South Korea’s three major mobile operators are presenting poor performance in the third quarter due to the government’s policy to lower mobile fees. SK Telecom Co., the first one announcing its Q3 results among the three, showed a clear decrease in performance. The SK Group is planning to turn SK Telecom into a sub-holding company to boost synergy among group affiliates in the long term.
SK Telecom announced on Oct. 30 that it posted 4.19 trillion won (US$3.67 billion) in consolidated sales in the third quarter, 304.1 billion won (US$266.87 million) in operating profit and 1.05 trillion won (US$921.28 million) in net profit. Compared to the previous quarter, its sales and net profit increased 0.8 percent and 14.8 percent, respectively, but its operating profit decreased 12.3 percent. Compared to the third quarter last year, sales and operating profit dropped 5.8 percent and 22.5 percent, respectively, while only net profit grew 32.4 percent.
Other mobile carriers are also expected to show lower performance. According to eBEST Investment & Securities Co., KT Corp., which is scheduled to release its earnings on Nov. 2, is forecast to record an operating profit of 356.7 billion won (US$313.03 million) in the third quarter, down 10.8 percent from a year ago. LG Uplus Corp., ahead of its earnings release on Nov. 1, is expected to see its operating profit increase only 0.9 percent to 216.1 billion won (US$189.64 million) in the third quarter compared to the same period last year.
The government’s mobile fee reduction policy dragged down the profitability of the nation’s mobile service operators. As the government put pressure on the mobile carriers to reduce the cost burden for mobile phone users according to President Moon Jae-in’s campaign promise, they have provided new customers with a 25 percent discount on standard mobile rates and senior citizens with a discount in mobile expenses.
SK Telecom is planning to roll out the fifth-generation (5G) wireless network-based business and improve the corporate governance as a momentum to solve poor performance. The company completed equipment compatibility tests after selecting a 5G equipment producer last month and it is likely to commercialize 5G services for the first time in the world in January or February next year at the earliest. The 5G service is considered as a momentum to improve the profitability in the long term as it provides speeds and technologies needed for virtual reality.
In addition, SK Telecom aims to accelerate its efforts to streamline SK Group’s ownership structure. SK Telecom President Park Jung-ho said that he would push ahead with the conversion of SK Telecom into a sub-holding company during the SK Group CEO seminar on the 19th. In other words, he plans to physically divide SK Telecom into an investment holding company and an operating company, or mobile carrier. In this case, the sub-holding company of SK Telecom will own not only an operating company but also subsidiaries, such as SK Hynix Inc., SK Broadband Inc., ADT Caps Co. and 11street. Accordingly, it can boost the synergy in business as it runs not only mobile service company but also various operating companies, including e-commerce and security solution firms, in accordance with the purpose. The problem is that SK needs to secure finance for raising its stake in SK Hynix from the current 20.1 percent to 30 percent in line with a new policy of the Fair Trade Commission (FTC).
An analyst in the securities industry said, “When SK Telecom lists its operating company on the benchmark KOSPI market after the physical division, it will be able to raise 5 trillion won (US$4.39 billion) of funds needed to increase its stake in SK Hynix by 10 percent. The company is expected to implement the spin-off, initial public offering and expansion of the stake in order in time for the fall in SK Hynix stock prices.”