5G mobile subsidy war looming

KT, LGU+ and SKT stores engage in excessive promotions to lure customers. Yonhap

New subscriptions failing, putting pact to cut subsidies into question

By Kim Hyun-bin

There has been a major slowdown in fifth-generation (5G) subscribers in recent months sparking worries that the three major telecom companies will restart aggressive marketing campaigns to attract more customers, despite such a move eating into their profits.

Since August 2019, the number of 5G subscribers has started to gradually decline and if the trend continues it will be difficult to reach their initial goal of 15 million users by the end of this year.

The coronavirus outbreak has also a taken a toll on sales of the newly released Samsung Galaxy S20 series, hurting profitability.

According to a recent Ministry of Science and ICT report, there were 4.95 million 5G subscribers as of the end of January, an increase of 290,000 new subscribers for the month and the lowest increase since the 5G network was commercialized in April last year.

In the initial stages of 5G commercialization, SKT, KT and LG Uplus spent a vast amount of money in marketing to promote the newly established network including “ridiculously” large mobile subsidies, which meant some new 5G phones were nearly given out for free to new subscribers. Due to the fierce competition, there was an increase of 880,000 new subscribers in between July and August, last year.

Experts believe continuous promotion efforts could have resulted in a total of over 5 million 5G subscribers in January.

The marketing expenditures were a hefty burden on the telecom companies, leading to SK Telecom, KT and LG Uplus forming a pact to minimize competition and mobile subsidies for the newly released S20 smartphones in early February.

Despite efforts to limit cash-intensive marketing campaigns, many market watchers believe it is inevitable that the three will engage in fierce competition again to attract customers.

“If the coronavirus situation is prolonged through April or May, sales goals for the Galaxy S20 are unlikely to be reached,” a telecom official said. “Due to these circumstances, fierce marketing between telecom companies is expected to come in the latter half of the year after the release of the Galaxy Note and the first iPhone 5G model, as the pact is seen as ineffective for them in reaching their sales goals.”

Only 70,000 Galaxy S20s were sold on the first day of their release, Feb. 27, 50 percent fewer than the Galaxy S10 series in March last year. The Galaxy S10 Note was the most popular with 220,000 sold at its release in August.

Despite the 5G subscriber rate slowing and difficulty in reaching the 15 million user mark, many industry experts see the 5G market in a positive light, claiming there will be continuous growth and with the current pace a possibility it could reach over 11 million 5G subscribers this year.

“Over 11 million 5G subscribers are expected this year as the new line of 5G smartphones are scheduled,” Jang Min-jun, an analyst at Kiwoom Securities said. “Diverse 5G services will also be launched including cloud gaming and AR services, which are expected to be launched in the first half of the year. Also 16 million 5G phones were released last year, but this year it is expected to exceed 270 million.”