Financial Journalist

HONG KONG FRIDAY, APRIL 12, 1996 ISSUE No. 280

Desperate to dominate equipment supply, chaebols force licence prices skyward

Korean companies are quietly pumping billions of dollars into bids for US wireless telephone licences, and in many cases, blowing American contenders away. It’s all to protect huge investments in CDMA, or code division multiple access, technology. While it’s doubtful the Korean government is directly behind the effort, Seoul’s traditional relationship with the chaebols and its deepening involvement in CDMA network issues, suggest it’s more than a disinterested party. Of the top four bidders — for literally hundreds of wireless licences across the US — Korean companies are heavily behind three of them. A fourth is being fronted by a broader Asian amalgam of faceless investors.

Dozens of US firms have been priced out of the bidding. Underlying the frenzy is Korea’s desperate bid to capitalise on its CDMA strategy and become the major overseas player in mobile telephony. With its eye fixed on opportunities in the US, Korea embraced America’s CDMA digital cellular standard. Indeed, it launched the world’s first CDMA network in January and another this month.

It did this in the face of GSM’s rampant spread across Asia and Europe. Going against the tide, Korea pressed ahead in CDMA, to the point where chaebols are developing a growing range of products based on licences from US-based Qualcom. Only two days ago, Samsung announced that, after an investment of US$2.5 million and three years work, it can now make its own “linear power amplifier” for CDMA systems. Such CDMA developments are being announced weekly by Korean firms like LG and Hyundai, with switching systems, handsets and hi-tech components flowing from their factories every day.

They hope to strike pay dirt both as operators and equipment suppliers. Equipment sales could run into the hundreds of billions. The current top bidder is NextWave Personal Communications, which has the distinction of never having installed a network. Despite that, it has big money behind it, backing over 60 bids in New York and Los Angeles and other markets. Bill to date: over US$4 billion. Korea’s LG has already invested US$30 million in the company; US$20 million comes from the partially government owned Poand Iron and Steel Company. KEPCO, the Korean electricity utility has put in another US$20 million. The second largest bidder is DCR Communication, with about $1.4 billion on the table. It’s backed by Masa Teleconi, a joint venture of unnamed Asian investors.

But LG’s domestic rivals, Samsung and Hyundai, are in the running too. Hyndai is backing the third runner in the race, GWIPS, and number four in the league, BDPCS has scooped US$25 million from Samsung.

But it is not all as straight forward as it seems. Although these bidders have been using overseas cash to put themselves at the front of the running, US regulations forbid licence holders being more than 25% foreign owned. Watch this space.

Korean chaebols, CDMA, cellular phone, licences, US