S-1 set up its former subsidiary, ESTec System, as a so-called "stooge" to limit competition in bids for integrated apartment security services and was sanctioned by the Korea Fair Trade Commission. Industry officials noted that even the No. 1 player is engaging in collusion amid the characteristics of the integrated security market for multiunit housing—where stable, recurring revenue is generated—and its limited competitive structure.
According to related industries on the 7th, the Korea Fair Trade Commission (FTC) said on the 5th that it imposed corrective orders and a penalty surcharge on two businesses that had agreed in advance on the expected winner and bid prices in bids for integrated security services at 23 private apartment complexes across six regions—Busan, Gwangju, Daejeon, Sejong, South Chungcheong, and North Chungcheong—since 2022. The penalty surcharge by company is S-1 641 million won and ESTec System 332 million won. ESTec System is a manned security specialist spun off from S-1 in 1999.
The collusion occurred as S-1 sought to secure a competitor to validate the bid while already holding an advantage in the business proposal evaluation. Although S-1 had gained a competitive edge in the proposal evaluation through advance marketing to the apartment complexes in question, there was a possibility the bids would be voided due to a lack of participating businesses, a common feature of regional bids.
In response, S-1 set up ESTec System, which had been spun off from the company in the past, as a stooge. To do so, S-1 employees contacted ESTec System employees and asked them to participate in the bid on the premise that S-1 would win. In some bids, while requesting stooge participation, they also agreed to draft the cost breakdown, including the bid price, on their behalf.
Based on this, ESTec System participated in the bids, and the Korea Fair Trade Commission (FTC) determined that, given that ESTec System had almost no track record of providing integrated security in the regions, it served to validate the bid rather than to compete substantively. In fact, it was found that in 21 of the 23 problematic bids, ESTec System participated as a stooge.
The Korea Fair Trade Commission (FTC) judged this collusion to be a serious violation that undermined a free and fair competitive order. It particularly took issue with the fact that collusion occurred in service bids funded by apartment residents' maintenance fees. If collusion artificially raises the winning price, the burden can lead to higher maintenance fees and ultimately be passed on to residents.
In particular, S-1 said it had continued regular fair trade training even after being sanctioned by the Korea Fair Trade Commission (FTC) for past collusion, but it was again caught colluding. In 2014, the company was hit with a penalty surcharge on suspicion of dividing the non-capital area machine security market by region with ADT Caps (now SK shieldus). The company said through its sustainability report that it conducts annual, regular compliance checks and fair trade training, but the latest collusion raises questions about the effectiveness of its internal control system.
Industry officials believe that even though the company knows collusion violates the Fair Trade Act, the incentive to collude does not easily disappear because the physical security business is a key revenue source that can secure stable, recurring revenue. Once won, integrated apartment security contracts typically secure stable revenue for two to three years, making them a core revenue source for security firms. According to S-1's business report, sales in the institutional sector that includes physical security services, digital security, and mobile security—categories that include integrated apartment security services—were 1.2878 trillion won last year, accounting for 44.5% of the total.
In addition, the integrated apartment security services market is seen as having a high incentive for collusion because advance marketing and business proposal evaluations carry more weight than price competition. Bid prices must reflect statutory labor costs and system operating costs, limiting room for price competition, while proposal evaluations have a high qualitative component, meaning pre-bid marketing capabilities often determine awards. Moreover, there are not many providers with nationwide monitoring and dispatch systems, and the structure in which a few firms compete repeatedly is cited as another factor vulnerable to collusion.