Telecom 3 Companies Expected Strong Q2 Performance, When Will the Mid-Tier Plan Effect Kick In?

1 Trillion KRW Operating Profit Over 6 Quarters... Household Communication Costs Up 7.1%
New Plans Introduced but Actual Benefits Limited

The three major telecom companies are expected to continue their streak of combined operating profits exceeding 1 trillion won for the sixth consecutive quarter in Q2. While the telecom companies' pockets have grown fuller, consumers' wallets have become lighter due to the continuous rise in telecom fees. Telecom expenses in Q1 increased by 7.1% compared to last year, reaching an all-time high.

According to the FnGuide consensus on the 8th, the combined operating profit of the three telecom companies in Q2 this year is projected to be 1.2657 trillion won, an 8.4% increase from Q2 last year. Last year, the three telecom companies set a record for combined operating profit.

SKT is forecasted to record sales of 4.4139 trillion won and an operating profit of 489.9 billion won in Q2, representing growth of 2.9% and 6.6%, respectively, compared to last year. Despite governance issues, KT is expected to achieve sales of 6.526 trillion won and an operating profit of 494.1 billion won, up 3.4% and 7.6%, respectively. LG Uplus is projected to have sales of 3.5134 trillion won and an operating profit of 281.7 billion won, with sales increasing by 3.8% and operating profit by 13.4%. The three telecom companies recorded a combined operating profit of 4.3835 trillion won last year, the highest ever. The possibility of surpassing last year's record-high operating profit is gradually increasing.

To alleviate household telecom cost burdens, the three telecom companies introduced a 5G mid-tier plan in August last year and recently launched 5G mid-tier plans ranging from 37 to 99GB at around 60,000 won per month, stating they are doing their best to reduce telecom fees. However, experts judge that there is no effect on lowering telecom fees because the plans were designed with a focus on profitability. Since the plans were just launched, the impact of the mid-tier plans on Q2 performance is expected to be minimal.

The users who can reduce their telecom fees by adopting these plans are limited to subscribers of high-priced plans. However, high-priced plans offer various benefits such as free second device fees, so there is little incentive to downgrade to a 60,000 won plan. Rather, users of 50,000 won plans are likely to pay a few thousand won more to receive tens of gigabytes more data, making it more probable they will use more expensive plans.

When the mid-tier plans were first introduced last year, the average revenue per user (ARPU) actually increased, meaning telecom companies earned more money. ARPU is the average value of the plans subscribed to by users and is a key indicator of wireless business profits. Excluding inexpensive Internet of Things (IoT) lines and counting only wireless lines, KT's ARPU was 32,917 won in Q3 last year, right after the introduction of the mid-tier plans, up 1.5% from the previous quarter. In Q1 this year, ARPU was 33,771 won, a 4.1% increase compared to before the mid-tier plans were introduced. When SKT and LG Uplus first launched mid-tier plans, their ARPU decreased, but securities firms analyzed that excluding IoT lines, ARPU likely increased.

Government surveys also show an upward trend in household telecom cost burdens. According to the National Statistical Portal of Statistics Korea, the average monthly telecom expense per household in Q1 was 130,285 won, a 7.1% increase from last year (121,676 won). Household telecom expenses include both device prices and telecom fees. For this reason, experts argue that fundamental measures to reduce telecom fees are needed rather than launching new plans. They suggest either lowering the prices of all plans at once or abolishing the Device Distribution Improvement Act (DanTong Act). Enacted in 2014, the DanTong Act prohibits discriminatory subsidies when consumers purchase mobile phones. At that time, excessive competition led to indiscriminate subsidies, causing significant price differences depending on purchase location and type. However, after the DanTong Act was implemented, competition cooled, telecom companies became less aggressive in subsidy competition, and overall device purchase prices increased. Additionally, illegal subsidies still exist in the shadows, raising questions about the law's effectiveness.

There are also calls for telecom companies to invest more actively. The three telecom companies gave up on investing in the 28GHz band and returned the frequencies. When 5G was launched, telecom companies advertised it as "20 times faster than LTE (4G)." The 5G service that is up to 20 times faster than LTE uses the 28GHz frequency band. Currently, telecom companies provide 5G services using the 3.5GHz frequency, which is slower than 28GHz. One reason consumers feel there is no difference between LTE and 5G is the absence of 28GHz service. As a result, telecom companies have engaged in false and exaggerated advertising.

Kim Ju-ho, head of the Socioeconomic Team 1 at People's Solidarity for Participatory Democracy, said, "The government reclaimed the 28GHz frequency, making it impossible to achieve the quality telecom companies advertised as '20 times faster 5G.' It is regrettable that there has been no move to return the profits earned so far or to reduce fees."