[Digital Times, Kang Eun-seong] The 3 quarter earnings of 3 mobile carriers are on a downward trend. Earnings at mobile carriers business are sluggish as marketing costs are rising and one-off costs are incurred. In particular, earnings are expected to be worse in 4Q09 due to the full-scale price cut effect amid the upward revision of the discount rate on selective contracts, and capex spending by the year.

According to the mobile carrier industry and securities market on June 6, 3Q earnings of 3 mobile carriers are sluggish. Only LG U Plus recorded an operating profit growth of 1.3% over the same period last year of the three telecom companies. In fact, it is the status quo and the operating profit of SK Telecom and KT decreased by 7.5% and 6.1%, respectively.

The number of subscribers increased slightly, but the marketing bleed for them increased severalfold. KT joined forces with SK Telecom and LG U Plus to attract subscribers. In the end, it did not increase the number of subscribers satisfactorily, and analyzed that the marketing expenses incurred more than KRW 2,27.3 billion and worsened the earnings. Excluding the actual earnings of the three subsidiaries, earnings at telecom businesses are more noticeable.

SK Telecom posted an operating profit of KRW 420.7 billion in the third quarter, down 11.8 % from the same period last year. This is even worse than the 7.5% drop on the consolidated basis. On a consolidated basis, KT was down 6.1%, but operating profit fell 10.5% on a separate basis. LG U Plus alone grew 1.6% on a separate basis.

The upcoming fourth quarter is even worse. If the company`s voluntary profit decline sharply due to competition from the three companies until 3Q, earnings should deteriorate from 4Q due to government regulations.

First of all, the 25% discount option contract, which began on September 15, will have a direct impact on the profit decrease. According to the telecommunication industry, the proportion of high-priced handsets is higher than that of public subsidies. An official in the telecommunications industry said, "In the case of Galaxy Note 8, the selection discount rate exceeds 90%." The USD 11,000 fee reduction for vulnerable groups is more stringent and is a big blow to earnings.

The three mobile carriers claim that the rate cut policy is expected to reduce annual revenue by KRW 700 billion to 800 billion. According to this, in the fourth quarter, when the two systems are in full swing, profits of KRW 58.3 ~ 66.7 billion are expected to decline by each company.

Capital investment costs are also bad. The mobile carriers shall establish and carry out annual facility investment in accordance with the Telecommunications Business Law and the frequency allocation requirements. The facility investment guidance set by the three telecom companies in the beginning of the year is only about 50%. If the remaining half is invested intensively in the fourth quarter, profits will inevitably decline.

"As the discount rate on selective contracts rises to 25%, it is hard to expect the average ARPU growth per subscriber, which is expected to drop by about 1% on average," said Seong Jun-won, a member of Shinhan Financial Investment Research. "The three mobile carriers will have to cut their marketing expenses, rather than profit growth, so as to maintain their competitiveness while controlling costs effectively."

By Kang Eun Seong esther@


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