Cocoa shares plunge as power outage prompts antitrust scrutiny

  • Antitrust Supervision Agency, Ministry of Science to investigate the case
  • Can extend to calls for platform monopoly regulation analyst
  • User traffic trends after recovery is an important analyzer
  • Main services restored, applets still disabled

SEOUL (Reuters) – Shares of the South Korean cocoa company (035720.KS) It fell on Monday after a widespread outage at the country’s largest mobile chat app led to a sharp political backlash and calls for more scrutiny of the company’s market dominance.

The outage was caused by a fire at a data center near Seoul over the weekend, and while systems were mostly restored by Monday, disruptions to a range of related services from payments to taxis and restaurant reservations have raised questions about the general dependence on the app.

President Yoon Seok Yeol said Monday that the company’s services, which include the flagship KakaoTalk messenger app, are “like a basic national communications network in terms of the public,” and promised follow-up action on the outage.

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“If the market is distorted under a monopoly or a severe oligopoly, to the extent that it serves a similar function to the national infrastructure, the government should take necessary measures for the sake of the people,” Yoon added, noting that South Korea’s anti-monopoly watchdog will examine the article. .

Shares of Kakao fell 9.5% Monday to their lowest levels since May 2020, wiping out 2 trillion won ($1.39 billion) from market capitalization at one point, while shares of KakaoPay affiliates (377300.KS) and KakaoBank (323410.KS) He lost more than 8% before cutting losses.

Kakao shares on October 17

On Monday, rival messaging service LINE climbed to the top of the iPhone App Store’s most downloaded apps in South Korea, after it didn’t rank among the top 100 apps on Friday, according to SensorTower data. KakaoTalk fell to 36th place from 13th.

South Korea’s technology ministry is investigating whether the power outage violates any laws while the Communications Regulatory Authority reviews the matter, including user compensation questions, officials said Sunday.

A spokesperson for Cocoa told Reuters on Monday that core services such as messaging are back online, although some minor apps continue to be restored.

Choi Yu Jun, an analyst at Shinhan Financial Corp. “It is basically a free service, and how compensation for paid services works is ambiguous, but it is seen as a national communications network, not a private one.” “Parliament audits are currently underway, and it will likely spread to the issue of platform monopoly regulation.”

A preliminary investigation on Sunday discovered electrical problems around battery racks in the third basement of the data center, operated by SK C&C. (034730.KS)It might cause a fire. A forensic investigation is underway on Monday.

hit reputation

The company said in August that the KakaoTalk messaging app Kakao has more than 47 million active accounts in South Korea and 53 million globally, making it one of the most popular in the country of 51.6 million.

The free messaging service captured mobile users shortly after smartphones took off in the late 2000s, and its early engine advantage allowed it to outpace competitors, including tech giant Naver, to become South Korea’s dominant messenger.

It was later able to leverage its large user base to expand into gaming, advertising, intellectual property and other entertainment, shopping, payments, and mobility.

Analysts said Cocoa is not expected to take a major financial hit from the compensation, but the reputational setback is what matters if businesses and consumers reduce their dependence on the service.

“Assuming the scope of damage compensation is limited to paying users, the impact on operating profit is estimated at 12 billion won,” said Kim Jin-Woo, an analyst at Daol Investment & Securities. “What’s important will be user traffic trends after full service is restored.”

Kakao Corporation reported an operating profit of 330 billion won during the first half of 2022.

On Monday, it said it would discuss compensation with data center operator SK C&C for losses it and its main units incurred.

Kakao said Sunday that while its servers are distributed across four data centers, the data center that was hit by the fire has 32,000, or the main share, of its servers, which lost power and were damaged as a result of the fire.

Ju Ho-young, a lawmaker from the ruling party, said at a party meeting on Monday that the fact that Kakao did not manage its data center and concentrated most of its systems in one place showed “inadequate management.”

Yang Hyun-sew, vice president of Cocoa, said on Sunday that while the scale of the damage caused difficulties in responding, the backup meant no data was lost.

A Kakao spokesperson declined to provide the total number of servers it uses, citing security concerns.

(1 dollar = 1435.0700 won)

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(Reporting by Joyce Lee and Jihoon Lee) Additional reporting by Hyunhye Shin, Soo Hyang Choi and Juri Roh; Editing by Kim Coogle, Tom Hogg and Sam Holmes

Our criteria: Thomson Reuters Trust Principles.

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