WorldITShow SK Telecom spends big in push for innovation
CEO Ha Sung-min vows shift toward platform business
By Kim Yoo-chul
SK Telecom chief executive Ha Sung-min is investing more of his time and the corporation’s money in the search for what’s next.
Ha is moving into a so-called ``second arena’’ from conventional telecommunication-centric fields, and is talking about the importance of content- and platform-related areas.
``The more I learn about the world of smart devices, the more I see that innovation and changes are more than critical,’’ said the chief executive at the SK Group-affiliated telecom unit.
``We need a breakthrough; we need multiple breakthroughs. We need to push open-based businesses and spend more on platform-related businesses in order to give more value to customers,’’ the top executive said.
Since late last year, the financial and management expert Ha has been leading the telecommunication firm, which controls more than 50 percent of the local telecom market.
The steadily growing demand for value-added handsets, here ― one of the world’s the most-wired societies ― and the release of new tablet computers on the local market are expected to help improve SK Telecom’s earnings in the next quarter, according to local stock analysts and company officials.
The changing landscape in the local telecom industry is also giving more business opportunities to all carriers as content has just emerged as the top buzzword in an era of smart digital phones that are Internet connected.
Ha is now leading the way to build an output-based corporate culture to make SK the leader in future business areas.
``I am asking all employees to have more independency to yield more visible results both in existing and emerging businesses. I will lead the way,’’ said the CEO.
``I think the following words ― speed, collaboration and openness ― are more than important. SK Telecom’s strategies will be based on these.’’
Changes are already under way at SK Telecom. It is pushing to diversify its management and become a truly international player.
By the time Ha took over the top seat at SK Telecom, the company had been leading the local market, but there were some doubts over the visibility of the firm’s future growth engines.
Ha believed that SK Telecom needed to have a shake-up if it wanted to prosper in the converged telecom era.
Towards that belief, the CEO has given more authority to its platform-related business units and allocated more cash, according to SK officials.
``Subscriber was the top word for all carriers, previously, but it’s become the core point whether to provide more distinguished and competitive content to customers amid an era of smart devices,’’ said the chief executive.
``That’s why SK is pushing to lift our mobile platform business with the long-term goal of creating a new eco-system in the telecom industry,’’ said Ha.
SK Telecom is seeing a decline of its average revenue per user (ARPU) due to the proliferation of free text messaging services and mobile Internet calls that are also free of charge ― business models which were unseen before and are quite negative to telecom companies in terms of profit, according to Ha.
ARPU is an expression of the income generated by a typical subscriber or device per unit time in a telecommunications network.
The technical term provides an indication of the effectiveness with which revenue-generating potential is exploited.
In communications, the CEO is spending more time with employees. Ha usually talks with his key executives over pending issues. Tempers have flared ― a rarity in a Korean company where consensus and face are paramount.
But after the meetings, the top executive said; ``We need to talk more.’’ SK’s mid- and low-ranking executives were a bit worried that they might have crossed the line unconsciously.
``Is something wrong? Why don’t we have more arguments?’’ the CEO asked.
Consistency
Korea is well regarded as being in the forefront of fast adoption of mobile technology trends. But that also means that SK’s growth has been facing uncertainty; everyone here who might buy one already has a smartphone.
Therefore, it seems quite evident that SK Telecom wants to move up the value chain with its own mobile operating system and platform, competing directly with Nokia and Apple.
Given that SK hopes to construct its platform through alliances with other non-Korean telecoms, by selling iPhones and Android mobiles, some say its moves are not encouraging.
But Ha has his own record and path.
To keep up with his new management philosophy, Ha said SK Telecom’s platform business will grow to create 5 trillion won annual revenue from 2015.
As an initial step, the company is set to invest 1 trillion won over the next three years. It will open its APIs and have some 20,000 third-party developers for more content by then.
``Chances are coming. With drastic changes and challenges, SK Telecom won’t lose these golden opportunities. We will open our key services and invest more in other future fields such as healthcare, education, robot and securities-related businesses,’’ said Ha.
Since last year, SK Telecom has been spending more to support third-party content developers capitalizing on Google’s Android mobile platform.
Spokeswoman Kim Ji-won said its ``T-Store,’’ the institute for such content developers, has now 4,000 graduates as of the end of March since it opened a year ago.
``That equals 9 billion won in support,’’ she said, adding the company has been seeing the number increase in ``one person content-creating company.’’
Mobile software platforms are making it possible for users to download applications created by a variety of third parties onto their mobile gadgets.
Ha’s announcement on completely opening SK’s key platforms, in an apparent strategy to urge developers to create value-added applications, is regarded as ambitious but inevitable.
``We think this is a field that we cannot abandon,’’ the chief executive said.
SK has already designated seven key areas as its ``service platform’’ business for development, including location-based services, mobile commerce, messaging and social networking services.
Ha is aiming high.
Last month, SK announced a partnership with China Mobile. In the alliance, SK will help China Mobile develop Android-based solutions for smartphones and tablet computers.
``As part of the deal, the two will also jointly research low-cost network software platforms, collaborate on application store capabilities, and work together to enhance mobile application store services,’’ said the spokeswoman.
Tech development is also on Ha’s key list.
The company will commercialize its next-generation telecom technology ― long-term evolution or LTE ― from July this year and it has a plan to expand coverage to 23 cities including the Seoul Metropolitan Area by 2013.
It is also planning to release LTE-enabled smartphones and tablets possibly within the second half of this year, according to Kim.
Further, it added that it will use its own cloud-based network ― Smart Cloud Access Network (SCAN) ― to establish the LTE network.
Officials say the network will have greater flexibility and seamlessly handle mobile data traffic varying by time and region.
Impressive earnings, better future
Ha said shares of SK Telecom were ``undervalued,’’ but he sees several areas for corporate growth.
``Even overseas, SK Telecom has begun yielding some profits. Let’s see what happens,’’ said the 54-year-old.
SK Telecom aims to reap 13.3 trillion won total sales this year from 12.5 trillion won in 2010, according to the company.
Also, it is seeking a non-consolidated operating profit of 2.4 trillion won under new international accounting standards.
Analysts have no big questions that SK’s earnings will improve in the coming quarters as it has been getting more smartphone subscribers amid continuous growth in the segment, though the government’s pressure to lower phone bills could dent its profitability in the short- to mid-term.
During the first quarter of 2011, net profit rose 56.5 percent from a year ago thanks to a rise in the number of smartphone subscribers.
``The second quarter profit will be even better than the first,’’ said Yang Jong-in, an analyst at Korea Investment & Securities.
With the new smartphone and tablet offerings coming to the market from the second quarter, the rise in the number of smartphone subscribers will outweigh SK Telecom’s increased capital spending and any required telecom rate cuts by the government, according to analysts and officials.
SK has secured six million smartphone subscribers as of the end of the first week of May and has hopes to achieve its 10 million target by the end of the year.
SK has been selling Apple’s iPhones on the local market ― a strategy adopted by the new chief executive to diversify its smartphone supply channels considering the soaring demand.
Staying on top is a challenge for Ha, ironically. Smartphones have been a boon for SK Telecom, but the outlook is still unclear for its international businesses.
SK Telecom’s previous attempts to knock on the foreign doors had poor results. And whether SK Telecom and its bigger local rivals are innovative enough for better competition eventually is a chronic question, given the country’s corporate culture.
``Slow and steady wins the race. I will not hesitate to take any imminent leap outside the peninsula. But the one noticeable thing is that SK Telecom is seeing changes and we are confident that we can overcome any difficulties that may arise,’’ said the CEO.