South Korean operators’ financial reports for Q3 showed broadly similar trends: healthy year-on-year profit and subscriber gains, but continued declines in mobile revenue as ARPU weakened further.

SK Telecom (SKT), KT and LG Uplus all felt the lingering impact of a government push in November 2017 to reduce consumer charges by increasing the discount rate operators must offer from 20 per cent to 25 per cent.

The first signs of mobile weakness started in Q3 2017 when KT and LG Uplus’ ARPU dipped 2.2 per cent and 1.5 per cent respectively compared with the same period of 2016. SKT’s ARPU was stable year-on-year, while KT’s mobile revenue fell 3.6 per cent (SKT and LG Uplus recorded positive mobile growth).

ARPU declines continued in the recent quarter, ranging from 6.5 per cent to 10 per cent (see chart, left, click to enlarge). The decreases are significantly higher than the 4 per cent to 6 per cent year-on-year declines registered during Q1 2018.

On the plus side, not only did the operators all rack up solid increases in net profit in Q3 (ranging from 8 per cent to 32 per cent year-on-year), they also boosted subscriber numbers by between 2 per cent and 7 per cent and collectively added 4.5 million LTE subs, taking 4G penetration in the country to 82 per cent. South Korea has one of the highest 4G uptake rates in the world.

Further declines
Moody’s forecast the government-mandated discounts will reduce SKT and KT’s mobile revenues by 3 per cent to 4 per cent this year and 2 per cent in 2019.

The ratings agency reckons if government estimates of a further 5 per cent to 10 per cent fall in mobile rates come to pass, combined with the tariff discounts, SKT’s operating profit in 2019 would be reduced by 29 per cent to 52 per cent compared with 2017 and KT’s by 23 per cent to 41 per cent.

If a controversial proposal by the government to introduce a universal low cost fare plan (which drew sharp criticism from operators) is pushed through, it would increase pressure on operators’ mobile revenue and profitability.

It’s interesting none of the three provided any guidance for the full year in their Q3 earnings reports, much less 2019. The outlook seems far too opaque.

As tariffs tumble and mobile revenues continue to head south, Korean operators’ attractive profits could quickly disappear making 2019 a painful year for shareholders.

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.