Mobile carriers hit by lower telecom fees

By Jun Ji-hye

SK Telecom, KT and LG Uplus have seen their bottom lines deteriorate over the past year as the government forces them to lower telecom and other wireless services fees.

Looking at the second-quarter earnings reports announced by SK Telecom, KT and LG Uplus, the total sum of their operating profits was 957 billion won ($852 million), an 11.2 percent decrease from a year ago.

Since the sum of their operating profits was tallied at 1.08 trillion won in the second quarter of last year, the figure has remained below 1 trillion won for four consecutive quarters _ 983 billion won and 645 billion won in the third quarter and fourth quarter last year, respectively, and 910 billion won in the first quarter this year.

The government's move to cut consumer mobile costs, one of the core election pledges of President Moon Jae-in, seems to have directly led to the performance deterioration of the companies' mobile phone business as their average revenue per user (ARPU), a representative profitability index, dropped.

The second-quarter ARPU of SK Telecom fell to 32,289 won, a 7.6 percent decrease from a year ago, while that of KT and LG Uplus dropped by 5.3 percent and 8.5 percent, respectively.

Especially, the top mobile carrier, SK Telecom, suffered greatly from a business slump _ it posted 346.9 billion won in operating profit for the April-June period, July 27, an 18 percent decrease from a year ago.

The second largest mobile carrier KT also saw a 10.8 percent decrease in its operating profit from a year ago, according to its earnings report announced Aug. 3.

The smallest player, LG Uplus, was the only company whose operating profit increased during the April-June period. The firm announced July 26 that its second-quarter operating profit was 211.1 won, up 1.5 percent from a year ago, thanks to the growth trend of its media business. But the firm's mobile phone business appeared to be slow as well with the operating profit in that division falling by 4.2 percent from a year ago.

Analysts attributed the performance deterioration of telecom firms to a series of policies conducted by the Ministry of Science and ICT to reduce households' telecom expenditures. Such policies included the 25 percent discount rate for ordinary subscribers, up from the previous 20 percent, and a decrease in mobile expenses for senior citizens by 11,000 won per month.

“SK Telecom's operating profit was below the market expectation as its ARPU fell sharply due to the 25 percent discount rate for ordinary subscribers,” said Seong Joon-won, an analyst from Shinhan Investment. “SK Telecom's ARPU is expected to continue to fall until the latter half of next year.”

An official from a telecom company said, “What is to come may be more difficult,” as the National Assembly is set to discuss the government-led bill to introduce a “universal fare plan,” which is also placing the financial burden on mobile carriers.

The official claimed this would consequently weaken firms' profitability at a time when they need to make enormous investments in fifth-generation (5G) network infrastructure to begin the world's first commercial 5G services in March 2019.