KT invests 7.5M into ChoJoongDong and Maeil networks

Posted on : 2011-11-10 09:48 KST Modified on : 2019-10-19 20:29 KST
Speculation has arisen that a Lee administration parachute appointment at KT was behind the considerable investment

By Koo Bon-kwon, Technology Correspondent 

 

Speculation is rising over the motivation and factors behind KT’s unexpected decision to use an affiliate to invest a total of 8.39 billion won ($7.5 million) in all four of the new general programming networks, which include the Chosun Ilbo, JoongAng Ilbo, Dong-A Ilbo, and Maeil Business Newspaper.

The decision is being viewed as somewhat unusual compared to typical corporate management activities. Foremost among the reasons for this are the uncertain prospects of the move’s profitability. Most companies delicately turned down investment requests, viewing it as unlikely that all four networks would survive or profit in a fiercely competitive media market. Criticisms from media-related civic groups toward companies investing in the conservative newspapers’ networks since late 2010 present another factor that may prove burdensome for KT.

An executive at one prominent company that received persistent investment requests from the four networks explained, “We considered the various risks and concluded that we would lose out from going into the general networks.”

“It was surprising to see KT, which does not have an owner, investing in all four networks,” the executive added.

Indeed, the company, which was completely privatized in 2002 through the sale of all government shares, has been considered to have one of the country’s most outstanding governance structures. Currently, 6.82% of KT equity is the company’s own stock, while the National Pension Service owns 6.69% and foreign investors own 49%.

Many observers are pointing to a “connection” between KT Chairman Lee Seok-chae and a key Lee Myung-bak administration figure as a factor in the “bold” investment decision from KT when even large private companies with powerful owners shied away from it.

Lee Seok-chae served as a member of the National Economic Advisory Council appointed by President Lee before joining KT in what many called a “parachute appointment.”

A business official said, “KT most likely did not make the investment willingly.”

“The only way to make sense of it is that the relationship between Lee Suk-chae and Korea Communications Commission Chairman Choi See-joong, who carried out the general network selection, was a decisive factor,” the official added.

In terms of regulations on communications charges, frequency allocation, and market competition, KT is under the absolute influence of the KCC as a regulatory institution. The Board of Audit and Inspection even issued a “caution” to Choi in April for lax oversight of KT when the company earned illicit profits with a “secret flat sum system” that customers were unaware of.

Some analysts said Lee, whose term ends early next year, may have hoped to earn reappointment through publicity effects from certain conservative-leaning media outlets.

An official at one mobile communications company said, “Substantial articles about Lee Suk-chae kept appearing in the same few media outlets in the past, and this general programming investment answers the question of why.”

KT will also have a hard time fending off charges of “sneakiness” in the investment process. The company made the investment in the name of KT Capital, an affiliate in which it holds a 100% stake, and did so below the 1% minimum equity level that would require disclosure of the investor’s identity.

The revelation of the investment particulars occurred when KT Capital included outside corporation investment details in a report for the first half of 2011 that was released according to mandatory notification responsibilities.

After news of the investment came to light, KT offered a belated explanation as to its motives Wednesday, explaining that it “has content supply needs in terms of the company‘s Internet TV effort, owing to factors such as transmission disputes with terrestrial channels.”

But the company, which had previously kept quiet about its general programmer investment, repeatedly stated that it would not be investing in the general programming consortium as recently as the time just prior to its investment, indicating that its reviews showed the move would have no business value.

  

Please direct questions or comments to [englishhani@hani.co.kr]