Awkward Situation
Securities market experts are showing mixed opinions about SK Telecom’s will to maintain its domestic market share at over 50%. According to them, the company’s profitability can deteriorate if it spends too much money on marketing to attain the goal, while it may have some problems in market dominance if it fails to do so.
Since the earnings announcement for the fourth quarter of last year, SK Telecom has held a series of non-deal road shows for stock analysts in order to explain its local market share goal and business strategies to this end. “The strategies to maintain the market share of 50% have been the most talked-about issue during the NDRs,” said one of them, adding, “It seems that the company’s plans have some contradictory elements.”
At present, the local telecoms market is characterized by LG U+ and mobile virtual network operators (MVNOs) increasing market share to threaten the market dominance of SK Telecom. Its share was 50.02% in December 2013 when the MVNOs are counted in, but fell short of 50% when they are counted out.
Securities analysts are casting doubt on the viability of SK Telecom’s goal. If it pours on marketing monies, its performance and future investments can be affected. The ratio of LTE subscribers has exceeded 50% in Korea this year, which means the competition is slowing down these days. The marketing expenditure can be an important variable with the situation as it is. In the long term, investors could lose trust in it, and its stock price might lose momentum if it fails to hold the 50% mark, the minimum market share for stable business.
“Few mobile carriers have a domestic market share of 50% or greater across the world,” Deputy Minister of Science, ICT and Future Planning Yoon Jong-rok said recently. The ministry has re-designated SK Telecom as a market-controlling enterprise, too.
“In response to such targeting by the government, SK Telecom has confirmed since earlier this year that 50% is a figure in which MVNOs and MNOs are included,” another analyst mentioned, adding, “It seems that SK Telecom will shore up the MVNO side for the sake of practical interests.”