[Q&A] "Cancellation of the 4th Mobile Carrier Due to Unmet Qualification Requirements... Not Caused by Lack of Financial Capability Review"

Ministry of Science and ICT "28GHz Allocation Target Corporation to Be Canceled"
Reason: Capital Not Paid Within Deadline and Change of Shareholders
Policy for New Entrants Continues... "System Improvement"

StageX is set to undergo the cancellation procedure for its qualification as the fourth mobile carrier. Although there were criticisms that the financial capability was not reviewed during the selection process of the target corporation, the government emphasized that the core issue was the operator's failure to meet the necessary requirements, such as paying the capital within the deadline.

On the 14th, Kang Dohyun, the 2nd Vice Minister of the Ministry of Science and ICT, is making an announcement during a briefing on the 'Cancellation of the Selection of Stage, the Corporation Targeted for 28 GHz Frequency Allocation' held at the Government Seoul Office Building. Photo by Hwang Seoyul chestnut@

On the 14th, Kang Dohyun, Vice Minister of the Ministry of Science and ICT, announced that the selection of StageX as the corporation to be allocated the 28 GHz band mobile communication frequency would be canceled. This decision was made after reviewing the necessary documents submitted by StageX on the 7th of last month and determining that the company did not fulfill the legal requirements. The Ministry of Science and ICT will make the final decision on whether to cancel the selection after a hearing process in accordance with the Administrative Procedures Act.

Vice Minister Kang stated, "We expected effects such as the development of the information and communication technology (ICT) ecosystem, but it is very regrettable that the operator failed to pay the capital it had proposed and that changes in shareholder composition led to the conclusion to cancel the selection of the allocated corporation."

Earlier, StageX was selected as the corporation to be allocated the frequency after offering the highest bid (430.1 billion KRW) in the 28 GHz band frequency auction in February. Subsequently, StageX submitted documents to the Ministry of Science and ICT, including the receipt for the frequency allocation fee payment, the certificate of corporate registration, the certificate of stock payment deposit, and the letter of commitment to fulfill allocation conditions.

Upon reviewing the certificate of stock payment deposit, the Ministry confirmed that StageX had paid an amount significantly less than the capital of 205 billion KRW stated in the frequency allocation application. When asked for an explanation, StageX responded that it would pay by the third quarter of this year. However, according to multiple legal advisories, the capital of 205 billion KRW should have been paid mandatorily by the submission date of the required documents on the 7th of last month.

On the 14th, Ryu Jae-myung, Director of the Network Policy Office at the Ministry of Science and ICT, is making an announcement during a briefing at the Government Seoul Office regarding the planned cancellation of the corporation selection for the 28 GHz frequency allocation target corporation, Stage. Photo by Hwang Seo-yul chestnut@

Regarding the shareholder pledge, discrepancies were found compared to the contents of the frequency allocation application. According to additional materials from StageX, among the six major shareholders holding more than 5% at the time of application, only one, StageFive, had partially fulfilled the capital payment. The other five major shareholders had not paid the capital by the 7th of last month, and two out of four other shareholders were in the same situation.

The Ministry of Science and ICT stated, "Without approval, changes to the composition of shareholders and stock ownership ratios are not allowed, and this violates the pledge to fulfill the funding plan described in the allocation application documents," adding, "This constitutes grounds for canceling the selection of the allocated corporation."

To urge fulfillment of the requirements and pledges, the Ministry requested the submission of capital payment proof documents from each shareholder three times in total, but StageX replied that it would carry out the necessary procedures for investment after securing the status of a new mobile carrier. The Ministry confirmed that the major shareholders had not finalized their capital payment plans.

The following is a Q&A with Vice Minister Kang Dohyun, Network Policy Director Ryu Jemyung, and Radio Policy Bureau Chief Choi Byungtaek.

-Did you not anticipate such a situation?

▲We were continuously informed by the operator that the payment of 205 billion KRW was not an issue. Until April 19, when we first heard from the representative about the impossibility of sequential capital payment due to the Fair Trade Commission's corporate separation issue, we did not anticipate this situation at all. This was three weeks before the May 7 deadline for submitting the required documents. Around that time, we repeatedly informed them that the payment must be made by the submission date and that prior approval must be obtained for any changes in shareholder composition as per the pledge.

-Could the problem be that financial capability was not reviewed in advance?

▲The entry regulation for new operators was significantly relaxed by changing from a licensing system to a registration system. According to the intent, it is correct not to conduct financial capability checks. However, the issue this time was whether the capital proposed by the operator was actually paid and whether the corporation at the time of application was the same as the one to be allocated the frequency. I want to reiterate that this was not a problem from the perspective of financial capability review.

Documents related to the allocation of 28 GHz frequency for mobile communication submitted by StageX to the Ministry of Science and ICT / Photo by Hwang Seoyul chestnut@

-Is the StageX position that "the capital will be paid after receiving the frequency allocation" not explicitly stated in the required documents?

▲The frequency allocation application, frequency usage plan, details of the applying corporation, and the planned articles of incorporation submitted by the operator all state the capital as 205 billion KRW. StageX claims that terms like "initial" capital procurement plan in the frequency usage plan and "within two months" in the commitment letters with investors indicate that the payment will be made in installments.

-If StageX actually raises the capital by the third quarter, can it reapply for frequency allocation?

▲According to the frequency allocation application and frequency usage plan, the capital must be paid before the corporation is established, which is a clear interpretation. If the operator arbitrarily decides the timing and amount of capital payment, it would be difficult to guarantee the reliability of the application submitted by the operator. In the case of the three major carriers, the 28 GHz allocation was canceled and they were banned from participating in auctions for three years. However, whether such penalties will be applied this time is a matter to be decided later.

-If a policy direction is set for StageX to participate in the auction again, which procedure will start first? Will it be the auction approval or the document review since the bid was already won?

▲The procedure itself will start again from the auction.

-How much capital did StageX secure at its launch?

▲It is known to be about 50 billion KRW, but it is lower than that. We cannot disclose specific details.

-Where does the partially paid frequency allocation fee (43.01 billion KRW) go?

▲Since it was submitted while StageX was still a candidate before frequency allocation, the law requires that it be returned to the operator.

-Is there a possibility that the situation could be reversed after the hearing and the frequency allocated? What would StageX need to present for that?

▲The details are expected to be clarified during the hearing process, and it is difficult to say what the operator should present. Based on previous hearing cases, the outline is expected to be revealed around early next month.

-Will the policy direction for new operator entry to activate competition in the telecommunications market remain unchanged?

▲Roaming systems and interconnection for new operators have been under study through a preparatory working group. Regardless of this situation, these will continue, and new system improvements will also be pursued.

-The three major carriers also judged the 28 GHz band to be unprofitable. Why allocate this band?

▲We hope that a new operator will play a role between the three major carriers and MVNOs. We thought the 28 GHz band service, which the three major carriers cannot provide, would be a differentiating factor. However, we promised to give the new operator exclusive rights to the 28 GHz band for three years, but whether to maintain this policy will be considered based on domestic and international market conditions. It will take time to announce related plans.

-You said you would announce the frequency spectrum plan after confirming the new 28 GHz operator. What is the schedule for announcing the spectrum plan at this point?

▲We were preparing to announce it by June, but the timing and content are subject to change.