South Korea’s top three wireless carriers SK Telecom Inc., KT Corp., and LG Uplus Corp. are expected to have registered weak earnings for the third quarter due to increased marketing expenses. Worse yet, market analysts warned more challenges ahead for them, citing the government’s policy to cut phone bills for mobile phone users.
According to estimates compiled by data provider FnGuide on Tuesday, combined operating profit of SK Telecom, KT, and LG Uplus would have dropped 0.46 percent on year to 1.03 trillion won ($905.9 million) on a consolidated basis for the third quarter ended September 30. The combined revenue of the three telecom service providers is estimated at 12.98 trillion won, up 3.8 percent from a year ago.
Market analysts attributed the fall in third-quarter operating profit to the jump in marketing expenses. But the mobile carriers’ business prospects in the fourth quarter and onward look gloomier due to the government’s push to cut consumers’ mobile expenses, they said.
The new Korean administration in August issued a guideline on phone bill reduction, ordering the mobile carriers to widen the 20 percent discount rate to 25 percent for new subscribers from September 15. The three mobile carriers initially opposed the order but finally agreed to offer a 25 discount rate. The companies also exempted 11,000 won basic monthly subscription fee for the elderly and low-income household members.
A 25 percent discount policy that took effect in September has not made major dents on the three wireless carriers’ balance sheets in the third quarter, but its adverse effects, such as a rise in expenses, will be reflected in their fourth-quarter income statement, said Kim Jang-won, analyst at IBK Investment & Securities. Also, higher discount rates for low-income households and the introduction of the universal call plan would affect their next year’s performance, he added.
Telecom service providers now face not only higher cost from the government’s policy to cut mobile bills but also growing investment in the development of next generation 5G mobile network technology, which would make it hard for the companies to prop up their revenue, said an unnamed telecom industry official.
Shares of SK Telecom closed Wednesday at 266,500 won, down 0.37 percent from the previous session. KT stocks finished up 0.17 percent at 28,950 won and LG Uplus stocks down 1.92 percent at 12,750 won.
By Kim Gyu-sik
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