun Jae-il, a member of the Science, Technology, Information and Broadcasting and Communications Committee, pointed out, "Since issues regarding Skylife's status and strengthening of public nature continue in relation to the M&A push, further discussion is necessary."

The strong opposition from the industry and inside and outside the National Assembly to Skylife's acquisition of cable TV stems from Skylife's own nature. Skylife is the only satellite broadcaster in Korea, established in 2001 with a monopoly satellite broadcasting business license, expected to play public roles such as resolving poor reception areas, serving as a unification media, and disaster broadcasting. It was initially owned evenly by terrestrial broadcasters and KT without a controlling shareholder, but after the relaxation of large corporation shareholding restrictions in July 2009, it was incorporated into the KT Group. It was established to resolve poor reception in mountainous and island areas where direct terrestrial reception or cable TV is not available, and as a special operator, it was assigned the 'unification broadcasting obligation' upon license renewal.

An industry insider said, "It is problematic to pursue the acquisition of HCN while various measures proposed in the National Assembly last year to restore Skylife's public nature have not been implemented," adding, "It is also necessary to examine whether the governance structure, which flows from IPTV to satellite broadcasting to cable TV, is appropriate." Currently, Skylife's shares are held by KT (49.99%), Korean Broadcasting System (6.77%), and Shin Young Asset Management (6.20%).

Meanwhile, KT affiliates (including Skylife) currently hold the largest market share in the paid broadcasting market at 31.52%, but the ranking could easily be overturned depending on additional M&As by competitors. LG Uplus acquired cable TV LG HelloVision, becoming the second largest with a 24.91% share, and SK Broadband merged with T-Broad to become the third largest with a 24.17% share. HCN holds prime areas such as Gangnam and Seocho, making it a top target for additional M&As by all three telecom companies. Although HCN ranks fifth with a 3.95% share in the domestic paid broadcasting market, it is popular in terms of cash reserves and profitability. Additionally, D'Live (3rd place, 5.98%) and CMB (4th place, 4.58%) are also on the market.

In this regard, a Skylife official explained, "To fulfill our public responsibilities as a satellite broadcaster, independent survival is necessary, and as part of that, we are pursuing the acquisition of cable TV."