By Kim Tong-hyung
KT, the country’s biggest telephone company, has been wildly throwing its tentacles beyond its traditional telecommunications boundaries, desperately searching for something to replace a decaying business model in voice. And its latest attempt to find its next gold trail is all about dirt, concrete and steel.
The telecommunications giant announced the creation of its specialized real-estate entity, KT Estate, Monday, which will focus on planning and executing property projects, an area that accounted for about 30 percent of the company’s revenue last year.
However, it could be said that KT has barely scratched the surface of its immense potential in the real-estate business, as the mere book value of its property assets combine for more than 6.4 trillion won (about $5.4 billion).
Industry watchers believe that the real-estate market, in spite of the prolonged slump of the sector, will provide KT a quicker and easier way to enlarge its wealth at a time when competition in the telecommunications industry is becoming cut-throat.
KT Estate will also be involved in the company’s ``ubiquitous city (U-city)’’ projects around Korean cities and some developing nations, which are aimed at strengthening the role of information and communication technology in the planning and management of cities.
KT is not the only Korean conglomerate attempting to flex more muscle in real-estate circles. Lotte Group, which had been engaged in a merger-and-acquisition (M&A) binge in recent months, will certainly be a market mover after it begins constructing its controversial trophy skyscraper, a 123-floor tower dubbed the ``Second Lotte World,” in southern Seoul later this year.
The Hyundai-Kia Automotive Group is involved in the redevelopment project of the old Sampyo Remicon factory site in Seongsudong, Seoul, which begins during the second half of the year and the plans include building a 110-story office complex.
The Aekyung Group, whose empire is based on soap, toothpaste, shampoo and dishwashing liquids, also appears to have developed an appetite for cement, as it aggressively seeks for new opportunities through its real-estate unit, AM Plus.
For these companies, the current turmoil in the country’s real-estate market appears to be seen as an opportunity to lock up potential high-reward assets at low prices, as their size and wealth clearly affords them the patience to wait for the market to recover.
However, some observers believe that the companies renewed devotion to real estate is also a confession of their lack of creativity in developing new products and services that provide value.
Among the companies, KT appears to be the easiest target of critics, who claim that the company, which started as the country’s telecommunications monopoly, was able to acquire its current property assets as below-market prices.
``KT hasn’t been getting enough revenue from its real-estate business when considering the total value of its assets, and this was indeed an area that Chairman Lee Suk-chae looked to squeeze more money out of,’’ said an telecommunications industry official.
``Of course, it’s hard to blame them for finding better use of their existing properties and unused land. However, this is clearly also the easiest way for them to expand wealth.’’
KT, which is also the largest Internet provider and No. 2 mobile telephony carrier, has been scrambling to keep growth alive in one of the planet’s most wired countries, where there are broadband connections for virtually every household and more phones than heads.
KT’s fixed-line telephony business has been devastated by the emergence of mobile services and cheaper Internet-based telephony.
Riding the public’s love affair with the Apple iPhone, KT has been competing admirably in the mobile market against the dominant carrier, SK Telecom, but nonetheless continues to be pressured by the government to lower its voice rates.
The price competition will only increase with the impending debut of mobile virtual operators (MVNOs), who get to purchase wholesale voice minutes and data from carriers like KT and SK Telecom to provide their own brand of mobile services.
And KT’s venture into broadcasting through Internet protocol television (IPTV) has yet to become a license to print money, and forecasts differ over whether it ever will be.
In real estate, however, KT appears to have some huge building blocks to build on. The biggest gem is its massive office building in Gwanghwamun, Seoul, which is also the home of the Korea Communications Commission (KCC), the country’s broadcasting and telecommunications regulator. Combine this with its nationwide telephone stations, regional offices, employee training centers and other sites and facilities, and it seems realistic to think that KT could very well be in the top-five of all Korean conglomerates in terms of property ownership, observers say.
``We are planning to reduce the number of our telephone stations from 450 to 50 over the next five years, which gives us 400 sites to develop into real-estate assets,’’ said a KT official.
``The company earlier this year predicted that the real-state revenue for 2010 will be somewhere between 230 billion won (about $196 million), but the number will be higher should our businesses in rent, sales and redevelopment flourish.’’