Can new CEO pull SK Telecom out of lurch?

By Kim Yoo-chul

Questions are being raised whether the new chief executive of SK Telecom ― the nation's top mobile carrier ― can revitalize the company to overcome management obstacles.

South Korea's SK Group, which owns SK Telecom as the conglomerate’s telecom unit, has recently chosen trusted strategist Ha Sung-min to take the chief executive position at the carrier, replacing Jung Man-won.

Jung's predecessor Kim Shin-bae, who before Friday’s reshuffle led SK Networks, is together with Jung on the council of vice chairmen.

Ha, who led SK Telecom’s wireless business, is expected to become CEO of the telecom firm after winning the endorsement during the shareholders meeting slated for March, next year.

``Ha’s predecessor Jung had worked as CEO for two years and didn’t serve out his three-year tenure. That’s mainly due to SK Telecom’s latest response to the iPhones,’’ said a top-ranking source, Monday.

Galaxy dilemma

SK Telecom argues that its heavy dependence on Samsung Electronics’ Galaxy S smartphones is the cause of all its troubles.

Over 2 million Galaxy S phones have been sold since its introduction two months ago.

Despite the large-volume of sales, SK Telecom has spent a lot more than recommended on marketing expenses.

Marketing expenses for the third quarter accounted for 23.9 percent out of the total sales, causing its operating profit to drop 16.07 percent.

The Korea Communications Commission said in May that SK Telecom, KT and LG Uplus shouldn’t spend more than 22 percent of their revenue on marketing.

SK Telecom has been approaching Apple to introduce low-end 2G iPhones.

The negotiations, however, are stalling, according to sources. Officially, SK Telecom says that it won’t sell iPhones until customer complaints are brought to a treatable level.

Its additional talks with Apple to introduce the iPad have also been stopped against SK’s earlier hopes of forming a strategic alliance, the sources added.

``I doubt SK Telecom will be free from its burden of marketing costs,’’ said Kim Hong-shik, an analyst at NH Securities.

``Korea still has some 20 million subscribers using 2G phones. To SK Telecom, a continued shift to 3G handsets would pose another big challenge in its efforts to effectively control marketing expenses,’’ said Kim.

In telecom infrastructure, SK Telecom is also far behind its rival KT in Wi-Fi-related capability.

As the nation’s biggest broadband operator KT has a more competitive edge for the management of wireless-related business amid an explosive growth in demand for wireless data.

SK Telecom has already confirmed its investment increase in telecom infrastructure and an early leapfrog to the next-generation telecom technology of long-term evolution (LTE), however, those measures were not satisfactory.

Uncertain platform business

The top carrier said it aims to reap as much as 20 trillion won in 2020 from the so-called industry productivity enhancement (IPE) business ― a strategy to move away from the current saturated local telecom market.

It allows telecom services to be utilized in new ways, by combining its network with other businesses, such as finance, medical services, education and logistics.

SK expects its revenue from that business to reach more than 3 trillion won ($2.4 billion) by 2012 from an estimated 1 trillion won this year.

The plan is aimed at transforming SK into content and solution providers not just a telecom operator. So far, it has seen some positive results in Malaysia and Indonesia.

``The IPE strategy is too ambiguous and I don’t know what it strives to gain and how to effectively execute advanced plans. The new CEO needs more fine-tuned and detailed plans to regain investors’ confidence on SK shares,’’ said a fund manager.

In Friday’s reshuffle, SK Group named Seo Jin-woo as co-president to lead its platform business.

``CEO Ha will control the overall management, while So will act as backup by focusing on future earnings engines,’’ said an SK Telecom spokesman.

SK Telecom is seeking ways to increase its dwindling profit in saturated and fiercely competitive markets by developing so-called ``converged’’ products by bundling fixed-line, mobile and Internet services.