First Ever Surpassing 4 Trillion Won: Forecast of the 'All-Time Highest Performance'
[Asia Economy Reporter Eunmo Koo] Starting next week, the combined operating profit of the three major telecommunications companies for the 2021 annual performance announcement is expected to exceed 4 trillion KRW for the first time ever, marking a record high. This is due to the 5G subscriber base surpassing 20 million and the strong performance in non-telecommunication sectors.
According to financial information firm FnGuide on the 22nd, the combined operating profit of the three telecom companies?SK Telecom, KT, and LG Uplus?is estimated to reach 4.0714 trillion KRW, a 19.1% (651.8 billion KRW) increase compared to 3.4196 trillion KRW in 2020. By company, SK Telecom is expected to record 1.4759 trillion KRW, KT 1.567 trillion KRW, and LG Uplus 1.0285 trillion KRW, each surpassing 1 trillion KRW for the first time.
This strong performance is attributed to the stable growth in subscribers of 5G services, which have relatively higher margins in the wireless communication sector. According to the Ministry of Science and ICT’s ‘Wireless Communication Service Subscription Status,’ the number of 5G subscribers reached 20.19 million as of the end of November last year, surpassing 20 million just 2 years and 7 months after commercialization in April 2019. Compared to November 2020 (10.93 million), the number nearly doubled within a year. The share of 5G subscribers also reached 27.8%, approaching 30%. Given that the total mobile communication service subscribers are around 70 million, this means that 3 out of 10 people in Korea use 5G services.
In particular, the number of 5G subscribers gained momentum after Samsung Electronics released its 3rd generation foldable smartphones. The monthly increase in domestic 5G subscribers, which slowed from over 1 million to around 600,000 earlier last year, rebounded to about 700,000 by the end of August following the launch of the ‘Galaxy Z Flip3’ and ‘Galaxy Z Fold3,’ and further rose to 980,000 after Apple’s ‘iPhone 13’ series release in October. The upward trend continued with an 800,000 subscriber increase in November, pushing the total beyond 20 million.
Beyond their core telecommunications business, the full-scale arrival of the 5G era has also boosted the performance of non-telecommunication businesses leveraging the networks and data owned by telecom companies. Telecom operators are expanding investments in areas that can create synergy based on their existing telecommunications business, such as media, commerce, content, security, cloud, and artificial intelligence (AI), and the proportion of non-telecommunication business in their performance is also increasing.
The growth in operating profit for telecom companies is expected to continue this year as well. Wireless revenue is anticipated to remain stable due to 5G, and concerns over fee reductions and marketing costs are expected to be relatively low. Firstly, the wireless business is projected to sustain growth as the growth cycle driven by 5G effects reaches its peak. Jaemin Ahn, a researcher at NH Investment & Securities, analyzed, “The wireless business shows the greatest sales and operating profit growth during the 3rd to 5th years as penetration rates rise, and since this year marks the 4th year of 5G service, it can enter a meaningful period of performance growth.”
Concerns over fee reductions are also expected to be minimal. Although policies related to lowering communication fees are emerging ahead of the presidential election in March, many low-cost plans have recently been introduced for 5G services, and alternatives like MVNOs (Mobile Virtual Network Operators) exist, so regulatory intensity is expected to be less severe than in the past. Marketing costs are also expected to remain stable as the telecommunications service market has recently focused less on competing through handset subsidies and more on expanding services to maintain existing customers steadily.
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