Monday, December 21, 2009

Regulatory risk - The highest level in North Asia is said to be in South Korea

[cellular news] As part of an Asia-Pacific wide study allocating telecom regulatory risk scores to each market, Fitch has released a special report focusing on the four markets it covers in North Asia: South Korea, China, Taiwan and Hong Kong. On a scale of one to 10, South Korea is assessed with a comparatively high risk score of 6.0, second only to Sri Lanka's 6.5 in Asia-Pacific and on par with Australia's 6.0.

China is assessed to have a medium-high level of regulatory risk (5.3) on an average basis, Taiwan likewise with a medium-high risk (5.0) and Hong Kong with a comparatively lower medium risk level (4.5). The total regulatory risk score for each market is derived based on considering three major sub-categories of Political & Social Policy Risk; Industrial Policy Risk; and Inability of Ownership/Management to Offset Regulatory Risk.

"Political & Social Policy Risks are moderately high in South Korea, given that the government tends to focus on popular support at the expense of the operators' free cash flow (FCF) generation," said Matt Jamieson, Senior Director and Head of Asia-Pacific's Telecommunications, Media and Technology (TMT) team. "In particular, a high Industrial Policy Risk elevates Korea's total regulatory risk score, as the local telecom market remains an important test-bed for Korea's major telecom equipment manufacturers," he added.

In the case of China, the agency believes that the government's dual role as a shareholder and regulator has mixed impact on the three main operators. For China Telecom and China Unicom, Fitch has assigned a medium risk score of 4.5, but a higher risk score of 6.0 was assigned to China Mobile due to the pending asymmetrical regulations and a higher Industrial Policy Risk due to the government's strong commitment to the TD-SCDMA 3G technology - a technology that only China Mobile is deploying.

Meanwhile, Taiwan's incumbent operator receives a medium risk score of 4.5, but the country's second-entrants a medium-high score of 5.5 due to limited management ability to offset regulatory risks. The operators in Hong Kong received a medium risk score of 4.5, due to low Political & Social policy risks and zero Industrial Policy Risk, but limited management ability to offset regulatory risks.

North Asia Telecom Regulatory Risk Highest in South Korea

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