S&P cut ratings on KT, SK
By Kim Yoo-chul
Standard and Poor’s Ratings Services (S&P) downgraded the credit ratings of Korea’s major telecommunications companies SK Telecom and KT, citing a potential threat posed by Kakao Talk’s free call service.
S&P revised its outlook on KT to negative from stable. It explained the outlook revision reflects its expectation that a weak operating environment in the nation’s telecom industry will test KT’s performance over the next one-to-two years.
``We believe KT will face intensifying competition, uncertain regulatory conditions, and continuous declines in revenue in its fixed-line voice business,’’ said Park Jun-hong, a credit analyst at S&P.
S&P believes that free mobile voice over Internet protocol (m-VoIP) services, such as that of Kakao Talk _ the most popular mobile messenger service in Korea _ could potentially threaten KT’s wireless and fixed-line voice revenue, it said in a statement.
S&P gave favorable responses over stable growth in KT’s long-term evolution (LTE) customers and an improvement of performance in its pay-TV business.
``Despite these factors, we expect conditions in South Korea’s telecom industry to pressure KT’s earnings and profitability,’’ the credit rating agency said.
KT spokeswoman Kim Yoon-jeong declined to comment.
S&P’s downgrade on KT comes a few days after Moody’s gave negative views on SK Telecom and KT as the free voice call service by KaKao Talk will have a negative financial influence on Korea’s top two carriers.
Moody’s also added the free call service will chip away at voice service revenue. Officials at SK Telecom also declined to comment.
Existing local telecom companies including the smallest LG Uplus are strongly blaming KaKao Talk as the free call service will damage what the telecom companies claim is the ``market order.’’
The nation’s top telecom regulator, the Korea Communications Commission, confirmed that it won’t get involved in the fight between KaKao Talk and telecom companies. The agency believes that KaKao’s free call service is within the Korean Telecommunication Law's legal boundaries.
Lee Sir-goo, KaKao’s co-CEO, said in a recent forum held at the National Assembly that SK Telecom, KT and LG Uplus are forming an alliance to intentionally lower the voice call quality in the service provided by KaKao Talk, as the local carriers want to secure more profit sources.