Analysts cautious about Hwang's formula
By Yoon Sung-won
KT Chairman Hwang Chang-gyu
Analysts reacted cautiously toward KT Chairman Hwang Chang-gyu’s strategy to provide superfast network services and beef up the company’s core businesses with heavy investment.
During a press conference Tuesday, Hwang emphasized that the firm will upgrade its Internet infrastructure to guarantee up to 10-times faster speed.
On the back of its strength in telecom capability, the company will foster five key sectors including media content, energy, security and healthcare.
Hwang is a globally renowned expert in the semiconductor field both as a scholar and a businessman. As a former Samsung Electronics executive, he led the company to become the world’s top memory chip maker. He is also famous for “Hwang’s Law,” which states that flash-type memory transistor memory doubles every year, raising expectations for his inauguration in January.
Referring to his previous statement, Hwang said, “I expect KT’s telecommunications capability in terms of speed and capacity will advance, outliving my own Hwang’s Law.”
His presentation on the company’s future vision failed to boost its stock price. KT share prices closed at 32,250 won Wednesday, down 1.38 percent.
“Both Hwang and the company need more time to come up with results to speak of,” Tong Yang Securities analyst Choi Nam-kon said. “He talked about new Internet technologies and the Internet of Things (IoT). But both are nothing new and success is not yet certain.”
Market watchers said that “the time is not yet ripe” to find profitability from the new strategies Hwang has suggested because the market environment is not prepared to embrace the new technologies.
The superfast Internet technologies, dubbed GiGA Internet, should deal with the double issues of rate hikes and network neutrality, according to Choi.
“Investors will not be impressed by the introduction of the GiGA Internet service unless the company can raise fees. But it’s not likely to be easy because local providers are already in a keen price competition,” he said.
KT said it will invest 4.5 trillion won over the next three years to establish a new wired and wireless Internet infrastructure with up to a three- to 10-times faster speed.
“The announcement is not new since the company has already been investing in Internet infrastructure,” said Kim Jang-won, an analyst at IBK Securities.
The success of KT’s other new businesses including energy, healthcare and IoT services is also uncertain as competition is expected to be inevitable.
“SK Telecom has delved into these sectors for a long time. KT needs to present tangible results to persuade the industry to prove their competence,” Choi said.
About the additional restructuring of KT’s media subsidiaries, analysts showed mixed views. During the conference, Hwang said he is not yet planning to restructure these though he admitted that there are inefficiencies.
“Because the businesses have been dualized by KT Media Hub and KT SkyLife, the company had to pay extra for personnel, marketing and so on,” Choi said. “I believe restructuring is highly likely within this year to get rid of inefficiencies.”
On the other hand, Kim anticipated that KT will take more time to thoroughly review this restructuring.
“KT Media Hub and KT SkyLife have different fields of specialty, IPTV and satellite TV broadcasting, respectively,” he said. “I believe these two will remain as separate entities while cooperating with each other.”
KT is expected to face challenges in foreign markets, too.
“I believe the approach to promote technology solutions in Europe is good, which is different from the previous CEO’s strategy based on mergers and acquisitions in developing countries,” Choi said. “Still, Europe has powerhouses in this sector, Siemens, for instance. Therefore, the competition will be fierce.”
Kim also agreed upon the uncertainty of success in the European market.
“Korean telecom companies seldom enjoyed significant success in foreign markets by exporting technologies,” Kim said. “I’d just consider the movement as opening new channels overseas.”
Choi added Hwang’s remarks should be interpreted as “an expression of will,” as well as a message saying watch “what they’re up to,” rather of a promise of immediate success.
Kim agreed that Hwang talked about a big picture, or a “blueprint” and said, “More details will emerge soon.”