SKT Sees No Exit Out of Crowded Home Market
CEO Jung Recants Overseas Expansion; Offshore Operations in Doldrums
By Kim Yoo-chul
Staff Reporter
SK Telecom, South Korea's top mobile carrier in terms of number of subscribers, is at a crossroads over its overseas expansion after seeing its operations outwith Korea falter across the board.
Its Vietnamese venture is not showing any significant improvement in profitability, while its effort to set up a base in Kazakhstan is not going anywhere.
``SK Telecom needs to realign its overseas strategy,'' an industry watcher told The Korea Times, Monday.
At present, SK Telecom has decided to stop further investment in its S-Fone joint venture mainly due to its low subscription growth.
The Korean telecom firm started its investment in the Vietnamese mobile operator in 2001, with accumulated investments amounting to $180 million.
The S-Fone network is the only provider of CDMA technology in Vietnam and so far has some 6.5 million subscribers.
``We've been engaged in talks with the existing partner, Saigon Postel, over the issue of the third-generation (3G) mobile networks. But the chances are that we will not make more investments in Vietnam,'' said an SK Telecom spokesman.
The Korean company is showing a keen interest in the bidding for the 51-percent stake in Kazakh mobile operator Mobile Telecom Service (MTS), a subsidiary of Kazakhtelecom.
``It's questionable whether growth momentum can be found in Kazakhstan,'' Kim Sang-a, an analyst at Daewoo Securities, said. ``As of the end of last year, the mobile penetration rates in the Kazakhstan market reached a saturated 80 percent. MTS' market share is less than 19 percent,'' according to the analyst.
Kim also said most of MTS' customers are using a low margin of pre-paid services, raising uncertainty over profitability.
Song Jae-kyoung, an analyst at KTB Investment, also said the ripple effect of eventually buying MTS would be limited.
If SK Telecom wins the bidding for the stake, it will be its fourth foray into an overseas market, following its advances into China, Vietnam and the United States. All three are not doing well.
Lack of Strategy?
SK Telecom, which still controls about 50.5 percent of the South Korean mobile market, has previously pursued a ``convergence strategy'' on its home turf by taking control of the country's second-largest fixed-line operator, Hanaro Telecom ― now named SK Broadband.
But fierce competition and limited organic growth opportunities in the domestic market have driven SK Telecom to seek ventures abroad.
Unfortunately, its efforts in overseas expansion have not paid off, with the United States and China proving to be highly competitive markets, forcing SK to grapple with higher costs and less brand recognition.
``SK Telecom is still having difficulty in coming up with an overall overseas strategy. But what it strongly needs is to fix up firm and detailed strategies,'' said another industry watcher.
In April, SK's CEO, Jung Man-won, said it was seeking merger and acquisition deals in the United States and in China and was ready to spend some 3 trillion won ($2.3 billion) over the next five years.
Now, SK Telecom has gone back on its word, with Chief Financial Officer Jang Dong-hyun saying the firm is taking a ``conservative stance'' toward big M&A deals.
The company plans to sell its entire stake in Virgin Mobile USA. SK Telecom acquired interest in Virgin Mobile in June 2008 when it sold its ailing U.S. unit Helio to the company.
SK launched Helio in 2006 as a joint venture with U.S. Internet service provider EarthLink. It failed to secure a subscriber base big enough to stay in business.
In China, SK Telecom's holdings in China Unicom have decreased, to 3.79 percent.
``SK Telecom is facing a dilemma in overseas businesses. In developed markets, it is highly difficult to break in. In developing markets, there is no guarantee for sustainable profitability,'' said Kim Hong-sik, an analyst at NH Securities.
Strategy Changing
Over active responses to change its overseas-related strategies, SK Telecom has been adopting a two-tier approach: thoughtful in regards to direct investment overseas and aggressive in selling its contents.
``We will primarily target Asian markets to provide differentiated data services. We will use the markets for the United States and Europe as a sourcing hub or pooling soil,'' the spokesman added.
To back up the changed plans, SK Telecom and SK Networks decided to sell formerly owned mobile contents via an overseas sales network at the latter.
The companies are also planning to sell additional services provided in the South Korean market through handsets to overseas mobile operators.
SK Telecom is competitive in providing Internet-based contents. The recently opened Mobile Device Test Center aims to support the content development of small- and medium-sized firms.
``SK Telecom and SK Networks are embracing Egypt, Saudi Arabia, Malaysia, Germany, France, and the United Kingdom as sample nations for content-selling. Such soft approaches are forecast to steadily increase our footsteps with profits,'' according to the official.
The latest decision came after top decision makers from both companies, including SK Telecom CEO Jung Man-won, held an unofficial meeting in Malaysia.