Telecom firms expected to display weakened Q2 earnings

Models use Samsung Electronics' Galaxy smartphones at a SK Telecom outlet in this handout photo released on July 19. Courtesy of SK Telecom

Korea’s top three mobile carriers are expected to report second-quarter earnings reflecting a slowdown in profitability, as the market for 5G services nears saturation while investments into artificial intelligence rise.

SK Telecom, KT, and LG Uplus are scheduled to announce their second-quarter earnings on Aug. 6, 7, and 9, respectively, via conference calls.

Market watchers forecast weakened earnings for the carriers.

According to market tracker FnGuide, KT’s operating profit for the period is expected to decline by 4 percent from a year earlier to 553.9 billion won ($399.9 million), and LG Uplus will also see a 10.2 percent year-on-year drop to 258.4 billion won during the same period.

SK Telecom’s operating profit is forecast to reach 517.9 billion won, up 12 percent from a year earlier, but analysts said the increase is attributable to the company’s low earnings last year as well as more than 10 billion won in one-off profit related to a patent.

“Among the three mobile carriers, only SK Telecom will log a year-on-year increase in operating profit,” Hana Financial Investment analyst Kim Hong-sik said. “Along with a 15 billion won of operating profit related to patents, the increase greater relations to the company’s sluggish second quarter earnings last year.”

The retreat in earnings is attributable to the saturating market, which has been the main revenue source for mobile carriers since Korea began 5G services in 2019.

As of May, the number of 5G subscriptions in Korea reached 33.85 million, accounting for 65.4 percent of the country’s population of 51.77 million, according to data from the Ministry of Science and ICT and the Statistics Korea. The number of 5G subscribers increased 1.3 percent from July to August, 2023, but slowed to 0.7 percent from April to May this year.

The number of people using telecom services reached 56.75 million, higher than the country’s population, showing the telecom market is reaching saturation.

The government’s policies aimed at lowering communication costs for households are also affecting mobile carriers, forcing them to roll out low-cost 5G subscription programs. Due to this, mobile carriers’ average revenue per user (ARPU), a key index indicating profitability, has been stagnating.

SK Telecom’s ARPU in the first quarter of this year stood at 29,239 won, down 2.9 percent from a year earlier. LG Uplus' ARUP was 19,761 won, down a whopping 20.1 percent during the same period. Only KT posted a 2 percent year-on-year growth in ARPU of 34,461 won in the first quarter.

Models use Samsung Electronics' Galaxy smartphones at a KT outlet in this handout photo released, July 19. Courtesy of KT

Increasing expenditures on AI-related businesses are also weighing on their profitability.

SK Telecom announced that it would triple its investments in AI, while KT continues to recruit IT personnel specializing in AI. LG Uplus is also in the process of establishing an additional AI data center.

Kim said the downtrend in telecom companies’ operating profits will likely continue next year, since inflation is hindering their efforts to cut operating costs. But he noted that the government’s revoking of the license of a new mobile carrier and the National Assembly’s move to lift regulations are affecting the companies positively.