SK Telecom Seeks to Triple Sales in 10 Years
By Kim Tae-gyu
The lack of the growth engines are touted as the weakest point for Korean telecom companies, which have staged a cutthroat competition in the saturated market over the past several years.
SK Telecom, the country's primary mobile carrier, has suffered weak growth just like its rivals even though it chalked up huge annual sales and handsome bottom lines.
But the Seoul-based outfit is looking to create its future by exploring unexplored value both at home and abroad in a way that no other Korean telecom carriers have ever attempted.
Under the stewardship of Chief Executive Jung Man-won, SK Telecom announced of late that it aims to more than triple its sales over the next decade by extending its business horizon in an unprecedented way.
``We will explore various sectors such as distribution, financing, education and healthcare services in relation to telecom services,'' Jung told a press conference late last month.
``In order to break through the stagnancy in the telecom market, we will seek such convergence areas in a strategy we call industry productivity enhancement (IPE),'' he said.
The 57-year-old who took charge of SK Telecom earlier this year said that the so-called IPE strategy could generate as much as 20 trillion won in sales in 2020 with half of that coming from overseas markets.
If SK Telecom succeeds in reaching its sales target via the diversified business portfolio, it would be a great exploit as the company current gets about 95 percent of its revenue from the single sector of mobile telephony services.
Since wireless telecom markets were in their infancy in the late 1990s, SK Telecom has recorded exponential growth, doubling its sales almost every year.
But the high-flying pace was grounded in the mid 2000s ― after surpassing the 10 trillion won mark for the first time in 2005, the annual turnover has risen a mere 14.7 percent over three years to 11.7 trillion won in 2008.
Profitability also deteriorated. Its net profits headed down from 2.7 trillion won in 2005 to 2.6 trillion won in 2006, 2.2 trillion won in 2007 and 2.1 trillion won last year.
Despite the high operating profit ratio of approximately 20 percent, this has prompted some concerns that the company is losing growth potential and Jung vowed to find a new growth engine as soon as he was inaugurated.
The downward spiral is expected to stop this year as a majority of market watchers project the company will record more than 2.2 trillion won in operating profit.
Things were also good over the latest quarter ― it racked up an operating profit of 618.8 billion won during the July-September period, 23 percent up from a year ago. Its quarterly turnover also jumped 5.4 percent to 3.1 trillion won.
New Growth Engine
However, Jung by no means seems to be happy with the signs of a turnaround and is ready to forge ahead with his ambitious plans of converging telecom services with associated businesses.
As an example, Jung took the healthcare business.
``In the medical business, there are many needs for such applications as tailor-made services, a cooperative diagnosis system between hospitals and the improvement of hospital processes,'' Jung said.
``We think that SK Telecom will be able to meet the needs by setting up a next-generation data system interconnecting all hospitals and establishing ubiquitous healthcare platforms or operating personalized health portals,'' he said.
Another possible service is linking automobiles with wireless connections, which would enable such features as satellite-navigation and anti-theft systems or Internet on the move.
SK Telecom projects that most vehicles ― particularly electrically powered ones ― will be equipped with mobile connections in the not-so-distant future.
Armed with these advanced features, Jung said that SK Telecom will advance into other countries in cooperation with domestic hospitals.
``To achieve the goals, we are required to have a technical edge. Hence, we will try to create technical leadership in various areas in an alliance with domestic manufacturers,'' Jung said.
Market watchers have responded positively to the grandiose scheme.
``As the foremost player in the mobile telephony industry, SK Telecom has thus far tried to dominate the business where it advanced. However, the results have been somewhat disappointing,'' said Daniel Jin, an analyst at Shinhan Investment Corp.
``But after Jung took the helm of SK Telecom, the firm has seemingly changed. If it can cooperate with established players in new business areas, it has a shot at achieving success in convergent services,'' he said.
Jang Young-soo, an analyst at Kiwoom Securities, also praised the maneuver.
``What SK Telecom is attempting to do is to explore unknown paths. At the moment, nobody can say for sure whether or not the plans will bear fruit in the next 10 years,'' Jang said.
``But what I can say for certain is that he is taking the right path. Telecom companies do not have the luxury of resting on conventional services. In this sense, Jung is setting the pace in the industry.''