To SKT, LTE success is both blessing and curse

Kakao given unexpectred advantage of fast-speed service

By Kim Yoo-chul

Long Term Evolution (LTE) is inevitable.

SK Telecom has spent heavily on wireless technology, the successor to the current 3G and will continue to do so for some time to come.

It will spend 2.3 trillion won this year alone and its LTE customers are expected to jump to 6 million to keep ahead of the pack.

One fear is byproduct competitors spawned and strengthened by the new technology. SK Telecom is facing the biggest challenge from them because it is way ahead of its rivals KT and LG Uplus.

``They include cross-platform mobile chat service providers such as Kakao Talk, which is set to start voice options,’’ a Seoul analyst said.

The free Kakao Talk has dealt a big blow to text message services. If Kakao Talk can offer voice services to its 32 million customers, it would threaten the main revenue sources of the three carriers.

It is free of burdens as such subsidies that SK Telecom and other carriers provide in drawing new customers and the government’s pressure to cut mobile rates.

``SK Telecom will need to fight expectations about profit decline this year,’’ said Choi Nam-gon, an analyst at TongYang Securities.

SK’s fourth-quarter net profit fell 61 percent from a year ago, while the operating profit during the October-December period slumped by 35.7 percent year-on-year.

However, SKT is optimistic despite Kakao’s challenge.

``Profit will come from the latter half of this year,’’ said SK Telecom CEO Ha Sung-min, who expects the company will successfully boost average revenue per user (ARPU) beginning in the second half of 2012.

The latest challenge is about Kakao’s new service.

``Kakao Talk is considering introducing a voice service,’’ said company President Lee Jae-beom. Its mobile chat service is now seeing more than 1 billion text messages every day.

That means that an average of some 10,000 messages are sent per second, which is incredible considering the service only started in March 2010.

Kakao Talk supports group chat and one-on-one communication and caters to Asian Web users by offering emoticons and in-chat graphics.

One piece of good news is that despite the fast growth, Kakao Talk has failed to generate significant income. Hence, concerns have lingered on the sustainability of its business model.

``If Kakao Talk introduces its voice service, SK Telecom would not be very happy. Who would pay for using expensive services offered by SK, LG and even KT,’’ said an executive from one of the top three carriers.

``Mobile operators would not sit idly by and watch Kakao Talk chip away at their bottom lines. They must come up with ways to levy charges on Kakao Talk for its voice service.’’

Thus far, Kakao Talk can provide its services at a minimal cost thanks to SK Telecom’s policy of offering a server for mobile messengers.

While holding back new rivals with such policy changes, SK Telecom is set to promote itself as the premium voice and data provider with the best quality.

But it remains to be seen whether customers will buy SK Telecom’s campaign, as it is desperate to create new cash cows while defending existing ones.

``SK Telecom is insisting that it has the most advanced quality. From my perspective, however, it is hard to believe,’’ said Kim Jeong-nam, a 34-year-old office worker in Seoul.

``I have tried all the operators with my own devices or those of friends. Quality or speed for data downloads and voice calling were not that different from one carrier to another.’’