[Concall Summary] SKT to Reach 10 Million 5G Subscribers Within the Year... Completion of Split Decision in the First Half

[Asia Economy Reporter Eunmo Koo] ‘New businesses’ led the way and ‘5G’ pushed forward. SK Telecom, which declared its leap into a comprehensive ICT platform company, recorded nearly 30% growth in the first quarter of this year, driven by new businesses including media. Operating profit from 'New ICT' businesses such as media, commerce, and security increased by more than 60%, and the core mobile network operator (MNO) division also achieved double-digit growth due to the expansion of 5G subscribers.

New business growth is expected to continue after the second quarter with the successive launch of new services such as subscription membership models, and the accelerated number of 5G subscribers is likely to surpass 10 million within the year. The board of directors is also expected to hold a meeting in the first half of the year to complete the decision-making process related to the corporate split.

On the 11th, SK Telecom announced first-quarter results with sales of KRW 4.7805 trillion and operating profit of KRW 388.8 billion. With continued growth in new business sectors such as media, sales increased by 7.4% and operating profit by 29.0% compared to the same period last year. Net profit rose 86.9% to KRW 572 billion, influenced by equity method gains from SK Hynix shares.

Strong Performance Driven by New Businesses and 5G

SK Telecom’s strong performance directly reflected the effects of new businesses. Despite the COVID-19 pandemic last year, the New ICT businesses such as media and commerce, which had driven solid results, posted operating profit of KRW 103.4 billion in the first quarter, up 64.1% from the same period last year. Sales also increased by 16.7%, accounting for 31.8% of total sales. This is interpreted as resulting from increased media subscribers, new security businesses such as home and parking, and growth in commerce transaction volume. In particular, the media business recorded a 98.9% growth in operating profit due to IPTV growth and the effect of the T-broad merger.

The effects of new businesses are expected to continue after the second quarter. Wave, which recently hired Chief Producer Chanho Lee, who planned dramas such as ‘Misaeng’ and ‘Goblin,’ as Chief Content Officer (CCO), is expected to expand its scale by strengthening original content competitiveness. At the earnings conference call held that afternoon, Hyungil Ha, Head of SK Telecom’s Corporate 2 Center, said, “With the KRW 100 billion capital increase by SK Telecom and existing secured funds, external investments, and content revenue, we plan to raise KRW 1 trillion in investment funds by 2025,” adding, “Through this, we expect to quickly reach 5 million subscribers and KRW 500 billion in sales by 2023.”

Tmap Mobility, which was valued at KRW 1.4 trillion last year with investment from Uber, is also expected to start full-scale business through various additional services and mobility services. Ha said, “In the second quarter of this year, Tmap Mobility plans to launch a subscription membership service, which has not existed before, in the life platform and pilot a chauffeur service targeting B2C customers.”

The core mobile communication business also showed strong performance by solidifying 5G leadership. The MNO division successfully turned around last year thanks to the expansion of 5G subscribers and increased data usage. In the first quarter, SK Telecom’s standalone sales were KRW 2.9807 trillion, and operating profit was KRW 307.3 billion, up 1.9% and 19.0% respectively from the previous year. In particular, as the proportion of 5G subscribers steadily increased, average revenue per user (ARPU) and wireless service sales rose simultaneously. As of the end of March, SK Telecom’s 5G subscribers numbered 6.74 million, accounting for 46.5% of the total.

By the end of this year, the number of 5G subscribers is expected to exceed 10 million. SK Telecom Chief Financial Officer (CFO) Poongyoung Yoon said, “Due to the launch of new 5G products, improved service quality, and flagship device releases, the number of 5G service subscribers in the first quarter increased by 1.26 million from the previous year to 6.74 million,” adding, “We initially set a target of 9 million 5G subscribers by the end of the year, but at the current pace, surpassing 10 million by year-end seems possible.” He also added, “Based on customer needs, new 5G plans and untact plans are expected to expand customer choices and promote subscriptions.”

Launch of Integrated Subscription Service in the Second Half

In the second half, SK Telecom plans to launch an integrated subscription service along with a new subscription marketing platform. SK Telecom will first evolve the existing T Membership into a subscription marketing platform accessible to the entire nation and launch it anew in the second half. CFO Yoon explained, “The domestic subscription market is expected to grow from KRW 49 trillion last year to over KRW 100 trillion by 2025,” adding, “Through expanding partnership areas and business models (BM), we aim for 35 million subscribers and KRW 1.5 trillion in sales by 2025.”

Additionally, subscription services in areas closely related to customers’ daily lives such as education, rental, and F&B are expected to continue expanding partnership areas. SK Telecom stated, “The integrated subscription service being prepared for launch is basically similar to Amazon Prime,” and added, “We will add various subscription products in daily life areas by encompassing SK ICT family and partners.”

Decision on Corporate Split to be Finalized in the First Half... Dividend Maintained at Last Year’s Level

SK Telecom also announced plans to finalize the decision on the corporate split within the first half of the year. At the conference call, CFO Yoon said, “We are carefully reviewing the overall process related to the split and aim to submit the corporate split agenda to the board of directors within the first half,” adding, “Considering all circumstances, it seems possible to hold a shareholders’ meeting around October and relist by November.”

He also stated, “After the split, the surviving company will grow into an AI-based infrastructure company consolidating wired and wireless communication infrastructure, while the newly established company will become an ICT investment specialist focusing on aggressive investment and value-up centered on semiconductors and life platforms.” He added that the business portfolios of both the surviving and newly established companies will be finalized through the board of directors within the first half.

Meanwhile, even after switching to quarterly dividends, the dividend level is expected to be maintained at last year’s level. CFO Yoon said, “We will firmly maintain a shareholder-friendly management stance even after the corporate split,” adding, “Dividends for the surviving company will be maintained at last year’s level regardless of the split.” He continued, “As Korea’s number one wired and wireless company, with 5G achievements becoming full-fledged, cash flow is expected to improve, and we will prepare and implement shareholder return policies that can be delivered to shareholders.”