LG Uplus faces LTE dilemma
Is LG Uplus’ recent surge in long-term evolution (LTE) a game-changer or a just a temporary rebound?
The mobile carrier, now at the forefront of the LTE market, has surpassed KT and is now in touching distance of No.1 ranked SK Telecom.
But behind the scenes LG Uplus faces a worsening financial structure. With their determined focus on LTE, profit for 2011 was some 84 billion won, a steep drop of 85 percent from 2010’s 570 billion.
The domestic telecommunications market is at saturation point and losing momentum, gradually altering the decade-long industry structure. LG Uplus, the smallest of the three carriers, is the first to feel the consequences of the changing atmosphere.
“All three mobile carriers invested heavily during the first half of the year (instead of the second half) to construct nationwide networks,” said Kim Jang-won, an analyst at IBK Investment & Securities in a report. “And such measures resulted in low profits.”
“The profits of mobile carriers in the early part of 2012 are well below already low expectations,” he added.
LG, which lagged behind in the smartphone market, has made all-out efforts to gain the upper hand in the LTE segment in a desperate bid to survive in the rapidly-changing environment.
At present all three have proper production lines arranged. During the evolution from 2G to 4G, capital expenditure fell as the intention was to produce smaller goods, which helped them to save costs, said officials from the local telecom industry.
While trillions of won was invested in facilities and land during the 2G era, the current goal of telecommunications firms has narrowed to chip development.
The real imperative for mobile carriers is to secure steady subscribers, which is not easy for LG Uplus given its weaker financial capabilities among the three.
The company posted profits of 2.7 trillion won with sales of 31.6 trillion won from 2001 to 2009, only one third that of SK Telecom, which recorded 24 trillion won in profit with sales of 102 trillion won from 2001 to 2010.
LG’s cash equivalents stood at a mere 100 billion won. Proceeds from installment businesses are insufficient to support expansion as the bulk flows into debt payment. It is unlikely that the company will sustain growth unless the number of LTE subscribers jumps or
LG finds another cash source.
According to the Korea Communication Commissions, the nation’s top telecom regulator, LG secured 1.15 million customers out of 2.72 million as of February. The pace of growth has slowed in the last four months.
LG’s rate of growth marked only 25.66 percent in March from 76.51 percent in December. SK saw a decline of 27.17 percent from 66.67 percent in the same period.