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5G investments act as a drag on telecom profit

Feb 10,2020
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Korea’s telecom companies were the first in the world to switch on their 5G networks, and they are now paying the price.

While their revenues grew as they raced to develop the new market, operating profits fell as they invested in building out their offerings.

Combined, annual revenue for SK Telecom, KT and LG U+ in 2019 totaled 52.5 trillion won ($44 billion), up 4.6 percent from 2018. Operating profit fell 8 percent on year to 2.9 trillion won.

For all three, the biggest driver of the revenue increase was the growth of media businesses, like IPTV, which is a monthly subscription service that offers movies and videos of cable and national broadcast TV channels.

In that segment, KT generated 2.7 trillion won in annual revenue, a 13.5 percent jump on-year. The total number of subscribers for the company’s IPTV service, Olleh TV, rose to 8.35 million, which led to an increase of revenue earned through paid services offered on the platform.

SK Telecom, the industry’s top by revenue, reported a 10.7 percent increase in revenues generated from its IPTV service, SK Broadband. Last year, 464,000 new subscribers joined the service, bringing the total number of accumulated users to 5.19 million.

LG U+’s IPTV revenue rose 16.6 percent on-year to 1.03 trillion won. IPTV subscriber numbers rose 11.4 percent on-year to reach 4.47 million in 2019.

Gains from wireless network businesses also contributed to revenues. KT generated 0.2 percent more from the segment for a total of 7 trillion won in 2019. LG U+’s rose 1.4 percent to 5.5 trillion won. For SK Telecom, the figure fell 2.5 percent to 11.4 trillion won.

SK Telecom expects revenues to start increasing from the second quarter, backed by increased data consumption and an increase of 5G-network plan subscribers.

It was 5G investment that tipped the scales as the companies constructed networks and spent on marketing.

KT spent a total of 3.26 trillion won on capital expenditures last year. This was equivalent to a 65 percent increase on year. Marketing costs rose 18.4 percent to 2.7 trillion won. LG’s capital expenditures jumped 86.7 percent to 2.6 trillion won. It spent 8.7 percent more on marketing costs, bringing the annual figure to 2.2 trillion won.

All three offered positive outlooks for 2020, claiming explosive growth in their 5G businesses. They added that non-telecommunications businesses, like media and content, will continue to grow.

SK Telecom will develop its 5G services in hand with domestic, foreign partners and develop business-to-business models using the next-generation network. It also expressed high hopes for the SK Broadband and t-broad merger, which is to be finalized this year, and its security and e-commerce businesses, which moved into the black for the first time in 2019.

KT promised to enhance 5G services by expanding the network’s indoor coverage and developing standalone mode that is not aided by existing 4G infrastructure. Its video content app Seezn and GiGA Genie will also be upgraded in terms of making personal recommendations.

LG U+ is also planning to adopt standalone 5G mode to improve call quality. It’s planning to expand exclusive content on its IPTV as well. Last year, the company acquired LG HelloVision to create synergy with its business.

BY PARK HYUNG-SOO, KIM YEON-AH [kim.yeonah@joongang.co.kr]