Nam Hyun-woo has worked as a staff writer at The Korea Times since 2013, mostly covering business and politics. He currently belongs to the Business Desk where he covers topics such as emerging tech, AI, ICT and Korea's chaebol community. Prior to joining the team, he was the paper's correspondent for the presidential office of Korea during the Yoon Suk Yeol and Moon Jae-in administrations.
Potential massive fines weigh on Korean telecoms firms
A customer tests the Galaxy S25 Ultra smartphone at SK Telecom's retail shop at Mapo District, Seoul, Tuesday. Courtesy of SK Telecom
By Nam Hyun-woo
Penalties may slow down key AI investments
Korea’s three mobile carriers face huge uncertainties in their efforts to reshape their portfolios for artificial intelligence (AI) services, as the country’s antitrust authority is considering imposing a combined 5.5 trillion won ($3.79 billion) in fines due to allegations of colluding to coordinate sales incentives for retailers.
If enforced, the fines will surpass the combined operating profit of SK Telecom, KT and LG Uplus last year, estimated at 3.53 trillion won, casting a gloomy outlook that a slowdown in the firms’ investments in AI will be inevitable.
According to industry officials, the Fair Trade Commission (FTC) plans to hold commissioner meetings on Feb. 19 and 26 to investigate allegations that the mobile carriers engaged in unfair business practices since 2015 to control customer numbers.
The commissioner meetings function similarly to a court trial, where commissioners determine whether the case is unlawful and decide on the appropriate level of fines.
According to Rep. Choi Soo-jin of the ruling People Power Party, the commission has delivered its review opinion, akin to a prosecutor's indictment, seeking fines of up to 2.2 trillion won for SK Telecom, 1.69 trillion won for KT and 1.64 trillion won for LG Uplus.
Carriers have been crying foul over the FTC’s move, stressing that they coordinated the incentives in line with the Korea Communications Commission (KCC) administrative guidance of limiting sales incentives to within 300,000 won per smartphone, and the KCC also delivered its opinion to the FTC that “it is difficult to view the case as collusion.”
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The potential fines from the antitrust watchdog are likely to hinder telecom companies' ongoing investments in AI businesses.
According to market tracker FnGuide, Wednesday, brokerages’ consensus on SK Telecom’s operating profit for 2024 stands at 1.84 trillion won, followed by LG Uplus with 909.3 billion won and KT with 782.9 billion won. This means that the fines, if imposed at the maximum amount, could exceed their operating profit last year.
The combined operating profits were apparently affected by one-off costs related to workforce and labor issues.
SK Telecom is estimated to have spent more than 80 billion won last year on its voluntary redundancy programs. KT launched a workforce reallocation program in December, which incurred an additional expense of 1 trillion won. LG Uplus has set up over 50 billion won in provisions related to court rulings on calculating ordinary wages.
Each of the three companies will hold its earnings call later this week, where they will reveal their respective capital expenses (CAPEX) for 2024. Analysts assume their combined 2024 CAPEX will reach 7.76 trillion won, up from 7.67 trillion won a year earlier, as they scale down spending on 5G networks while expanding investments in AI infrastructure.
KT CEO Kim Young-shub, left, shakes hands with Microsoft Korea CEO Cho Won-woo during a strategic workshop in Seoul, Jan. 14. Courtesy of KT
In November, SK Telecom announced a 100 billion won investment plan to develop sovereign AI. It recently opened an AI data center in Seoul, equipped with Nvidia’s pricey H100 AI processors.
KT announced its strategic partnership with Microsoft in October last year with plans to spend 2.4 trillion won on its AI services. LG Uplus also plans to invest 3 trillion won in AI businesses by 2028.
“The fines may not reach the trillion won level, because the amount currently being suspected is too huge compared to the companies' free cash flow,” Kim A-ram, an analyst at Shinhan Securities, said.
“There are several precedents of commissioners lowering the actual fines during their meetings on similar cases," Kim added. "If the fines turn out to be less significant than currently expected, the companies will be able to manage them without major difficulties. However, if the amount exceeds expectations, it could negatively impact investor sentiment.”