Telcos Need to Attract MVNO Customers
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
160,000 Galaxy Note 20s sold via SEC’s online mall
According to the daily newspaper Herald Business (Aug 31), SEC has sold 600,000 Galaxy Note 20s, of which 160,000 were sold via online, a notable feat considering that only 10% of the company’s products were sold online in previous years. The brisk online sales have been driven by the small purchase subsidies offered by telcos and the option to subscribe to LTE plans with new 5G models. In the past, telcos offered more attractive purchase subsidies on smartphones in exchange for pricey phone plans; now, with purchase subsidies low, customers have been inclined to purchase smartphones at full retail price and opt for cheaper LTE plans.
Reduction in marketing expense seems ideal when market fails to pick up
The COVID-19 pandemic is undermining marketing efforts because telcos are unable to fully utilize their sales networks. Moreover, the dawn of 5G has boosted smartphone prices to as high as KRW1.4mn (e.g., Galaxy Note 20 Ultra 5G @ KRW1.45mn), with the price of the average smartphone nearly the same as the annual cost of the most expensive phone plan available (approx. KRW120,000/ month). Hence, telcos are motivated to lower marketing expenses via measures such as minimizing purchase subsidies and lowering sales commissions.
Concerns over smartphone distribution by manufacturers and availability of LTE for new smartphones
The sale of premium smartphones via manufacturers’ sales channels and the availability of LTE for new smartphones could be considered risk factors for telcos. We think, from a profitability standpoint, whether customers subscribe to a 5G plan or LTE plan is not an issue just as long as they pick a phone plan that is more expensive than their previous one. Statistics on data consumption indicate a major increase in data usage since the termination of previous phone plans, which is when many customers purchased their smartphones (smartphone lifecycle is 24 months). Customers are likely to choose more expensive plans to accommodate their greater need for data.
Telcos need to attract MVNO customers
Customers who purchased the Galaxy Note 20 via SEC’s online mall may choose an MVNO plan. Based on carrier switches since the smartphone was released in August, the no. of MVNO subscribers has jumped 9,909 since end-July. Although MVNO plans are supplied to the distributor much cheaper than conventional plans, they do not entail marketing expenses, helping out telcos’ profit margins.
Industry top picks: KT, LG Uplus
Our industry top picks are KT and LG Uplus, both of which have recently made strides in the MVNO market. KT is the traditional MVNO powerhouse (50% share of the postpaid MVNO market) in Korea, and LG Uplus has acquired LG HelloVision, a major MVNO service provider.