Tax Support for OTT... Expansion of Foreign Indirect Investment in Period Telecommunications Operators

Ministry of Science and ICT Announces Legislative Notice for Amendment to the Telecommunications Business Act

[Asia Economy Reporter Seulgina Jo] The government will classify online video service (OTT) providers such as Wavve and Watcha as special types of value-added telecommunications service providers under the Telecommunications Business Act and provide tax support and other assistance. Foreign indirect investment in period telecommunications operators, which was previously only possible in some countries like the United States, will be expanded to all member countries of the Organisation for Economic Co-operation and Development (OECD).

The Ministry of Science and ICT announced that it will publicly notify the amendment to the Telecommunications Business Act containing these details starting from the 31st. The amendment mainly includes the revision of laws related to OTT support, relaxation of restrictions on foreign indirect investment, clarification of the requirements and definitions of dummy phones, and grounds for restrictions on the corresponding phone numbers. The Ministry plans to collect opinions from stakeholders until October 9.

First, the Ministry of Science and ICT will classify OTT as a special type of value-added telecommunications service under the Telecommunications Business Act and require notification to the Minister of Culture, Sports and Tourism in cases of new entry or mergers and acquisitions (M&A) among related operators. This is a follow-up measure to the "Digital Media Ecosystem Development Plan" announced last June. Going forward, OTT will receive tax support and be subject to the voluntary rating system, just like other special types of value-added telecommunications service providers.

However, in line with the principle of minimizing regulation, the OTT business reporting system will be maintained as is. Special types of value-added telecommunications services such as webhard and corporate messaging are stipulated in Article 22 to require registration upon entry. Starting with this amendment to the Telecommunications Business Act, related legal revisions for the application of the voluntary rating system by the Ministry of Culture, Sports and Tourism and tax support by the Ministry of Economy and Finance will also be actively pursued.

Alongside this, the Ministry of Science and ICT has relaxed restrictions on foreign indirect investment and regulations on approval for concurrent operation of telecommunications operators to further promote competition and innovation in the domestic telecommunications market.

Until now, foreign investors from countries that have signed free trade agreements (FTA) with Korea?including the United States, the European Union (23 countries), Canada, and Australia?have been allowed to own more than 49% of shares in period telecommunications operators (those owning line facilities), excluding SK Telecom and KT, through indirect investment. This exception will now be expanded to all OECD member countries. The government aims to attract domestic investment from major advanced countries through this measure. However, to prepare for side effects such as the influx of speculative capital, a legal basis has been established to impose conditions during the public interest review stage as a safeguard.

The regulation on concurrent operation approval has also been eased. The criterion for determining period telecommunications operators requiring concurrent operation approval has been changed from "sales revenue" to "telecommunications sales revenue," and only operators with telecommunications sales revenue exceeding 30 billion KRW in the previous year will be included in the scope.

Additionally, the limit on the number of extensions for starting period telecommunications business has been abolished to prepare for unavoidable circumstances such as the COVID-19 pandemic that prevent business commencement.

This amendment also includes provisions to clarify the requirements and definitions of dummy phones, which are highly likely to be used for voice phishing, as part of the "Voice Phishing Eradication Plan" announced by related ministries last June. It establishes grounds for suspending the use of such phone numbers and strengthens related sanctions to ensure telecommunications operators more faithfully carry out caller ID spoofing prevention duties.

The requirements for dummy phones (Article 32-4 of the Act) have been revised from "cases where funds were provided or circulated" to include "cases where there was an intent to use for illegal acts such as fraud." It also includes provisions allowing the head of relevant administrative agencies to order suspension of use for dummy phone numbers upon request. Furthermore, the upper limit of fines imposed for violations of technical and managerial obligations to prevent caller ID spoofing by telecommunications operators has been raised from 30 million KRW to 50 million KRW.

A Ministry of Science and ICT official stated, "We will actively cooperate to ensure that the legal and institutional improvements and policy support measures outlined in the Digital Media Ecosystem Development Plan proceed smoothly."

This content was produced with the assistance of AI translation services.