By Kim Yoo-chul
Staff Reporter
SK Telecom and KT, the country's bitter telecommunications rivals, are pulling no punches in their battle for supremacy in advanced mobile devices such as smartphones.
And the two companies would be the first to admit that the ferocious competition is going to lead to battered and bruised first-quarter report cards.
Not that things are expected to get much better as the year advances, says industry watchers, who predict that marketing expenses will only increase in the coming months when a slew of new devices hit the market.
High-end devices such as the Apple iPhone and Motorola Motoroi are critical for the mobile carriers, who hope that the increase in data revenue will make up for declining voice sales.
The companies are also investing heavily in new customer services that use Wi-Fi-enabled phones.
KT is pushing a new service called fixed-mobile convergence (FMC), an Internet telephony service that allows users to switch between fixed-lines and mobile networks using a single handset.
And in what is considered a direct attack on KT, SK Telecom is currently promoting a new type of service called fixed-line substitution (FMS), which enables users to pick certain service areas where mobile calls will be provided at similar rates to voice over Internet protocol (VoIP) services.
SK Telecom is Korea's biggest mobile-phone carrier, controlling more than half of the country's wireless users. KT trails SK Telecom as the No. 2 wireless carrier, but is the country's largest telephone company and Internet provider.
Reports from numerous brokerages are forecasting declining profits for both KT and SK Telecom for the first three months of the year.
One prediction has SK Telecom earning 520 billion won (about $468 million) in first-quarter operating profit, which would be a 7 percent drop year-on-year, while KT would post 490 billion won, an 18 percent plunge over the same period.
The earnings report of LG Telecom, the smallest of the country's three mobile-phone carriers, will look comparatively better, analysts say.
"SK Telecom and KT both experienced their peaks in new customers during the January-March period, as a result of their massive campaigns to lure smartphone contracts. However, the lavish spending will make a dent in their operating profits," said Kim Dong-june, an analyst at Eugene Investment and Securities.
SK Telecom gained more than 350,000 new subscribers during the first three months of the year to maintain a 50.7 percent market share, according to company officials.
KT also added 280,000 new customers during the same period, driven by the immense popularity of the iPhone, of which more than 500,000 units were sold, just four months into its release.
KT also lured 150,000 more Internet telephony users, most of them migrating from the more expensive fixed-line services, and acquired 60,000 new broadband Internet customers, company officials said.
"Looks aren't everything and the telecommunications companies are learning this the hard way. New mobile systems will also require more money and the increasing popularity of smartphones will only stretch their marketing budgets," said Kim Hong-shik, an analyst at NH Investment and Securities.
Despite the immense amount of money spent, SK Telecom and KT aren't expecting a quick jolt in business.
The increasing competition on the smartphone end, especially over the wealth of new devices powered by the Google-backed Android operating system, signifies that the bleeding will last a bit longer.
And starting in September, the mobile-phone carriers could find new competition for voice and mobile data services with the debut of mobile virtual network operators, which buy wholesale minutes, text and data from wireless network operators and resell them to consumers under their own service brands.
The predictions of deteriorating profit has mobile-phone operators vowing to cut back on marketing expenses, with the Korea Communications Commission (KCC), the country's telecommunications regulator, pressing them to engage in a "healthier" competition.
However, analysts predict that it won't be easy to convert words into action.
"We can't afford to ease our foot on the gas pedal, and this is probably the same for SK Telecom and LG Telecom. The country's telecommunications market is going through a dramatic reshaping, and this is not the time to compromise our aggressiveness," admitted a KT official, who didn't want to be named.
SK Telecom spokeswoman Cindy Kang and her counterpart at KT, Kim Yoon-jeong, both declined to comment on how far the companies would be pushing their marketing offensive.
The sense of urgency appears to be stronger at SK Telecom.
SK Telecom's decision to snub the iPhone appears to have been a drastic mistake, and this has company executives seriously considering bringing in Apple's follow-up product ― the iPad tablet computer ― to make up for the blunder.
SK Telecom has yet to report favorable results from its mobile convergence services, such as FMS and corporate FMC services.
The company is also looking to tap revenue sources in financial services, jointly operating a credit card service with the Hana Financial Group to usher in the era of the mobile wallet.
"SK Telecom is now being pressured to lower its revenue and operating profit targets for 2010. The decision to charge voice services per second, compared to its previous rate that charged every 10 seconds, will also take a toll," an industry official told The Korea Times.
SK Telecom is targeting 13 trillion won in revenue for this year, and expects to sell 2 million smartphones.
SK Telecom's Kang admitted that the company's expenses are mounting, but said that the company's results from the investment in e-commerce will allow more time for its new growth engines to take hold.
KT is also dabbling with financial services, looking to acquire BC Card, which operates credit cards issued by its 11 member banks, as the telecommunications wars go plastic.