firmly in place has been confirmed through an abundance of historical evidence.
A Lesson from Frustrated Satellite DMB Business
A choice at a big cross road inevitably accompanies a lot of uncertainties. However, if you have great confidence about profits, high expectation about what you choose, both of which are enough to offset those uncertainties, you have to make a challenge. The results can be good or bad, but it would be better to take a step forward and open a road to challenge, rather than making no trial just because there is a barrier regardless of the will of challenger.
A new growth momentum business of Korea, which telecommunication businesses have been enthusiastically preparing for, is on the brink of deadlock even before beginning. The business is called, DMB, digital multimedia broadcasting. DMB is a business that provides multi media broadcasting service including music and broadcasting through satellite so that users can enjoy the service while walking and moving on a car. It was spotlighted as a new promising media service given that the service is not limited to time and place. They completed the preparation for to receive satellite broadcasting equipped with all the conditions required for the service; Hanbyeol (big star) No.1 satellite was launched in last March, the first gap filler was installed, and portable terminal for user was successfully developed.
Companies made a lot of investments and efforts to find a new growth business to respond to dull growth in the telecommunication market. In other words, they tried to explore a new market because they could not just sit back and watch aggravating profitability, and then, they came with an idea of incorporating communication service and broadcasting service based on dramatic development of technology. In the convergence of communication and broadcasting, satellite DMB business cannot be easily approached by other countries but Japan and Korea, due to such matters as high-speed infrastructure, communication infrastructure and technology matters. This is why Korean communication businesses have been taking fast steps to get the preoccupation effect as the first in the world.
Korea wasted precious time of three years revising the broadcasting law because of the gap between the broadcasting law and the communication law as well as the disputes on interests between government ministries. In addition, as the broadcasting commission announced that ‘satellite DMB is not allowed to re-transmit terrestrial broadcasting', the commercialization of satellite DMB is expected to be realized in a considerable time. Meanwhile, Japan, competing with Korea for the preoccupation as ‘World First', started satellite DMB commercialization services with forty channels including programs of NHK, Japanese national infra broadcasting agency, on October 20 under the full-scale support from the Japanese government.
TU Media, the only Korean preliminary business, was able to get shares of terrestrial broadcasting (SBS and MBC, etc.) and can make substantial business cooperation. However, the broadcasting committee prohibited the re-transmission of terrestrial broadcasting programs citing for a reason that different starting point between terrestrial DMB and satellite DMB would bring about adverse effects on the competition among DMB businesses. We already acknowledge that the re-transmission broadcasting is a significant matter for new media industry as shown in the former case of Skylife, a satellite TV. Skylife was able to re-transmit part of terrestrial broadcasting channels like KBS1 and EBS, and could not start broadcast KBS2 until last September. However, due to this incomplete service, Skylife had many difficulty in attracting subscribers and still remains in deficit.
TU Media conducted a research on demand for four times in response to the prohibition of terrestrial broadcasting re-transmission. According to the results, only 61% said that they would subscribe satellite DMB service although terrestrial broadcasting service is not available, among 32% of those who have intention to DMB subscription. This research clearly shows that market entry of a new broadcasting media industry requires incorporation with the existing infrastructure (e.g. terrestrial broadcasting program re-transmission) for further development. Accordingly, by prohibiting terrestrial broadcasting program re-transmission, which is one of the most important factors for satellite DMB market to take roots in the incipient stage, the government temporarily blocked the commercialization of satellite DMB market substantially.
We must think about what effect the decision from the broadcasting committee will cause and what this decision will affect on other investment into new business. First, it will increase the uncertainty on satellite DMB business. Belated commercialization of the service will also increase the uncertainty in profitability of satellite DMB business, causing a controversy over whether to continue the business itself. TU Media cleared its position that additional capital increase is needed considering the enormous decrease of the number of paid subscribers and operation cost during the delayed period. However, other companies joining in TU Media, SK Telecom, Samsung Electronics, LG Electronics are expressing disapproval against additional capital increase as commercialization of the service is put off. Meanwhile, TU Media will have more difficulty in getting loans from bank, which will aggravate the current hardships. Of course the business will continue considering the time and money put into, but the price for delayed time and increased expenses will be so harsh that the related businesses will have hard time for the considerable time.
Second, companies related to DMB businesses are expected to become bankrupt. A number of suppliers related to satellite DMB business such as terminal manufacturer, parts manufacturer and software manufacturers have no way to recover tremendous amount of development cost and investment they put in, which amount to tens and billions of won, and therefore their profitability got worse seriously and some of suppliers are expected to have dishonored bills. Companies that joined in the early stage poured enormous investment as they saw the activation of satellite DMB business would give a great chance to make inroads into foreign markets, based on preoccupation position under the title of ‘world first'. However, as the decision from the broadcasting committee this time is likely to result in smaller domestic market and delayed commercialization, they will be deadlocked in advancing into overseas markets.
Third, the decision from the broadcasting committee might dampen competition in the satellite DMB market. It will slow down the step of potential market players who planned to advance into this satellite DMB business, which will ultimately reduce competition in the satellite DMB market. KT also pushed ahead with satellite DMB business to stand against rapid proceeding of TU Media led by SK Telecom, but the project of KT got mired in a serious crisis even before it started the service. KT secured satellite frequency range needed for satellite DMB business already in 2003, and kept tracking down what TU Media is doing. These days, KT is alleged to have a review on the business itself. We can find that competition within the satellite DMB market was never considered while focusing on competition between terrestrial DMB business and satellite DMB business.
Fourth, when a market is led by the government, the efficiency of market tends to aggravate. It is a company who should make a decision on investment into new business. Because the decision came from the companies who know the market and the business most considering all the future uncertainties, it would be the most reasonable way to leave them to make a choice. It is not appropriate when the government, with insufficient information on market and business, gets directly involved in and tries to adjust the market. It might even distort the market seriously. This decision from the committee represents the very direct intervention from a government agency regarding company investment into new business, which casts a dark cloud.
Telecommunication market was able to achieve rapid development in the past thanks of non-intervention from the government and intensive investment from the businesses when the market was formed. Market is supposed to work in the most efficient way when the company and consumers are making together. Non-proportionate control and price regulations are not growth momentum at all. The government should not put chains on what company is doing, even if it does not support their business activities. The delay or give-up of ambitiously planned business should not repeat in the future, due to minor factors that have nothing to do with success of the business.
Park, Jong-Sub (Researcher, Center for Free Enterprise, firstname.lastname@example.org)