Even the Top 3 Telecom Companies with Operating Profits Over 4 Trillion Won Will All Face Losses in 30 Years [Population Decline Impacting Industry]

Subscriber Revenue Decline Due to Population Decrease
After 30 Years, Revenue Loss Surpasses Operating Profit
Seeking Breakthrough with New Businesses, but Challenges Remain

Although it can still be considered a distant future, by 2054, all three domestic mobile carriers in South Korea are expected to become 'loss-making companies.' This projection is based solely on the current number of subscribers, excluding efforts such as cost reduction. As South Korea faces a 'population cliff,' the domestic market that these three companies rely on is expected to shrink further. SK Telecom, which has the largest number of wireless subscribers, is anticipated to turn to losses the earliest in 2051, followed by LG Uplus in 2053 and KT in 2054. Without significant changes, this marks a 30-year countdown.

This analysis was conducted by Asia Economy by compiling last year's IR (Investor Relations) reports from SK Telecom, KT, and LG Uplus, along with population projections from Statistics Korea, to analyze revenue changes due to the expected decline in mobile subscribers. Operating costs were assumed to remain unchanged. Telecom companies' operating costs consist of personnel expenses, marketing costs, and infrastructure costs such as telecommunications facility usage fees, which do not significantly change even if the number of subscribers increases or decreases.

'Loss-making companies' ahead... The hourglass has started to turn

South Korea's population, which was 51,628,117 in 2022, is projected to be 51,199,019 in 2030, 50,193,281 in 2040, and fall below 50 million to 47,358,532 by 2050. On average, each South Korean uses 1.6 mobile communication services. This means that if the population decreases by one person, the number of subscribers decreases by 1.6. If the subscriber count decreases at the same rate as the population decline, SK Telecom's mobile subscribers will decrease by 436,359 in 2030, 1,454,677 in 2040, and 4,293,770 in 2050.

The average monthly revenue per user (ARPU) for SKT subscribers was 30,495 KRW as of Q4 2022. A decrease of one subscriber results in a revenue loss of this amount. Annually, this amounts to 365,940 KRW. In 2050, when the number of subscribers decreases by 4,293,770 compared to 2022, revenue will decrease by 1.57 trillion KRW. In 2051, with a decrease of 4,677,559 subscribers, revenue will 'evaporate' by 1.7117 trillion KRW, surpassing the 2022 operating profit (1.612 trillion KRW). This means the company will become a 'loss-making company' with operating costs exceeding revenue. As the 'population cliff' accelerates, the deficit will grow larger over time. By 2060, operating losses will reach 1.6313 trillion KRW, and by 2070, 3.2653 trillion KRW.

Using the same calculation, LG Uplus is expected to see revenue losses from subscriber decreases surpass operating profits in 2053, and KT in 2054. LG Uplus will have 3,336,536 fewer subscribers in 2053 compared to now. LG Uplus's ARPU is 29,091 KRW, with an annualized amount of 349,092 KRW. This results in a revenue loss of 1.1647 trillion KRW, exceeding the 2022 operating profit (1.0813 trillion KRW). KT will see a revenue decrease of 1.7533 trillion KRW in 2054, surpassing its 2022 operating profit (1.6901 trillion KRW) one year later.

Telecom companies reaching the limits of profit endurance

These calculations only consider wireless revenue declines; when factoring in other B2C (business-to-consumer) businesses, the transition to losses for the three carriers is expected to occur even faster. Internet and IPTV (Internet TV) services operated by each company also generate monthly subscription-based revenue from their subscriber bases. As the population decreases, the number of internet and IPTV subscribers will inevitably decline as well. For KT, revenue from internet, landline phone, IPTV, and other media businesses amounted to 5.2921 trillion KRW in 2022.

The profit endurance of domestic telecom companies has already reached its limit. In 2005, the combined operating profit margin of these companies was 15.2%, but it dropped to 7.7% in 2022. Although the claim of 'over 1 trillion KRW in combined operating profit for six consecutive quarters' may seem like a remarkable achievement, profitability is actually declining. Compared to overseas telecom companies, the situation looks even more dismal. Verizon and AT&T in the United States had operating profit margins of 24.2% and 24.4%, respectively, in 2022. Major European telecom companies such as Vodafone (UK), Deutsche Telekom (Germany), and Orange (France) also have double-digit operating profit margins.

One indicator showing the current state of telecom profitability is ARPU, which continues to decline. For SK Telecom, the ARPU fell below 30,000 KRW in Q2 this year, recording 29,920 KRW. In 2008, it was 42,654 KRW. Despite inflation over 15 years, revenue per subscriber has actually decreased. Other telecom companies face similar situations. Since the government continues to pressure for reductions in telecom fees, ARPU is unlikely to rise in the future. Telecom companies are striving to improve profitability by pursuing new businesses in various fields such as artificial intelligence (AI) and cloud services, but the situation remains challenging.