[Galapagos K-Communication]⑤ Now a Global Battle... How to Plan Overseas Expansion Strategies

Communication Experts Unite: "We Must Challenge the Global Market"
"Avoid Overambition, Focus on B2B Strategies" Collaboration with SMEs
Break Free from Regulation and Protection to Utilize Investment and Data

Yu Young-sang, President of SK Telecom, is announcing AI business strategies at a press conference held at the SKT Tower in Jung-gu, Seoul. (September 26, 2023) [Image source=Yonhap News]

SK Telecom and KT have experienced bitter failures after attempting to enter overseas markets. SK Telecom launched a nationwide mobile communication service in the United States in 2006 under the name 'Helio,' becoming the first domestic company to do so, but withdrew after about two years due to continuous losses. KT also ventured into overseas business but has not been able to escape the slump. KT established a subsidiary in Rwanda in 2013 to establish a telecommunications export base in Africa, but accumulated losses exceeded 200 billion won over ten years.

As such, overseas expansion for telecom companies is a long and arduous path. However, considering that the domestic mobile communication market is saturated and the population decline is evident, experts see global market penetration as essential. Just as K-pop and K-content receive favorable evaluations on the world stage, there is no rule that domestic telecom companies with excellent communication technology and know-how will only fail overseas.

A researcher who has observed the telecommunications market for over ten years said, "Domestic telecom companies are too accustomed to the structure of sending bills to subscribers every month and collecting money," adding, "Overseas market entry should proceed step by step without greed. There is also a need to target business-to-business (B2B) transactions rather than business-to-consumer (B2C)." He explained that a business model that issues bills to overseas customers every month like receiving mobile phone and internet fees is difficult to succeed. He gave an example, saying, "Europe has many old buildings, so the communication infrastructure is outdated. With the technology used domestically to build cables and internet in every alley and household, it is possible to target Europe." He also suggested that instead of telecom companies trying to attract customers directly under their own names, they should adopt a strategy of gradually expanding coverage and extending communication networks through B2B methods. In this process, he believed that forming a consortium through collaboration with domestic small and medium-sized telecommunications equipment companies could create synergy.

"Government Support and Financial Power Needed... AI Must Change the Game"

Professor Cha Sang-gyun of Seoul National University said that to succeed in overseas expansion, "Scaling up is a priority," likening the current telecommunications market situation to "the Korea Electric Power Corporation being split into three." He pointed out that the three domestic telecom companies are at a disadvantage in 'weight class' compared to overseas telecom companies. He cited Singapore Telecommunications (Singtel) as a successful example. Singtel, a representative Singaporean company, has Temasek Holdings, a sovereign wealth fund, as its largest shareholder. Backed by government support and financial power, it acquired stakes in Southeast Asian telecom operators one after another. After dominating the Southeast Asian market through aggressive mergers and acquisitions (M&A), it expanded into Africa, the Middle East, and Central Asia. This is the secret to becoming a global telecom company. Singtel currently has 770 million subscribers, 140 times its domestic population (5.45 million). Professor Cha said, "To survive in the telecommunications industry, you need to properly utilize capital like Singtel and expand your influence to other countries."

KT Headquarters Exterior / Photo by Yongjun Cho jun21@

Professor Cha, who recently challenged the KT CEO election, publicly shared the job performance plan he presented during the board interview on social media. He said, "Although I was not selected as CEO in the final stage of the election, it is the candidate's duty to disclose innovative plans that have been considered with those who care about KT." The title of the material was 'KT, Let's Change the Game in the AI World.' The gist was that KT, which has not found a new path for decades, should transform into a company leading the domestic AI ecosystem. He believed that AI-based new business models could be built in various fields, including defense, manufacturing and engineering, digital healthcare, and sports platforms. He also estimated that as the proportion of AI-based high-growth new businesses increases to 10%, 20%, and 30%, the corporate value would increase proportionally by 1.9 times, 2.8 times, and 3.7 times. Professor Cha said, "Since there is no large domestic company playing the role of AI backbone (the core of the network), I proposed making KT such a company."

"Must Escape Regulation and Control... Compete Like Big Tech"

There is also criticism that telecom companies must break free from the framework of regulated industries to grow into global companies. Professor Shin Min-su of Hanyang University’s Department of Business Administration said, "Because telecommunications regulations are linked to business development, it is difficult to freely expand business like general big tech companies," adding, "I understand that telecom companies have been conducting research and development for new businesses. However, because they can only operate within the framework of regulated industries and according to each company's management logic, they seem unable to break through in any one area."

Professor Kwon Oh-sang, adjunct professor at Yonsei University Law School, said, "Ten years ago, 'de-telecom' was a trend among telecom companies. A representative case is LG Uplus abandoning the name LG Telecom. They showed their will to de-telecom even by changing the brand. However, Professor Kwon said, "Even now, LG Uplus has not escaped the telecommunications business," adding, "Telecom companies have been protected by licenses within regulated industries. On the other hand, Naver and Kakao have grown their businesses well and monopolized the market without regulation or protection. Their mindset is different."

Senior Research Fellow Lee Tae-gyu of the Korea Economic Research Institute also said, "If telecom companies have benefited greatly from regulations until now, growth is now blocked because it is a regulated industry. Investments must be made as the government directs, prices are controlled, and public opinion shudders at rising telecom fees," adding, "If there is another big opportunity, it might not be bad to put telecommunications as a second priority and go 'all-in.' In fact, new businesses should have been started earlier, but it is somewhat late."

Financial Investment and Data Utilization to Boost K-Telecom

There is also a way for telecom companies to help promising AI companies freely engage in corporate activities as financial investors. Kim Yeon-hak, invited professor at Sogang University Graduate School of Technology Management (former KT CFO), explained, "Information technology startups require strong entrepreneurship, risk-taking, and bold acceptance, but it is difficult for telecom companies with stable revenue bases to do so." He continued, "Although telecom companies deal with cutting-edge technology such as AI and digital transformation, in fact, they prioritize performance and stock price management," explaining, "They prioritize subscriber management and generating revenue and profits." Professor Kim emphasized, "New businesses should be operated as subsidiaries. The headquarters should only act as a financial investor and give autonomy to foster entrepreneurship." He added, "The practice of hiring AI executives with salaries of hundreds of millions of won must be abandoned. Even if the salary is like a startup, giving company shares so that they can gain significantly if successful is necessary."

There was also an opinion that the data accumulated by telecom companies can be useful when developing new businesses. Lawyer Lee Soo-kyung of the law firm Hwawoo said, "The data of Korean citizens accumulated by telecom companies for over 20 years is more valuable than oil," adding, "AI, platforms, and cloud based on big data are golden eggs that telecom companies must not miss." Ahn Jeong-sang, senior expert on broadcasting and information communication at the Democratic Party, said, "To establish K-Telecom in the world beyond the Korean market, company-wide efforts are needed in new technology research and development investment, supply of excellent personnel, development of new business models, and comprehensive strategy formulation and promotion for future growth engines," adding, "In particular, telecom companies should prepare proactive strategies for global market expansion and strengthen personnel and technology exchanges through partnerships with excellent global tech companies."