Kakao shares slump as outage sparks calls for regulatory scrutiny - Reuters

SEOUL, Oct 17 (Reuters) - Shares of South Korea's Kakao Corp (035720.KS) plunged connected Monday aft a wide outage successful the country's largest mobile chat app triggered a crisp governmental backlash and calls for accrued scrutiny connected the company's marketplace dominance.

The outage was caused by a occurrence astatine a information centre southbound of Seoul on the weekend and portion systems had mostly been restored by Monday, disruptions to a scope of related services from payments to taxis and edifice bookings person raised questions astir nationalist reliance connected the app.

President Yoon Suk-yeol said connected Monday that Kakao's services are "like a cardinal nationalist telecommunications web arsenic acold arsenic the nationalist is concerned," and promised follow-up measures implicit the work outage.

"If the marketplace is distorted successful a monopoly oregon terrible oligopoly, to the grade wherever it serves a akin relation arsenic nationalist infrastructure, the authorities should instrumentality indispensable measures for the involvement of the people," Yoon added, noting South Korea's antitrust watchdog would analyse the matter.

Kakao shares plunged much than 9% connected Monday to their lowest since May 2020, portion shares successful Kakao affiliates KakaoPay (377300.KS) and KakaoBank (323410.KS) besides plunged much than 8% successful greeting trade.

South Korea's subject and exertion ministry is probing whether the outage violated immoderate laws portion the communications regulator is reviewing the matter, including the question of compensation for users, authorities officials said connected Sunday.

A Kakao spokesperson told Reuters connected Monday halfway services specified arsenic messaging were backmost online, though immoderate insignificant applications were inactive being restored.

"Basically it's a escaped work and however compensations volition enactment for paid services is ambiguous, but it's being seen arsenic a nationalist connection network, not a backstage one," said Choi Yoo-june, expert astatine Shinhan Financial Corp. "Parliament audits are ongoing close now, and it's apt to dispersed to the contented of level monopoly regulation."

Police and the National Forensic Service are conducting a 2nd probe connected Monday astatine the information centre, which is operated by SK C&C (034730.KS).

After an archetypal probe connected Sunday, constabulary said electrical issues astir artillery racks successful 3rd basement level of the information centre whitethorn person caused the fire.

REPUTATIONAL HIT

Kakao's messenger app Kakao Talk has much than 47 cardinal progressive accounts successful South Korea and 53 cardinal globally, the institution said successful a study successful August, making it 1 of the astir ubiquitous apps successful the state of 51.6 million.

Kakao is not expected to endure a ample fiscal deed from compensation, but the reputational deed and aboriginal blowback is what matters if businesses and consumers question to trim their reliance connected Kakao, analysts said.

"Assuming that the harm compensation scope is constricted to paying users, the effect connected operating nett is estimated to beryllium astir 12 cardinal won," said Kim Jin-woo, expert astatine Daol Investment & Securities. "What is important would beryllium idiosyncratic postulation trends aft afloat work recovery."

Kakao reported 330 cardinal won ($229.74 million) successful operating nett during the archetypal fractional of 2022.

It said successful a regulatory filing connected Monday that aft it normalises services, it volition sermon compensation with information centre relation SK C&C for losses sustained by Kakao and its cardinal units.

Kakao said connected Sunday portion its servers are distributed crossed 4 information centres, the fire-hit information centre housed 32,000, oregon the main share, of its servers, which mislaid powerfulness and were damaged arsenic a effect of the blaze.

"32,000 servers being down... is unprecedented, and caused difficulties successful responding," Yang Hyun-seo, vice president astatine Kakao told reporters connected Sunday, adding determination was nary information nonaccomplishment owed to retention back-ups.

A Kakao spokesperson declined to supply the full fig of servers it uses, citing information concerns.

($1 = 1,436.2700 won)

Reporting by Joyce Lee; Additional reporting by Jihoon Lee, Hyonhee Shin, Soo-hyang Choi and Joori Roh; Editing by Kim Coghill, Tom Hogue and Sam Holmes

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