Hanaro Telecom, Korea's second-largest fixed-line carrier, is hoping to win 1.5 million subscribers by 2008 for its new HanaTV video-on-demand service.
But cable TV operators are up in arms at what they see as an attempt to muscle in on their already crowded market.
As television broadcasters need to be licensed by law in Korea, the government is being asked to adjudicate in this legal grey area.
Korea's Cable TV Association has announced that it will ask officials to prosecute Hanaro. In turn, the telecoms firm said that it would countersue the Cable TV Association for libel.
The main regulatory body, the Korean Broadcasting Commission, has said that it could penalise Hanaro if it is determined to have infringed broadcasting laws, the Joongang Daily reported today.
Hanaro has countered that it does not fall under the official definition of a broadcaster because its programmes are transmitted on-demand, and not according to a regular schedule.
The company is offering movies from content providers including Sony Pictures Television International and Walt Disney Television.
Hanaro already has 3.6 million broadband subscribers, so the potential revenue from its IPTV service, which costs from US$13 a month plus fees of around US$1.50 per program, is significant.
The new service has gained 20,000 subscribers in its first two weeks, and Hanaro hopes to be making US$200 million a year from 1.5 million users by 2008.
The telco, which restructured last year, suffered an unexpectedly large net loss of $6.6m in its latest quarter.
Hanaro has struggled in a uneven battle with Korea Telecom, the country's giant incumbent telecoms provider. Hanaro is controlled by US-based investors at AIG and Newbridge Capital.
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