KT, the second largest mobile operator in South Korea, recorded a drop in profit in Q3 with service revenue stalling as declines in wireless and wireline turnover were offset by growth in its media and content business.

The operator’s net profit in Q3 2017 fell 13.6 per cent year-on-year to KRW203 billion ($178 million), while operating revenue rose 5.4 per cent to KRW5.83 trillion thanks to a 59 per cent jump in merchandise sales to KRW779 billion.

Wireless revenue dropped 3.6 per cent to KRW1.82 trillion, which the company attributed to an “accounting change on handset protection plans”. Wireline revenue slipped 2.7 per cent KRW1.22 trillion.

KT said the revenue declines were due in part to a government policy to reduce telecom expenses introduced in August, which required operators to increase the level of discount offered to subscribers signing up to one-year and two-year contracts. The move came shortly before a controversial handset subsidy limit was discontinued at end-September after being in effect for three years.

A 15.8 per cent year-on-year increase in sales in its media and content unit to KRW573 billion kept service turnover for the quarter flat at KRW5.05 trillion.

KT added 1.3 million LTE subscribers since Q3 2016 to take the total to 15.2 million at end-September and raise 4G penetration to 76.7 per cent (up from 74.5 per cent at end Q3 2016). Total mobile subscriptions increased by 1.1 million to 19.8 million over the past year. ARPU fell 2.2 per cent year-on-year to KRW34,608.

Capex for the first three quarters of 2017 hit KRW1.34 trillion with the guidance for the full year set at KRW2.4 trillion, slightly higher than in 2016.

Regulatory pressure
KT CFO Shin Kwang-suk said in the earnings call the government’s policy to reduce telecoms bills is gaining momentum and predicted pressure on KT’s profitability in 2018 as a result.

He said it is too early to provide concrete details on the potential impact because it’s in the process of developing a business plan: “But we will focus on reducing marketing expenses, making our business processes more efficient and achieving a cost efficiency structure so we can minimise any potential impact of the regulatory changes.”

Shin said while it’s hard to predict the size of its 5G investment at this point, given the 5G network will be closely linked to 4G KT will focus on a hotspot-based configuration. With a gradual build-out of coverage, the total investment required could be lower than for 4G, he noted.