By Kim Yoo-chul
Korea’s mobile carriers _ SK Telecom, KT and LG Uplus _ are expected to see a drastic deterioration in earnings in the near future due to increased promotional expenses and offering heavy subsidies.
Despite the ongoing probe by the country’s telecom regulator over whether they have been offering excessive subsidies for handset purchases, the carriers are simply ignoring the warning signs.
The Korea Communications Commissions (KCC) officially recently asked senior marketing executives from the firms to stop providing large subsidies, KCC officials said, adding the government agency is going to continuously investigate the carriers’ policy.
``We have no option but to provide more handset subsidies to achieve our internal goal for long-term evolution (LTE) enabled smartphone users. The KCC warning isn’t effective and is limited,’’ said an official from SK Telecom, Friday.
During the third quarter of this year, the operating income reported by SK Telecom fell 46 percent to 301 billion won, resulting in an operating margin of 7.3 percent. The decline was mainly due to excessive marketing expenses and investment in LTE networks.
``We’ve acknowledged that the KCC is under pressure to probe the carriers over excessive subsides. A customer who wants to buy Samsung Electronics’ Galaxy Note II phablet will receive 500,000 won in cash, immediately, if the customer agrees to change carrier, the only condition for the subsidy,’’ said Kim Sang-heom, a salesclerk from Yongsan Electronics Market in Seoul.
The suggested retail price for the Samsung phablet is 1.15 million won.
If a customer agrees to the conditions, then they could buy LG Electronics’ latest Optimus Vu2 mobile for 610,000 won from an original price of 966,000 won, while the customer will receive 600,000 won in cash for the purchase of Pantech’s Vega R3 smartphone, said salesclerks from the market who were contacted by The Korea Times,.
The KCC said 25,883 people changed carrier on Nov. 6 alone, up from 16,642 on Nov. 1, meaning the carriers don’t have any imminent plans to stop their subsidy campaigns.
``We believe the amount in handset subsidies provided by telecom companies has already reached what we feel is an unacceptable level,’’ said the KCC official.
The telecom regulator reiterated its firm stance over excessive subsidies by carriers and the KCC official said, ``We are going to impose the biggest fines allowed by law on carriers found engaging in illegal marketing expenses.’’ He asked not to be identified.
The KCC could ban carriers from attracting new subscribers depending on the results of the probe and plans to complete the investigation this month.
``We are ready to pay fines if they are imposed. Our top priority is to attract more customers the best way we can by the end of this year as more customers means more profit and a bigger market share,’’ said another SK Telecom source.
SK Telecom and KT plan to start the sale of Apple’s latest handset, the iPhone 5, from December and SK Telecom, which is threatened by KT’s steep rise in the local LTE market share, is expected to spend more on subsidies, said officials from the local telecommunication industry.
``We are currently maintaining our long-term neutral recommendation on SK Telecom,’’ said leading stock market research firm Zacks.