이 기사는 2020년 04월 09일 08:00 thebell 에 표출된 기사입니다.

South Korea’s SK Telecom is likely to join the race for Hyundai HCN in a bid to increase its market share in the domestic pay-TV market.

Hyundai Department Store Group recently hired Credit Suisse to run an auction for its cable TV and broadband services arm, Hyundai HCN, with the bidding process expected to begin later this month.

Many industry watchers expect all the Big Three mobile carriers – KT, SK Telecom and LG Uplus – to participate in the bidding for Hyundai HCN. Especially, the focus is on a possible move by SK Telecom, which acquired Tbroad last year and merged it with its subsidiary SK Broadband.

Hyundai HCN had 1.34 million average subscribers during the first half of 2019 with a market share of 4.07 percent. SK Telecom’s possible acquisition of the company through SK Broadband would increase its market share in the pay TV space to 28.1 percent, while at the same time concerns over antitrust issues seem to be limited.

SK Telecom is also under pressure to list SK Broadband on the stock exchange in five years, one of the conditions of a deal between the telco company and its financial investors, a consortium of Mirae Asset Daewoo and Mirae Asset Global Investments, when it bought Tbroad in a partnership with them. This could further motivate SK Telecom to grow its subsidiary in size by absorbing Hyundai HCN’s market share.

The consortium is said to invest 400 billion won to own about eight percent of the combined entity after merger with Tbroad. SK Telecom also gave the consortium call option and drag-along rights to guarantee a certain level of returns in case of a failure to list SK Broadband by the promised deadline. So, SK Telecom’s focus will be put on listing the subsidiary at its target valuation.

“[SKT] would have to give investment principal and interest back to its financial investors in a situation where they cannot exit via an IPO,” an industry insider said. “If that situation occurs, SKT could choose to refinance capital by attracting other financial investors. But that option is hardly realistic because this would require SKT to guarantee higher returns to new financial investors.”

Reflecting Tbroad’s failed IPO

Tbroad, now absorbed by SK Broadband, attracted a 200 billion won investment from IMM Private Equity and JNT Investment in 2014, with a condition that it would complete the listing by 2017. But, the IPO attempt flopped as it failed to increase its average revenue per user (ARPU) in a short period of time.

Tbroad tried to push subscribers to higher cost bundles, but this strategy didn’t work in the domestic pay-TV market where users were already divided into two groups with each having a different sensitivity to price. As a result, Tbroad’s earnings were hit by increased expenditure and reduced subscribers.

With lessons learned from Tbroad’s failure to increase ARPU, SK Broadband is expected to focus on increasing the number of its subscribers, if it succeeds in buying Hyundai HCN, with an aim to reach greater economies of scale, industry watchers said. A growth in its subscribers would help offset negative effects from lower ARPU, which also could lead to a higher IPO valuation for the company.

“The domestic pay-TV market is clearly divided into two segments of high cost products and low cost products,” an industry insider said. “Securing a dominant market share by grabbing as many subscribers as possible is one way to overcome the negative effects of lower ARPU and increase the enterprise value.”

(By reporter Choi Ik-hwan)