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KT, South Korea’s biggest telecoms operator, is taking on Samsung Electronics to force the world’s top TV maker to pay for its broadband service as Samsung aggressively markets internet-enabled smart TVs.

It said on Thursday it would immediately block internet access through Samsung’s smart TVs because they slow down overall network speed – a move that threatens to stall sales of models Samsung is relying on to keep it profitable.

South Korea is the world’s most wired country with 96 per cent of households having access to high-speed internet services. It is also home to the world’s two biggest TV makers – Samsung and LG Electronics.

Samsung and LG are pinning high hopes on smart TVs – which allow viewers to access social networking, online games and music – as they struggle to stay profitable in a highly competitive market.

“Internet-enabled TVs increase network traffic by up to 15 times compared to conventional IPTVs [internet protocol TVs]. At the current growth rate and user increase, the network will not be able to accommodate traffic requirements and consequently it could slow down overall internet speed,” KT’s executive Kim Hyo-sil told reporters.

“TV manufacturers are free-riding on our network, while our capacity to invest and upgrade it is shrinking due to worsening profitability. We need to draw a better business model through discussions with TV makers.”

Kim said smart TV makers should pay for using KT’s internet network just as internet phone operators and IPTV operators do. This would help the carrier expand its network capacity to accommodate growing data demand.

KT reported a 13 per cent rise in fourth-quarter profit thanks to a one-time gain from selling real estate but its earnings outlook remains gloomy due to falling sales from phone calls and higher costs. The carrier plans to increase its capital expenditure to Won3.5tn ($3.1bn) this year from Won3.3tn last year to build a higher-speed, long-term evolution network.

KT, which controls nearly half the country’s internet market, estimates about 1m smart TVs had been sold in South Korea by the end of last year, with some 100,000 heavy downloaders.

Investors fear KT’s move could be a setback for Samsung, which aims to sell 50m TVs this year globally with half of those being internet-enabled. LG also aims to install its own internet platform on about 60 per cent of its TV shipments.

KT said Thursday’s move was targeted at Samsung alone as LG had shown a willingness to negotiate. But it may have wider implications if foreign carriers follow KT’s example. That would certainly not be good news for Google or Apple, also preparing to launch smart TVs.

South Korea’s government agency for telecoms and broadcasting protested against KT’s move, saying “it could hurt [smart TV] users because of conflicts of interest between the operators.” It said it would review whether KT’s move was legal and sternly punish KT if it was found to be illegal.

Samsung said it was preparing its response. Investors will be watching closely. But the escalating tension between the two companies is already hurting their stocks. Samsung’s shares down 0.73 per cent at Won1,084,000 and KT’s off 1.38 per cent at Won32,200 on Thursday.

Related reading:
Panasonic warns of $10bn annual loss, FT
Sony warns of ballooning full-year loss, FT
Samsung moves to reduce Google focus, FT
S Korea: bun fight with the chaebol, beyondbrics