South Korea’s three mobile operators all reported Q1 earnings within days of each other last week and had a common weakness: falling mobile service revenue and ARPU.
The three suffered declines in mobile turnover of between 0.9 per cent and 3.5 per cent in Q1 (see chart below, click to enlarge), with ARPU decreasing 3.8 per cent to 5.8 per cent.
Those declines were blamed largely on the government’s ongoing push to reduce household telecoms expenses, with the Ministry of Science and ICT in September 2017 raising the level of discount mobile operators must offer customers who sign up for new one- or two-year contracts from 20 per cent to 25 per cent.
The discounts are expected to slow operators’ revenue growth for the full year. FnGuide predicted in March consolidated revenue of the three operators would increase just 0.3 per cent year-on-year to KRW53.4 trillion ($50.2 billion) this year.
Number one player SK Telecom’s (SKT’s) Q1 operating revenue dipped 1.2 per cent to KRW4.18 trillion, while both KT and LG Uplus posted gains of 4 per cent and 6.4 per cent respectively. But overall service revenue during the quarter was flat or down for the second and third ranked mobile players. None of the operators issued a 2018 outlook in their Q1 reports.
The companies, however, managed to post double-digit profit gains and continued growth in their 4G user bases. They ended March with a total of 49.1 million LTE subscribers, giving the country a 4G penetration of 84 per cent. LG Uplus had one of the highest percentage of 4G subscribers in the world – 92.8 per cent vs 84.3 per cent for SKT and 77.9 per cent for KT.
With 4G network coverage reaching nearly every corner of the country, the operators pulled back on capex over the last two years. For example, LG Uplus’ capex as a percentage of revenue dropped from 13.1 per cent in 2015 to 11 per cent in 2016 and 9.3 per cent last year. Its Q1 capex was at about the same level as a year ago.
But with KT and market leader SKT planning 5G rollouts early next year, capex is bound to rise in 2018. The Ministry of Science and ICT last month scheduled an auction of 3.5GHz and 28GHz spectrum in June and set the reserve prices.
Higher network investment and spectrum costs, coupled with the projected flat revenue growth, will certainly put pressure on the country’s mobile operators’ bottom line over the next 12 months. The question will be: can 5G help operators boost ARPU in the longer term? Past experiences with 3G and 4G network launches are certainly not encouraging.
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.