Hanaro Telecom announced late last week that it has been selected as the preferred bidder to acquire Korea Thrunet, South Korea's third-largest broadband provider. Once the acquisition is final, it will position Hanaro to compete with market leader KT (Korea Telecom) in a two-way race for control of the country's broadband market. Hanaro is a joint venture owned by the American International Group and Newbridge Capital Ltd. 

 

Hanaro was selected over a consortium made up of Dacom and Merrill Lynch due to its "bid price, its ability to finance the purchase, and its sound financial structure," according to a statement released by Korea Thrunet. The statement also indicated that a second offer from Dacom would be considered in the event that negotiations with Hanaro were to fail. Individual bid prices were not disclosed, but reports suggest that Hanaro offered 480 billion won (US$453 million; US$1 = 1,058.20 KRW), while Dacom put up only 400 billion won (US$377 million). 

 

Hanaro will sign a memorandum of understanding with Thrunet on December 21. Hanaro then has until January 5 to complete inspections and submit a formal bid. After a period of due diligence, the companies are scheduled to sign the formal contract on January 13, which would bring to an end the two-year search for a new owner of Thrunet. 

 

South Korea world's highest broadband Internet penetration rate; more than three quarters of its 48 million people already have some form of access. As of November 2004, Hanaro holds roughly 24% share of the country's broadband market and 6.1% of the local fixed-line telephone market. KT, on the other hand, controls 51% of the broadband market. However, with the acquisition of Thrunet, Hanaro's market share will rise to 35%, bringing its subscriber base to a total of four million. Thrunet has approximately 1.29 million customers and 10.9% of the total market. Estimates of the company's debt range from 500 to 550 billion won (US$472-520 million). Hanaro officials believe it could take as much as 200 billion won (US$189 million) to upgrade the infrastructure of Thrunet's broadband network, as two years have passed since the company filed bankruptcy. 

 

Hanaro's acquisition of Thrunet is expected to help them secure a larger subscriber base as they push ahead with new services such as WiBro (Wireless Broadband), VoIP (Voice Over Internet Protocol), IP TV (Internet Protocol Television), and "triple play" services that combine voice, video, and data. Hanaro also expects its marketing costs will drop and opportunities for growth should arise as it begins to offer bundled Internet and fixed-line call services to more customers. 

 

For LG-invested Dacom, the loss of the Thrunet bid is seen as a setback to the fixed-line operator's aspirations to compete with KT and SK Telecom. Dacom presently claims 5% of South Korea's fixed-line phone market, and 1.6% of its Internet access subscribers. Dacom withdrew from the competition for WiBro licensing in October.