12/23/2008

Liberalizations Taking Root in Korea

By Sean Hayes (Korea Times 12/18/2008)

The mobile phone market has been opened to foreign competition by the President Lee administration.

The government's reforms are finally being realized and consumers should herald this reform and welcome additional reforms proposed by the administration and the Regulatory Reform Committee in order to take Korea out of the darkness of its protectionist past and into the light of free trade and liberalism.

On Dec. 10, the Korean Communications Commission dropped the Wireless Internet Platform for Interoperability (WIPI) barrier to entry to the Korean handset market. Hopefully, the numerous other barriers to entry will be lifted in order to encourage investment, competition, innovation, and lower the burdens, while raising the benefits for consumers.

In 2005, with the Blackberry introduction into Korea looming on the horizon, the regulatory body, under pressure from Samsung and LG, passed a rule that mandated that all cell phones which connect to the Internet operate using the home-grown WIPI software.

Samsung and LG dominated the local handset market and of course welcomed the regulation.The commission, on the surface, mandated the standard for efficiency reasons, but few considered the ruling anything more than a barrier to entry created to protect the local phone makers.

The measure successfully produced a situation where most phone carriers were reluctant to break the barrier because of the prohibitive costs associated with developing phones equipped with this software.

Most of the handset makers were unwilling to use this software as Korea was the only nation utilizing it, and the market was not big enough to justify the expenditure.

In 2005, Research In Motion's Blackberry was denied permission to sell in Korea since the device lacked the WIPI software. RIM, a Canadian company, petitioned the Korean government vigorously through the Canadian Embassy in Korea, but to no avail.President Lee should be praised for opening the handset market to competition against the interest of two of Korea's biggest conglomerates.

It is doubtful that Samsung and LG will maintain their near absolute dominance of the local handset market.President Lee must have realized that the lack of competition, in the Korean market, led to some of the world's highest prices for phones, a noticeable dearth of smartphones, many phones being ``tested'' on the Korean consumer prior to shipment to Europe and the Americas, and numerous foreign businesses that castigated and maybe even avoided investment in Korea, because of the nation's perceived anti-foreign capital sentiment.

The scrapping of this regulation will likely lead to more competition in the mobile phone market, which will ultimately lead to higher quality phones, more handset options, and lower prices.My law firm is representing one of the large foreign phone manufacturers.

The company has a large manufacturing plant in Korea, but has not sold units domestically, since the regulation. Hopefully, they will enter the market with one of their great smartphones.

Likely, the introduction of this competition will lead to Samsung and LG upping the game and producing a more diverse and innovative range of even higher quality phones.We are also likely to see many progressive regulatory initiatives by the Regulatory Reform Committee.

The committee is headed by Choi Byung-sun, one of Korea's greatest minds and the dean of the Graduate School of Public Administration at Seoul National University.I had the pleasure to teach for his graduate school and we all had the pleasure of the work of a scholar dedicated to lasting change.

On the committee's Web site (www.rrc.go.kr) Dean Choi notes that: ``The Regulatory Reform Committee (RRC) is committed to transforming such malicious regulation into quality regulation and to finding alternatives other than direct regulation.''``The RRC will ensure that regulation does not stand in the way of market competition.

We will not let the privileged take advantage of regulations as a way to benefit from the sacrifice of the underprivileged or to protect their vested interests,'' he continued.

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SeanHayes@ipglegal.com