By Kim Yoo-chul, Cho Mu-hyun
Korea’s mobile carriers ― SK Telecom, KT and LG Uplus ― are expected to see their earnings drop sharply in the third quarter of this year due to rising market costs and increased expenditure to promote faster and more advanced network technology, according to company officials and analysts. The earnings reports are due soon.
Market analysts had earlier expected the carriers to improve their earnings during the third quarter due to a continued increase in subscribers to long-term evolution (LTE) services that should help improve their average revenue per user (ARPU), a critical measurement and performance metric for telecom operators.
``Yes, they’ve seen some improvement in ARPU, however, all telecom companies were very aggressive in the promotion of their LTE services for better stakes,’’ said an official from the Korea Communications Commission (KCC), the nation’s telecom regulator, without elaborating further.
During the third quarter, No. 1 player SK Telecom spent over 1 trillion won on its promotional campaigns, which accounts for some 30 percent of total quarterly revenue, while KT and LG Uplus spent over 550 billion won combined during the same period, according to officials. The respective amount was far higher than that spent by each firm during the second quarter.
In Korea, LTE has quickly gained popularity. Since the sector is rampant, carriers and manufacturers are rolling out the latest LTE devices.
SK Telecom aims to attract 7 million LTE subscribers, while 4 million and 5 million are the targets by KT and LG Uplus respectively by the end of this year, according to officials. As of the end of August, SK had 4.5 million, while KT and LG had 1.8 and 3.2 million respectively.
``That’s why the fourth quarter won’t be better,’’ said the KCC official.
According to the median forecast by stock market analysts and industry sources, SK Telecom expects to have earned between 360 billion and 380 billion won in operating profit during the July to September period _ a 28 percent drop from a year ago.
Runner-up KT is likely to report between 320 billion and 340 billion won, a decrease of some 35 percent during the same period, while LG is expected to report between 4 billion and 6 billion won, which would be a 90 percent decrease.
``Competition between carriers for new LTE customers was intensive during the latest quarter and it’s no surprise to see uphill competition in the fourth quarter,’’ said TongYang Securities analyst Choi Nam-gon.
``Additional consumer demand for LTE-enabled devices such as Samsung’s Galaxy Note2 and Apple’s iPhone 5 will corner the carriers to spend more on marketing, resulting in them seeing a deterioration in their financial soundness,’’ said Song Jae-kyung, an analyst at KTB Investment.
In one example, the carriers are selling Samsung Electronics’ latest Galaxy S3 smartphone at 170,000 won at some on- and off-line outlets with a two-year contract, though the suggested retail price is 990,000 won.
``We’ve acknowledged this. But we have no answer but to spend more to gain more new subscribers,’’ said an SK Telecom executive.
``LG Uplus is expected to report lower operating profit in the third quarter which was mainly hit by increased spending on cash-intensive promotional campaigns,’’ said LG Uplus spokesman Kang Shin-goo, adding the firm expects a mild recovery in the last quarter.
SK Telecom and KT representatives declined to comment, citing the sensitivity of the issue. The carriers are set to release their third quarter earnings reports later this month.
In an ongoing National Assembly’s inspection of government agencies and organizations, KCC Chairman Lee Kye-cheol told lawmakers that the government agency believed the problem of carriers’ massive subsidies has ``reached a very serious level’’ adding the agency plans to put the issue on its main agenda for possible legitimization.