By Kim Tong-hyung, Kim Yoo-chul
Staff reporters
With the domestic telephony market approaching saturation, major Korean telecommunications companies are accelerating their efforts to better exploit business opportunities in foreign markets in a bid to secure future growth engines and sustainability.
SK Telecom and KT, the country's two biggest carriers, are to acquire new revenue sources to make up for their deteriorating voice business.
Industry watchers, however, are mixed on the prospects of the companies' overseas ventures, citing their unconvincing track records that include a pile of dead projects in countries such as the United States and China. It remains to be seen whether the companies will find the elusive formula for success in foreign markets this time around.
"Korean mobile carriers got a second chance to nurture their overseas businesses as the boundaries between wireless and fixed-line telecommunications services continue to blur. But it remains to be seen whether their renewed efforts will generate the desired returns," said Lee Dong-seop, an analyst at SK Securities.
"They need to be patient, as they can't expect high returns early from their investment considering that they need time to learn the market and adjust to the comparatively limited flexibility."
Korea is one of the world's most wired countries, with Internet penetration reaching over 87 percent, and having more mobile phones than people. However, this also means that room for growth in the telephony and Internet markets is limited.
This has the telecommunications providers entangled in a cut-throat marketing battle over the limited pool of users, and bloated promotional expenses have been hurting their financial health.
Figures from the Korea Communications Commission (KCC), the country's converged regulator for broadcasting and telecommunications, show that the combined spending on marketing by the country's three mobile carriers ― including LG Uplus ― was 6.19 trillion won (about $5.11 billion), up from 3.26 trillion won in 2005.
The KCC expects this year's total marketing expenses to reach 7.03 trillion won this year. The regulator has been pressuring the carriers to suppress their marketing spending, suggesting a cap of 22 percent of annual revenue.
"The companies should invest more to strengthen their content capabilities and develop next-generation wireless technology, which will also be crucial for them to gain an edge in foreign markets. This is the course we are trying to guide them along," said a KCC official.
SK Telecom, Korea's largest mobile operator, signed an agreement with Packet One Networks last month to buy a 25.8 percent stake in the Malaysian broadband network operator in a deal worth around $100 million. Cindy Kang, an SK Telecom spokeswoman, said the partnership will help the company establish an international foothold.
The presence of SK Telecom is crucial for Packet One, as the start-up mobile WiMAX operator looks to gain a bright start in Malaysia's underdeveloped broadband market. Mobile WiMAX is a portable broadband technology that competes with Long Term Evolution (LTE) in the fourth generation (4G) standard wars.
Stung by past failures in the U.S., China and Vietnam, SK Telecom is no longer attempting to directly enter foreign mobile markets through mergers and acquisitions (M&As).
Jung Man-won, SK Telecom's chief executive officer, said the company will put more focus on the business-to-business (B2B) segment in private and government sectors in different countries, taking advantage of its experience in converged telecommunications services that blend fixed-line and wireless solutions.
SK Telecom is pushing what it calls an "Industry Productivity Enhancement" (IPE) initiative, which is aimed at tapping growth opportunities in industries such as retail, automotive, construction, finance and healthcare. The IPE projects will generate $17 billion in total revenue by 2020, Jung said.
"The investment in Malaysia is meaningful, as the country has a lot of room for growth left in its telecommunications infrastructure. However, our advanced technologies will allow us to carve market positions in advanced technology nations as well," he added.
"SK Telecom's business in Malaysia will bring growth, although it's too early to talk about our specific business strategy."
Cho Ki-haeng, the head of SK Telecom's Global Management Service (GMS) CIC (company in company), said the firm is seeking further opportunities in developing regions such as Southeast Asia and South America.
"Jung has been saying that SK Telecom should aim to become a world-beating solutions company to compete with Cisco and IBM. However, there are still things to be done," said another industry representative, who didn't want to be named.
KT, SK Telecom's bitter industry rival, is also in a desperate search for new revenue models. The company, which is the runner-up mobile carrier but the country's largest fixed-line and Internet provider, is focusing on establishing a significant business model for WiBro, the local variant of mobile WiMAX.
The company has yet to show signs of backing its boast of becoming a top-tier global telecommunications company such as British Telecom (BT).
KT's future growth strategy is based on convergence services, which include introducing integrating advanced telecommunications technologies to other industrial sectors, and this new generation businesses will generate 27 trillion won in revenue by 2012, company executives say.
KT's convergence services target three main sectors ― household, corporate and individual clients ― and these also account for an integral part of the company's global strategy.
"KT's plans are too ambitious and it remains to be seen whether they will ever produce what they are aiming for. In the short-term, getting more return from its massive investment in WiBro is an urgent issue," said an industry source.
KT plans to team up with U.S. chip giant Intel, Korean technology giant Samsung Electronics and other business partners to form a 320 billion won joint venture based in Korea to give the WiBro segment a needed jolt.
KT spokeswoman Kim Yoon-jeong said the partnership will help boost wireless technology on the local market that has experienced fast-growing demand for mobile data use due to the booming interest in smartphones.
But WiBro, a Korean portable Internet standard, has already lost its business momentum in developed countries and looks to be in danger of becoming just a niche technology for emerging markets that lack sufficient telecommunication infrastructures.
KT believes developing regions such as South America, South East Asia and the Middle East could be potentially lucrative markets for its WiBro offerings.
KT recently inked a partnership with Abu Dhabi-based Etisalat ― the biggest telecom carrier in the Middle East region ― to cooperate on Wi-Fi roaming, Internet protocol television (IPTV) technology and other areas. However, the decision by its former Russian business partner, Yota, the fourth-largest WiMAX operator, to convert to the LTE camp has been a big blow for KT.
"WiMAX is engaged in a losing battle against LTE on the global market. This is a negative development for KT as its overseas strategies rely heavily on WiBro," said Park Jae-seok, an analyst at Samsung Securities.
KT's Kim said the company is also planning to export its "mobile management system" designed for railways to strengthen its attempt to find foreign partners. Recently, KT bought a 25 percent stake in Chinese mobile content developer Omnitel China to jointly develop mobile gaming-related content and other services.
Last year, KT pulled back from its joint investment with Japan's NTT DoCoMo in U-Mobile in Malaysia due to stalled business growth.
"Time and the situation are not on KT's side. The company is advised to overhaul their overseas business strategy if it wants to go forward," said Park Yeong-sang, a media critic at Seoul's Hanyang University.