Note 7 recall may have limited impact on carriers

By Lee Min-hyung

Samsung Electronics’ decision to recall its Galaxy Note 7 will not deal a massive blow to the nation’s mobile carriers, as flagship handset users tend to maintain high-priced mobile rate systems regardless of smartphone model, analysts said Tuesday.

Amid growing controversy over the reported explosions of Note 7 handsets, the nation’s three major carriers ― SK Telecom, KT and LG Uplus ― decided Monday not to impose any penalty fees on customers demanding refunds. More than 400,000 users here are known to have preordered or bought the 5.7-inch smartphone.

But analysts said this won’t affect their earnings, as Note series users are mostly subscribers to expensive rate systems which guarantee mobile carriers a high average revenue per unit (ARPU), a key indicator to determine profitability of mobile carriers.

“The Note 7 scandal is definitely not favorable for carriers, but its negative impact on them is expected to be very limited,” said Kim Jang-won, an analyst from IBK Investment and Securities.

He pointed out that Note users have traditionally maintained high-priced rate systems and it is unlikely that they will turn their eyes to cheaper rate systems or budget models following the recall.

“On top of that, chances are low that the carriers will push for aggressive marketing or promotional activities for other new products _ such as LG’s V20 and the new iPhone, which arrive Wednesday,” he said.

Even if Note 7 users switch to Samsung’s rivals, they will continue using rate systems that guarantee high ARPU, according to Kim, which won’t affect profitability of the carriers.

Kim Joon-seop, an analyst from Eugene Investment and Securities, said the carriers can fully recover the costs for subsidies and special promotions when Note 7 users cancel their cell phone contracts with the carriers.

“Carriers will be free from the aftermath of the recall, as they can recover the costs,” he said. “Nothing has been decided over how much expense they should bear for sales commissions offered to retail stores, but the amount won’t be sizable.”

He also said carriers are expected to report more stabilized earnings in the second half of the year, backed by the arrival of the V20 and iPhone 7.

“The flagship devices from LG and Apple help carriers sell more expensive rate systems,” he said. “The carriers are unlikely to spend huge amounts on marketing costs, as the nation’s telecom market has already been stabilized here.”

The analyst also said growing demand for data is another favorable sign affecting carriers’ solid profitability in the next quarter.

“In July, each LTE network user here spent 5.24GB of data on average,” he said. “Growing demand for video content will further boost data consumption for LTE users here, pushing them to choose more expensive rate systems.”