Baek Byung-yeul is a journalist at The Korea Times focused on cultural content, including films and cultural events in South Korea. You can contact him at baekby@koreatimes.co.kr to share your insights.
5G deployment cost 'a bit' for KT
KT's headquarter office in Seoul / Courtesy of KT
By Baek Byung-yeul
By Baek Byung-yeul
The deployment of the faster fifth-generation (5G) mobile network forced Korea Telecom (KT) to spend more on marketing and equipment, resulting in last year's results being below market consensus, the country's No. 2 mobile carrier said Thursday.
In a regulatory filing to the Korea Exchange (KRX), the Seongnam-headquartered telecom firm said last year's sales reached 24.34 trillion won ($20.6 billion), an increase of 3.9 percent year-on-year. Its operating profit fell 8.8 percent to 1.15 trillion won.
KT announced the annual results on a consolidated basis, an accounting standard that includes KT's overseas performance.
Although the company has posted over 1 trillion won in operating profit for five straight years, the latest profit tumbled because of enormous investment in the 5G network.
KT said another factor in the profit fall was compensation paid to mobile phone users and retailers affected by a fire at its building in western Seoul in November 2018.
The company offered discounts to those affected and its operating profit in the fourth quarter of 2018 fell 28.4 percent year-on-year.
KT employees promote 5G network-enabled smartphones on a street in Seoul in April last year. / Courtesy of KT
But the primary reason was KT's aggressive spending on its 5G network, as the mobile carrier was in fierce rivalry with SK Telecom and LG Uplus for a “first-mover advantage” in the service.
KT initially deployed its commercial 5G network in April last year. This led annual capital spending on facilities to increase 65 percent to 3.26 trillion won, from 1.97 trillion won in 2018.
As of February this year, the number of 5G base stations the company has installed in 85 districts across the country is over 71,000.
Increased marketing expenditure to encourage people subscribe to the faster 5G network also worsened profitability.
In 2019, the company spent 2.74 trillion won on marketing, up 18.4 percent year-on-year. Efforts included device subsidies of up to 1 million won each.
However, the company expects to improve profitability this year as average revenue per user (ARPU) from its 5G users will increase. ARPU is the key barometer in gauging the profitability of mobile carriers.
During a conference call to investors, KT said its media and content business may help the firm solidify its status as the country's No. 1 paid TV service provider. Given its rich fixed-line network, KT is better positioned to take the lead over rivals in the pay TV business sector.
Last year, it earned 2.74 trillion won from its media and content business, a 13.5 percent increase year-on-year. The number of subscribers to KT's paid TV service Olleh TV was 8.35 million.
Regarding the overall business outlook this year, KT's finance chief Yoon Kyung-keun remained rather upbeat, saying the mobile carrier would benefit most from consumers' transition to 5G.
“Last year, KT managed to maintain a stable financial structure as it widened its customer base with its wire and wireless network service such as 5G and gigabit internet service,” KT chief financial officer Yoon said.