By Yoon Ja-young
Mobile carriers are seeking diversification to overcome saturation of their traditional businesses. Performance isn’t likely to improve in the short term amid massive investments in networks and intensifying marketing competition.
According to filings by the country’s three mobile carriers ― SK Telecom, KT, and LG Uplus ― operating profit plunged last year compared with the year previous. SK Telecom’s operating profit shrank by 6.3 percent to 2.1 trillion won despite a 2.2 percent increase in sales, and KT saw operating profit drop by 4.5 percent to 1.9 trillion won. LG Uplus saw a 56.4 percent decrease in operating profit, recording 285.7 billion won, despite an 8.9 percent increase in sales.
These drops stemmed from lackluster sales in the wireless sector. In the world of wireless SK Telecom marked 11.9 trillion won in sales, down 0.6 percent from the previous year, and KT and LG Uplus saw over 1 percent decreases.
They cut monthly basic rates for mobile services by 1,000 won last October, pressured by the government to contribute to consumer price controls. The cut directly affected their profitability. Pressure is expected to continue this year from political circles, due to the general and presidential elections. “An additional mobile rate cut wasn’t likely this year following the bigger-than-expected one by the former Korea Communications Commission Commissioner Choi See-joong. Following his resignation, however, a new commissioner may be pressured by politicians when they make further mobile rate cuts a campaign pledge,” said Kim Hong-shik, an analyst at NH Investment & Securities.
The surge of social networking or messenger services such as Kakao Talk and My People are also cornering carriers, eating into their profits. They have been demanding that these services should pay mobile carriers for using their network, but they aren’t likely to reach an agreement anytime soon.
Despite making less money, carriers are investing massively in fourth generation (4G), Long Term Evolution (LTE) networks. KT is scheduled to invest 3.5 trillion won this year to catch up with the others in the LTE competition. SK Telecom is planning to invest 2.3 trillion won, and LG Uplus increased the investment to 1.4 trillion won to bolster LTE services.
The three carriers also saw double digit increases in marketing costs in the fourth quarter from the previous one in efforts to lead in LTE. “The marketing competition is likely to get fiercer,” Kim said, citing LG Group’s drive to attract more LTE subscribers, and moves by KT, a late comer in the sector, to pull up its share.
With a negative outlook for what have been traditional sources of profit, mobile carriers endeavor to diversify beyond the telecommunications business.
The acquisition of Hynix, the world’s second-largest chipmaker, by SK Telecom, is one example. SK Group bet on the acquisition to seek synergy between communications and semiconductors. It was taken as an opportunity to leap forward as a global company. SK Telecom has also been bolstering its platform business. T Store, an application market, and 11st, an open market, are examples of SK’s successful non-telecom businesses. It plans to pull up the value of platform business SK Planet to 5 trillion won by 2015.
KT has been seeking convergence of telecommunications with other businesses such as finance and broadcasting. It has acquired BC Card and satellite broadcaster SkyLife and is trying to apply IT know-how to the car rental business. It expects the ratio of non-telecommunications in total sales will rise to 45 percent by 2015.
LG Uplus, the nation’s smallest carrier, has also been eying service platforms, providing social networking services and location based applications. Mobile advertisement and cloud services are also on its business diversification map.