``Almost all of my friends have mobile phones. It's a part of our lives,'' said university student Kim Jeong-ah. This love affair has caused the mobile phone sector to balloon since the government began deregulating telecommunications in 1996, despite a severe economic crisis over the past year.

The penetration rate of mobile phone subscribers -- viewed by analysts as market saturation when it reaches 35 to 40 per cent -- is now at 30 per cent. Sales in the sector reached $25 billion in 1998.

But this phenomenal recent success is coming back to haunt an industry that is now overcrowded with mobile phone operators and analysts say a major consolidation in the sector is unavoidable.

The telecommunications industry is now crowded with 36 telecomsoperators after the government handed out about 30 licences in 1996 for seven different service areas.

``Korea's mobile phone industry in particular is overcrowded with five players. I'm really concerned about their profitability,'' said Lee Hae-gyun at KEB Salomon Smith Barney Securities.

Late in 1997, three personal communications service (PCS) companies -- LG Telecom, Hansol Telecom and Korea Telecom unit KT Freetel -- were allowed to begin competing with existing cellular phone firms SK Telecom and Shinsegi Telecom.

Only a handful of the many other telecom firms which sprouted up now remain viable and competition for market share between the five mobile telecom companies is fierce, analysts said.

Information and communications minister Namgoong Suek said weaker handphone operators would be left to fend for themselves, dismissing fears that he planned shot-gun marriages in the industry akin to those which have been urged in other sectors.

``I believe self-revival is much better for the telecomindustry than any kind of artificial restructuring,'' he told Reuters. ``Under the current circumstances, I believe restructuring will follow naturally within two or three years.''

Analysts said three operators were expected to emerge from the shake out. ``The most possible scenario is for the industry to be reshaped into three major players -- Korea Telecom, LG and SK Telecom,'' said telecom analyst Bahn Youngone at Ssangyong Securities.

The three PCS service carriers teamed up with foreign partners last year in a bid to comply with the government's mandate that companies keep their debt-to-equity ratios below 200 per cent.

The debts of Shinsegi Telecom, however, were nearly 11 times its capital. Shinsegi needs an enormous infusion of cash which analysts said its two largest shareholders, Pohang Iron and Steel Co (POSCO) and Kolon Group, were unlikely to provide.

One possible source is Vodafone Group Plc, Britain's largest mobile phone company as a result of its merger with Air Touch Communications.The firm is Shinsegi's third largest shareholder with a 10.7 per cent stake.

There has been talk that Shinsegi could be targeted by SK Telecom, which has the largest market share in the industry with six million subscribers. Both companies deny the rumours.

State-run Korea Telecom, which has a monopoly on fixed-line service, may hold the key to SK's fate with its 18.35 per cent stake in the company.

The SK Group, the largest shareholder with nearly 22 per cent in SK Telecom, has said it wants to buy the Korea Telecom stake to ensure management stability as foreign investors have already snapped up the 33 per cent stake of SK Telecom allotted to them.

But the Korean Telecom stake could come into play if the foreign ownership ceiling on telecom firms is increased this year to 49 per cent, a strong possibility.

``Where Korea Telecom's 18.35 per cent stake in SK Telecom would go has now caught the market's attention,'' said a senior economist at Samsung Securities, Suh Yong-won.

Analysts saidfifth-ranked Hansol was another potential target for acquisition, probably by Korea Telecom's wireless unit, KT Freetel.

The LG Group, analysts say, is seeking to improve its position by acquiring a controlling stake in Dacom Corp -- one of the country's two fixed-line operators along with Korea Telecom.

But LG could encounter hurdles due to an agreement with the government that the group keep its Dacom stake to below five per cent, a condition for winning a licence for its wireless service.

But some analysts said it was just a matter of time before LG is freed from the agreement, which is seen as violating free-market principles.