S.Korean mobile carriers in costly spectrum bidding war

SEOUL Thu Aug 25, 2011 11:41pm EDT

SEOUL Aug 26 (Reuters) - South Korea's top two wireless carriers are locked in pricey spectrum bidding expected to run at nearly 1 trillion Korean won ($919.5 million) on Friday as they race for a bigger piece of the burgeoning smartphone market.

The spectrum auction is running for an eighth day on Friday, and the price for the coveted 1.8 GHz spectrum band has passed 900 billion won, nearly double the initial bid price of 445.5 billion won, a government official said.

"The bidding price is expected to be near 1 trillion won today," the official at the Korea Communications Commission (KCC) said.

Concerns are growing that extremely high spectrum prices would further weigh on earnings of the country's mobile carriers that are already grappling with mobile tariff cuts and high network investments.

"I expected the price for the 1.8 GHz band at around 800 billion won, but the current price has exceeded expectations. This will have a negative impact on the earnings and shares (of the carrier that wins the auction)," said Park Jong-soo, an analyst at Hanhwa Securities.

"Mobile carriers need more spectrum, but they are spending too much on that," he said, raising concerns about "a winner's curse."

SK Telecom , South Korea's top mobile operator, and second-ranked KT Corp are battling to secure the 1.8 GHz band to use it for the fourth-generation, Long-Term Evolution (LTE) services. SK Telecom launched LTE services in Seoul in July and KT plans to follow suit in November to provide faster services on smartphones, tablet PCs and other mobile devices.

Of the other two spectrum bands up for sale, LG Uplus won the licence for the 2.1 GHz band for 445.5 billion won, while no carrier has yet to bid for the remaining 800 MHz band.

Shares in SK Telecom were down 0.98 percent and KT shares declined 1.63 percent in a flat wider market as of 0310 GMT.

South Korean mobile carriers are grappling with an explosion in mobile data traffic, as the country's smartphone penetration is expected to jump to 42 percent this year from just 2 percent two years ago with the popularity of Apple Inc's iPhone and Samsung Electronics Galaxy S.

While surging data traffic threatens to increase costs on networks and spectrum, it has not translated into meaningful sales growth for mobile operators.

SK Telecom and KT also announced sizable mobile tariff cuts, as they were under pressure from the government that is trying to tame inflation in Asia's fourth-biggest economy, while smallest LG Uplus is likely to follow suit.

Investors are worried that further tariff cuts may be ahead as the country braces for presidential and general elections next year. ($1 = 1087.550 Korean Won) (Reporting by Hyunjoo Jin; Editing by Ken Wills)

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