3 major mobile carriers in deteriorated performance due to contract discount… Universal fare system & 5G investment ‘invisible’
Jong Ye Lin | yeslin@ | 2018-05-01 14:46:47

By Yonhab News

[Digital Times, Jong Ye Lin] Three major mobile carriers reported that their earnings in Q1 were worse than the same period last year. In September of last year, we raised the discount rate of selected contracts from 20% to 25% according to the government policy. In this situation, telecom operators are facing uncertainty about their future earnings, as they are faced with the negative effects of the universal fare system and the rising cost of 5G mobile communications (5G) investment. The three mobile carriers will unveil their Q1 earnings this week.

According to the securities industry on April 30, the operating profit of three telecom companies in Q1 will not reach KRW 1 trillion. Mirae Asset Daewoo Securities forecasted that SK Telecom would have KRW 4.25 trillion, KRW 375 billion, KRW 5.84 trillion, KRW 358 billion, LG Uplus KRW 3.129 billion, and KRW 204.6 billion, respectively, as sales and operating profit of the three telecom companies in the first quarter. The combined operating profit of the three companies is 938.8 billion won, less than KRW 1 trillion. The combined operating profit of the three companies in the first quarter of last year was KRW 1,030 billion. According to the securities industry`s estimates, operating profit in Q1 is 8 % points lower than the same period last year.

As such, mobile carriers’ operating profit fell sharply due to an increase in the selective discount rate. In September of last year, users increased by 20% to 25% discount. In particular, it is the analysis that the subscribers who use the existing 20% discount rate from January of this year have to change to 25% if the remaining subscription period is less than 6 months after 24 months.

"The drop in ARPU per service subscriber is expected to be larger than expected by Q3," said Lee Hak-moo, an analyst with Mirae Asset Securities.

In this kind of situation, the burden on mobile carriers is increasing. There is a lot of work to be done before 5G commercialization. The three telecoms are ahead of the government`s auction of the world`s first 5G commercial in June. Total amount and bid increments that will have a major impact on the final auction price have not been announced yet. However, the price of the first auction has already started at about 3,300 billion won, which is the highest level ever.

Telecom companies are feeling a lot of investment pressure. Frequency investment is not the end. Construction of equipment including base stations is costly. The industry is investing in building a 5G network that is two to three times the size of fourth generation mobile communications (LTE). In case of SK Telecom and LG Uplus, KT will have to pay for sharing essential facilities.

The cost of telecom spending is also increasing in line with the government`s telecom pricing policy. In recent regulatory reform committees, the government has passed the screening for the elderly service charge reduction. SK Telecom said, "We have already reduced the annual tariff of 400 billion won, and this cost will increase to KRW 900 billion this year." Although the company has just started its first steps, the universal service plan is also a source of fear for mobile carriers. Telecom companies worry that 60% of three companies` operating profits could be eliminated as a universal fare system if the universal service plan is implemented.

Meanwhile, the carriers are planning to release various measures in order to overcome this pressure, and the expenditure will increase. Some mobile carriers are reported to be discussing internally to launch lower-priced plans in response to universal fare plans. Telecom carriers have already begun to cut rates themselves by restructuring the no-show system and deferring the option discount discount.

A mobile carrier expert said, "Mobile carriers have no place to wait for the recent cost discovery decision," adding, "It will also be necessary to encourage investment fraud in important times ahead of 5G commercialization."

By Jong Ye Lin yeslin@

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