Stock Market Pillar Telecom Stocks, Will They Also Avoid the Headwind of Fee Reductions?

Telecommunication Stocks Halt 5% Decline This Month
Overall Sector Returns Show Smaller Drop

[Image source=AP Yonhap News]

[Asia Economy Reporter Minji Lee] Concerns have been raised that telecommunications stocks, which performed well during the market crash, may be hampered by the issue of price reductions. However, the securities industry is analyzing that price cuts will actually help improve profitability by driving subscriber growth.

According to the Korea Exchange on the 21st, telecommunications stocks fell by about 5.6%, from 414.98 to 439.74, between the 1st and 20th of this month. Although they showed negative returns, they were among the sectors with the smallest decline domestically and significantly outperformed the KOSPI return (-10.98%).

The relatively smaller drop was thanks to strong earnings and the appeal of high dividends. Telecommunications stocks are considered a representative sector that acts as a pillar alongside financial stocks when downward pressure on the stock market intensifies. Looking at the stock price trends of telecom companies this month, LG Uplus and KT fell by 2.8% and 4%, respectively. Even including SK Telecom, which dropped 7% due to foreign ownership restrictions, telecommunications stocks showed a decent performance amid an excessively falling market. KT was among the top net purchases by foreigners, with about 72 billion KRW worth added to their portfolios, and SK Telecom was bought by institutions with about 44 billion KRW worth.

There are factors that could threaten stock prices. Concerns about price reductions are growing as the possibility of introducing a mid-tier plan priced in the high 50,000 KRW to low 60,000 KRW range increases. Currently, the lowest 5G plan offered by the three telecom companies is 55,000 KRW, providing only 10 to 12GB of data. Other plan options are priced between 69,000 and 75,000 KRW (with data allowances of 110GB or more).

The securities industry believes that the launch of a mid-tier plan will not have a significant negative impact on stock prices. On the contrary, it is seen as an incentive to move LTE subscribers with lower payment capacity to 5G. The 5G penetration rate is expected to reach 50%, and it is considered an appropriate time to introduce a mid-tier plan to attract subscribers with lower payment ability. Additionally, assuming the mid-tier plan does not offer additional services, most consumers are expected to choose the higher-priced plans where the price difference is not significant.

In fact, considering that the average revenue per user (ARPU), a key profitability indicator for telecom companies, was not significantly affected when new plans were launched in the past, it is predicted that this time as well, there will be no downward pressure on stock prices and performance. KB Securities researcher Junseop Kim said, "When the three telecom companies launched ‘data-centric plans’ in 2015, there was significant pressure that ARPU would decline, but in the long term, it actually increased," adding, "It is reasonable to expect an increase in ARPU due to the rise in 5G usage."