[2020 National Audit] "Frequency Reallocation Raises Concerns Over 5G Investment Contraction... Should Be Used as an Incentive"

[Asia Economy Reporter Joselgina] It has been pointed out that the large-scale frequency reassignment involving trillions of won in funding should be used as an incentive to prevent a contraction in 5G investment. While major countries such as the United States and China are accelerating government-led 5G network investments, it is explained that instead of excessively setting reuse fees for 2G, 3G, and LTE mobile communication frequencies expiring next year and adding burdens to operators, these fees should be linked to 5G infrastructure investment.

On the 22nd, at the comprehensive audit of the National Assembly's Science, Technology, Information and Broadcasting and Communications Committee (STIBC), Park Sung-joong, the senior member of the People Power Party, stated, "It is expected that nearly 10 trillion won will be required per company for future 5G investments."

First, Representative Park explained the current scale of tax reductions, saying, "The 5G investment tax credit is scheduled to expire at the end of this year. The comprehensive facility investment tax credit system was introduced in the 2020 tax law amendment, and under the existing method, operators receive about 20 billion won per year, and under the new method, about 3 to 4 billion won," adding, "The registration license tax is reduced by 50% in the metropolitan area, amounting to about 200 million won per operator." He criticized, "Each operator needs to invest 10 trillion won, but the total tax reduction amounts to only 3 to 4 billion won annually. It's negligible. Can this really promote and induce 5G investment?"

In response to Park's question about whether the previously promised 5G investment tax credits and base station registration license tax reductions are progressing well, Minister of Science and ICT Choi Ki-young replied, "They are underway and will go well," adding, "The tax credits may be more than the estimated amount you mentioned, and we will try to expand them as much as possible."

Representative Park raised concerns by mentioning countries like the United States, which has established a government-led fund worth trillions of won for 5G infrastructure construction, and Japan, which applies a 15% tax credit on the increase over the initial investment plan, stating, "They are progressing very rapidly, but we seem to be falling behind."

Park also inquired about the appropriate fee level for frequency reassignment, which is expected to be announced next month. Among the 320 MHz of frequencies expiring next year, 310 MHz excluding SK Telecom's 10 MHz 2G bandwidth, which has already ended service, is subject to reassignment. The Ministry of Science and ICT is reportedly estimating the reassignment fee for these frequencies to be in the range of 3 to 4 trillion won.

Minister Choi said, "It is difficult to disclose as it has not been finalized yet," but mentioned, "In consultation with the Ministry of Economy and Finance, 5.5 trillion won has been prepared in the budget." This amount far exceeds the government’s calculation formula under the Radio Act Enforcement Decree, which reflects 3% of expected and actual sales (1.6 trillion won), as well as the half-reflecting plan of past auction prices plus 3% of expected sales during the 2017 2.1 GHz band reassignment (2.9 trillion won). This has fueled controversy over what industry insiders call a 'rough estimation' method.

Park expressed concerns about the negative impact of excessive reassignment fees, saying, "Regarding frequency reassignment, the United States exempts it, and the UK and Australia charge about half of what Korea does," adding, "Overall 5G investment is bound to shrink." He proposed, "The frequency reassignment fees should be fully invested in 5G, and fees should be imposed only when promised base station construction is not completed by a certain time." Minister Choi responded, "That might be difficult," but added, "I will carefully consider your suggestion and review it if possible."

Currently, Korea does not have a separately allocated budget for 5G construction. The only support measure, a 2% (non-metropolitan area 2+1%) tax credit, is also uncertain whether it will be extended as it is set to expire at the end of this year. Minister Choi has repeatedly promised to extend the tax credit expiration.