[Galapagos K-Communication] ① Korean Telecom Giants Losing Ground Even to Vietnam

Falling to Mid-Tier in Asia Brand Rankings
'Telecommunications' Overseas Expansion Yields Virtually No Results
New Business Sector Fails to Secure Concrete BM

The headquarters of Viettel, the Vietnamese state-owned telecommunications company. [Photo by Viettel website]

"Before assuming the presidency, I met with Lee Hae-jin, the founder of Naver, and Choi Hwi-young, the then CEO, to discuss swapping 10% of shares."

Nam Joong-soo, former KT president, cites failing to secure Naver shares as one of the most regrettable decisions he made as the head of a telecommunications company. Just before taking the helm at KT in 2005, he met with Naver’s top executives, who had just overtaken Yahoo and Daum to become the number one portal, to discuss exchanging shares and collaborating on business. At that time, Naver was an emerging venture company with a market capitalization of only 1.4 trillion KRW. In contrast, KT was Korea’s leading telecom company boasting a market cap of 11 trillion KRW.

However, the landmark event of the two companies exchanging shares never materialized. KT executives opposed the share swap during discussions on the agenda. Later, Nam expressed regret, saying, "I should have taken the initiative rather than leaving it to the executive meeting." As of the 27th, Naver’s market cap is about 30.43 trillion KRW, while KT’s is 8.35 trillion KRW. This is not merely a financial issue. KT missed the chance to take the lead in Korea’s information technology (IT) industry. Since then, KT has poured trillions of won into future new businesses but has failed to produce significant results. Not only KT but also the three major telecom companies?SK Telecom, LG Uplus, and KT?have been advocating for 'beyond telecom' for over a decade. There were many opportunities, but the results were disappointing. The telecom companies, once symbols of youth and innovation 20 years ago, are now regarded as outdated businesses. Asia Economy has selected 20 telecom experts to discuss the problems, challenges, and future of Korea’s telecom industry and will share their insights with readers in a series.

The UK-based global brand valuation firm Brand Finance ranks 150 telecom companies worldwide every year. One Asian telecom company has shown remarkable growth recently: Viettel, Vietnam’s largest telecom operator. Viettel ranked 47th in 2018 and climbed to 16th this year. During the same period, SK Telecom fell from 28th to 39th. KT (40th) and LG Uplus (68th) also rank lower than Viettel.

Viettel’s high recognition is due to its outstanding global performance. It has expanded into 10 countries, including neighboring Southeast Asian nations Myanmar, Laos, and Cambodia, as well as Peru and Haiti in Latin America, and Mozambique in Africa. Viettel holds the number one market share in five of these countries. Last year, about 40% of its approximately 9 trillion KRW revenue came from overseas sales, roughly 4 trillion KRW.

Owned by the Vietnamese Ministry of National Defense, Viettel has invested generously in technology localization backed by government support. Using this technology as a weapon, it aggressively expanded overseas, focusing on developing countries with similar economic levels, successfully pioneering markets and transforming into a global telecom company. Last year, it invested 3 billion USD (about 4 trillion KRW) to expand its 'telecom territory.' In contrast, domestic telecom companies have failed to achieve meaningful results abroad. For example, KT has recorded nearly 250 billion KRW in cumulative losses since entering Rwanda in Africa 10 years ago and has never posted an annual profit.

Domestic Telecom Companies Failing in Both Core and New Businesses

Cha Sang-kyun, former outside director of KT and a recent candidate for KT CEO and a professor at Seoul National University, said, "Our market size is too small, so we need to scale up, but we have failed to do so. We targeted the wrong markets or failed to invest properly, resulting in no overseas success." Instead, the three domestic mobile carriers have focused on 'well competition' relying on the domestic market. The combined annual operating profit of the three companies exceeded 4 trillion KRW last year. Experts point out that since stable profits are generated, there is no need to take risks or innovate.

However, the domestic market that telecom companies rely on has clear limits. Korea has entered an 'age of population cliff.' The number of births, which was around 400,000 two decades ago, dropped to 240,000 last year?cut in half. By 2050, the population is expected to decrease by about 5 million. Koreans use an average of 1.6 mobile communication services per person, meaning the number of telecom service subscribers will decrease by 9 million. Professor Cha said, "They need to either expand the pie of their core telecom business by targeting foreign markets or improve their structure through new businesses, but they are doing neither."

The telecom company that has achieved clear success in new businesses is SoftBank from neighboring Japan. SoftBank, ranked third in Japan’s telecom market, turned its attention to 'investment.' In 2017, it created a venture capital fund called the 'Vision Fund' with the Saudi sovereign wealth fund and invested in promising companies. Notably, it invested 3 billion USD in Coupang. The bold investment in a company with an uncertain future paid off sweetly. Coupang was later listed on the New York Stock Exchange, and SoftBank partially sold shares, cashing out 3.3775 billion USD. The investment has already been recovered. SoftBank remains Coupang’s largest shareholder, holding 426,156,413 shares (about 10 trillion KRW as of the 27th). Equipped with the new weapon of venture capital, SoftBank has become a leader in 'beyond telecom.' According to the 2021 data from the Global System for Mobile Communications Association (GSMA), SoftBank had the highest proportion of non-telecom revenue among major global telecom operators at 41%.

'Beyond Telecom' in Words Only... No Sense of Urgency

In the case of healthcare, the three major telecom companies have been knocking on the door for over a decade but have all repeatedly failed. InVite Healthcare, in which SKT invested 45 billion won three years ago, is virtually in a state of suspended operation. The website is also undergoing renovation and is not available for use.
[Photo by InVite Healthcare website]

Korean mobile carriers are also shouting 'beyond telecom' and challenging new businesses in various fields such as artificial intelligence (AI), metaverse, robotics, and urban air mobility (UAM). However, there are no clear results. They are losing out to global big tech companies as well as domestic firms like Naver and Kakao. Lee Sung-yeop, a professor at Korea University’s Graduate School of Technology Management, said, "Telecom companies say they are working on new businesses, but have we really felt anything tangible? They seem more conservative, focused on protecting existing profits rather than being desperate for innovation."

In fact, the three domestic telecom companies generate more than 70% of their revenue from their core businesses such as wired and wireless communication and Internet TV (IPTV). After large-scale investments to build and commercialize telecom infrastructure, stable profits come with little additional effort. It’s like 'swimming with your feet on the ground.' Therefore, they are clumsy when swimming in deep and turbulent waters. New businesses have yet to secure concrete business models. Although some have succeeded in monetization, stable profitability is rare. New businesses are ventures where costs exceed immediate revenue. The new business departments have to watch the 'core business' departments that bring in money. Kim Yeon-hak, a visiting professor at Sogang University’s Graduate School of Technology Management and former KT CFO, said, "Within the company, new business departments are sometimes looked down upon as 'money pits' or 'mysterious,' leading to a lack of risk-taking or innovative DNA."

Many new businesses quietly disappear. For example, in healthcare, the three telecom companies have been knocking on the door for over a decade but have repeatedly failed. They ambitiously spun off core business units to launch joint ventures but withdrew due to continued poor performance, and after launching apps on a large scale, quietly took them down. New businesses related to cloud gaming and extended reality (XR), which were pushed as killer content during the early commercialization of 5G, have become irrelevant as 5G matures. Experts agree that management strategies must consider the bureaucratic and conservative nature of telecom companies, unlike typical IT firms. Professor Kim said, "If telecom companies want to pursue new businesses like AI, they should first establish subsidiaries before securing high-level talent. The headquarters should act only as financial investors without management interference, giving subsidiaries autonomy to boldly take on challenges." This painful truth means that to achieve truly new results, the headquarters must just provide funding and not interfere. Many in the telecom industry share this view.