By Kim Yoo-chul
Domestic mobile carriers are crumbling under a severe earnings collapse in the second quarter in a battle for the upper hand in the long-term evolution (LTE) market.
Lavish investment in the advanced, new-generation networks are challenging recovery.
``The worst is yet to come. The second quarter was terrible for all telecom carriers. Korea’s telecom industry experienced its toughest period for the three months to June,’’ said a top-ranked executive at KT in a recent telephone interview.
Among the three firms, LG Uplus, the smallest carrier has the worst footing. According to market analysts, it is estimated that the company’s operating profit fell by around 80 percent to below 10 billion won for the second quarter. They estimate net losses of 20 billion won.
Choi Nam-gon, an analyst at Tong Yang Securities, believes the main reason for LG’s steep drop in operating profit was heavy spending to climb to the No. 2 position. ``The combined spending for marketing by the carrier rose to 2 trillion won for the second quarter ― up 30 percent from the previous one,’’ said an official from the Korea Communications Commission (KCC).
Profit for market leader SK Telecom is estimated to have dropped by 15 percent to remain at about 380 billion won compared to a quarter earlier, while the operating profit for KT decreased by 24.2 percent to 323 billion won, according to a report by Hyundai Securities.
``It’s no surprise that telecom companies have experienced a so-called earnings shock in the latest quarter. A recent cut in mobile charges ordered by the nation’s top telecommunications regulator and lavish marketing combined to strip profitability,” said Song Jae-kyung, a senior analyst at KTB Investment, Sunday.
LTE is the top buzzword for carriers this year amid an explosive growth in data-intensive and speedier devices such as smartphones and tablets. Carriers, which were stalling for corporate growth in the saturated telecom market, have been aggressive as they strongly believe LTE is the next cash-generator.
``Inspired by LG Uplus’ initial success in LTE marketing, rival KT joined the cash war, which is a blessing for customers but a disaster for carriers as more subsidies mean less profit, in general,’’ said Song.
The number of local customers using devices supporting LTE exceeded 7 million in June, compared to 1.2 million in early January, according to the KCC.
Despite the market growth, carriers have as yet failed to yield any returns from their investments in the LTE network. Their average revenue per unit (ARPU) ― the key barometer to gauge their profitability ― showed no increase in the past quarter.
Concerns echo over the soundness of LTE services as the current race for subscribers is set to peak in the second half.
``This is a market that we shouldn’t give up. We hope ARPUs for LTE will bounce back a bit in the second half as the market is growing with handset majors such as Samsung, LG Electronics and Pantech rolling out more devices supporting LTE,’’ said the KT executive.
SK Telecom started servicing its 1.8 gigahertz bandwidth for its LTE service, as well as its existing 800 megahertz frequency, while LG Uplus is working toward a 2.1 gigahertz frequency to make its LTE service more stable. KT plans to take similar action in the third, company officials said.