Will Hanaro Telecom Merge With Dacom?

Will Hanaro Telecom Merge With Dacom?

2005-07-15

Hanaro Telecom, Korea¡¯s runner-up high-speed Internet carrier, is likely to merge with the nation¡¯s third-largest landline player Dacom, according to market observers Thursday.

Stan Jung, an analyst at Woori Securities, predicted the imminent broadband battle between Hanaro and Dacom will eventually lead to an amalgamation of the two operators possibly early next year.

``The envisioned marketing blitz between Hanaro and Dacom will come to an end early next year. Whoever wins the race, a shake-up of the market is inevitable in the form of a merger,¡¯¡¯ Jung said.

Currently, KT accounts for 50.5 percent of the broadband market with 6.15 million subscribers followed by Hanaro with 2.76 million and Thrunet, acquired by Hanaro early this year, with 1.28 million.

Dacom holds a mere 263,000 high-speed Internet customers for a 2.1-percent share but the carrier looks to make its presence felt through its affiliate Powercomm.

Powercomm, which has been a network provider, plans to jump onto the high-speed Internet market starting this September on the strength of its blazingly fast connectivity.

Jung projected the addition of Powercomm to the saturated market, where 12 million households out of 15.5 million are hooked up to the high-speed Internet, will trigger a bloody competition in the short run and an overhaul of overall scene in the middle term.

``The open-wallet marketing battle to attract customers or to retain them will end late this year or early next year. At the time, both Hanaro and Dacom will recognize the need to merge,¡¯¡¯ Jung said.

``This is an example of reinventing the wheel. Hanaro has clients but should channel funds to build its networks while Powercomm has networks but must pour marketing costs to attract users. Things will be straightened out.¡¯¡¯

He said following Hanaro-Dacom cohabitation, they will be able to challenge the market dominance of KT, which is now dominant in the premium broadband market.

Hanaro Dream chairman Shin Yun-sik, former Hanaro Telecom chairman, concurs.

``Continuation of competition in the overstuffed broadband market will cause mid-tier players to fall apart all at once. Hanaro and Dacom should join hands to counter KT,¡¯¡¯ he said.

However, Hanaro flatly downplayed the likelihood of such large-scaled merger due to a lack of funds.

``It will take almost 1 trillion won for one of the two companies to take over the other. Neither of them will have the luxury of shouldering the big burden,¡¯¡¯ Hanaro vice president Doo Won-soo said.

Other experts are split on the future of the companies but most of them agree their fates will be determined next year in accordance with the profound change of the broadband big picture.

``The winner between the Hanaro-Powercomm war will be decided early next year. Then the two firms will find a win-win solution. In my opinion, they will not merge and will instead forge a strategic alliance. I think the probability of a merger is only between 20 percent and 30 percent,¡¯¡¯ said Jeon Sang-yong, an analyst at Meritz Securities.