Auction, Valuation Method, Fairness... Three Key Issues in Frequency Fees

Concerns Raised Over Transparency in Calculation Methods
National Assembly Budget Committee Review Report Also Points Out "Overestimation"

[Asia Economy Reporter Koo Chae-eun] The stakes in the so-called "War of Money" over frequency reassignment fees (frequency values) are escalating between the government and telecom companies. Frequency fees are the payments telecom companies make to the government in exchange for using public resource radio waves for periods of 5 to 10 years. Initially, these fees are determined through auctions, and upon renewal, reassignment fees (renewal fees) are charged.

The issue lies in the significant gap between the government and operators regarding the price of the 310 MHz bandwidth for 2G, 3G, and LTE, which expires next year. The Ministry of Science and ICT has estimated the total frequency reassignment fees for next year's budget at 5.5705 trillion KRW (next year's estimated budget), but telecom companies argue that a combined total of around 1.6 trillion KRW for the three companies is reasonable. Even in the National Assembly, members from both ruling and opposition parties have criticized the reassignment fees as being calculated too high, but the Ministry of Science and ICT remains firm.

Will Auction Be Applied?

According to industry sources on the 9th, the valuation gap between the government and telecom companies over reassigned frequencies is as much as 4 trillion KRW. Telecom companies, facing the immediate need to pay several trillion won, have even taken a last-ditch stance of "let's just hold an auction," escalating the conflict to its peak. However, the government is unlikely to accept the telecom companies' request to conduct an auction at this point. The Ministry of Science and ICT has already decided in June to allocate frequencies through a review allocation method after nine working group meetings, four research group meetings, and one radio policy advisory meeting. Above all, since all three companies want to keep the bands they currently use, there is no competitive demand. Thus, an auction bid cannot even be established.

Because of this, telecom companies might even resort to the "last card" of reducing their frequency bandwidth. If the government refuses to lower the unit price of the "goods" (frequency bands), they plan to save costs by purchasing less. If mobile carriers reduce the 3G and 4G bandwidths they currently use, consumers will inevitably face a decline in service quality. An industry insider said, "Because the absolute difference in reassignment fees is so large, alternatives like auctions or bandwidth reduction are being considered."

Differences in Valuation Methods

The core of the conflict over reassignment fee valuation is whether to reflect the "past auction price." Since the frequencies are not newly purchased but "renewed," the industry believes it is excessive to base the fees on past auction prices. The telecom industry criticizes this as "like raising the rent on a house with no demand." The three telecom companies jointly stated in a petition, "In a situation where reassignment occurs without competitive demand, it is contradictory to fully apply the past auction price, which reflected the highest competitive demand." On the other hand, the government maintains that frequency reassignment is essentially no different from new allocation. Professor Shin Min-soo of Hanyang University's Business Administration Department said, "If the reassignment fee is set too high, telecom companies will inevitably reduce 5G investments, which will affect consumer welfare and fees. The government should carefully consider the repercussions."

Fairness Controversy

There is also controversy from the perspective of special charges. The government views frequency reassignment fees as a "special charge," but Article 4 of the Special Charges Management Act stipulates that the basis, method, and rates for imposing charges must be clearly defined by law. However, the reassignment fee calculation method linked to past winning bids is not legally stipulated, leaving room for dispute. In fact, other special charges such as the Broadcasting and Communications Development Fund, Petroleum Business Fund, and Road Occupancy Fees specify detailed and clear imposition criteria and calculation formulas by sales brackets. An expert senior advisor from the Democratic Party, speaking personally, said, "Unlike other laws that impose economic burdens such as charges, usage fees, and occupancy fees, only the reassignment fee related to frequency allocation lacks specific calculation methods, which raises fairness issues." Kim Young-sik, a People Power Party lawmaker who sponsored the "Radio Waves Act Amendment," said, "The top priority is to specify detailed calculation methods in the enforcement decree to enhance market predictability regarding the allocation fees amounting to trillions of won."

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