Telecom 3 Companies Q1 Operating Profit 1.3 Trillion Won... 5G Mid-Tier Plans Are a Variable

Over 20% Growth Compared to Last Year
KT Up 41.1%... SKT Grows 15.5%
LG Uplus Alone Declines 5.2%

The three major mobile carriers

[Asia Economy Reporter Minyoung Cha] The combined operating profit of the three major telecom companies in the first quarter grew by more than 20% year-on-year, surpassing 1.3 trillion KRW. From the first quarter to the third quarter of last year, the combined operating profit remained in the 1 trillion KRW range, briefly dipping in the fourth quarter, but recovered to the 1 trillion KRW level again in the first quarter of this year. However, with increasing pressure to launch a mid-tier 5G plan under the Yoon Seok-yeol administration’s policy direction, the industry is facing challenges.

According to the telecommunications industry on the 15th, the combined operating profit of the three telecom companies in the first quarter of this year was 1.3202 trillion KRW, an increase of 20.7% (226.2 billion KRW) compared to the same period last year. SK Telecom’s operating profit rose 15.5% year-on-year to 432.4 billion KRW, and KT’s increased by 41.1% to 626.6 billion KRW. However, LG Uplus saw a 5.2% decrease to 261.2 billion KRW.

The strong operating profits of the three telecom companies are attributed to an increase in subscribers to the relatively higher-priced fifth-generation mobile communication (5G) service and improved profitability due to reduced marketing expenses. According to the Ministry of Science and ICT, the number of 5G subscribers reached approximately 22.91 million as of the end of March this year, an increase of 1.99 million (9.5%) compared to the end of last year. Meanwhile, the marketing expenses of the three telecom companies have been on a downward trend. Since the early stages of 5G network construction, the three companies have refrained from excessive competition to attract subscribers.

The telco diversification strategy also appears to have been effective. KT, for example, achieved a ‘Digital Platform Company (DIGICO) transformation’ and posted an earnings surprise with an operating profit of 626.6 billion KRW in the first quarter. This is the largest quarterly operating profit since the third quarter of 2010. Revenue from wired and wireless businesses, as well as cloud, Internet Data Center (IDC), robotics, content, and finance sectors, increased evenly, improving profitability.

However, the burden has increased as the possibility of introducing a mid-tier 5G plan in the second half of this year has grown. Pressure to introduce a mid-tier 5G plan has intensified with the launch of the new government. The Presidential Transition Committee hinted at the possibility of introducing a mid-tier 5G plan by stating at the end of last month, “We will expand the selection of 5G plans within the year through consultations with the Ministry of Science and ICT and the three telecom companies.” This reflects the acceptance of voices from consumer groups including the Korea Consumer Federation and political circles. The mid-tier plan is expected to be introduced in the range between 10GB (55,000 KRW per month) and 110GB (69,000 KRW per month) of data provided by the three telecom companies.

While some in the market worry about negative impacts on stock prices, the telecom industry believes these concerns are exaggerated. An industry insider said, “The mid-tier plan is intended to diversify consumer choices and is not expected to significantly harm profitability,” adding, “Various plans have been considered in line with the increase in 5G subscribers.” Although calls for increased 5G capital expenditure (CAPEX) on network investment have grown, it is expected to remain at levels similar to previous years.