Telecom Costs Hit 'All-Time Low'... Mobile Carriers 'Embarrassed' by Pressure to Cut 5G Prices

[Asia Economy Reporter Joselgina] In 2019, the inaugural year of 5G commercialization, the price of telecommunications services continued to decline, reaching the lowest level since statistics began in 1985. This contrasts with a slight increase in overall prices for food and beverages, housing, and healthcare. However, the government continues to pressure for fee reductions, claiming that 5G rates are expensive. The mobile telecommunications industry, which is making massive facility investments to build infrastructure, is visibly burdened.

◆Lowest Telecommunications Price Ever= According to the Statistics Korea and related industries on the 29th, last year's telecommunications consumer price index (CPI) was 97.24, down 2.29% from the previous year. This is the lowest level since the related statistics began in 1985. A Statistics Korea official said, "The telecommunications price index has been below the baseline of 100 for two consecutive years."

On a monthly basis, it has hovered below 100 since October 2017, hitting an all-time low of 96.52 in December last year. An industry official explained, "The telecommunications consumer price index consists of postal services, telephone and fax services, but in reality, smartphone fees make up most of it," adding, "This means that smartphone fees are relatively low compared to other prices."

This trend is a result of the overall reduction in smartphone fee burdens due to the 25% discount on selective contracts and the spread of mid- to low-priced plans. Since 2017, the three major carriers have fiercely competed on fees by launching unlimited plans that lifted data transmission speed and basic fee limits, responding to government pressure to reduce basic fees. An industry insider said, "Besides government pressure, there was also competition to avoid losing subscribers in the saturated mobile telecommunications market."

◆Industry 'Distressed' by Overlapping Investment Burdens= The government's pressure to reduce telecommunications fees, which was a campaign promise, is expanding to 5G, which has been commercialized for less than a year. Although 5G, which consists of relatively high-priced plans, was commercialized in April last year, its subscriber ratio remains in the single digits compared to total subscribers, so it has not significantly affected overall telecommunications prices.

However, since 5G technology is considered a policy variable that could raise telecommunications prices in the future, it is expected that government and political circles will intensify their offensive to fulfill promises to reduce fees, such as launching mid- to low-priced 5G plans. The April general election is seen as a factor that will further fuel this. Minister Choi Ki-young of the Ministry of Science and ICT recently emphasized the need to introduce mid- to low-priced 5G plans three times in official settings over the past three months.

The industry is expressing reluctance. This is because they have already made massive facility investments to build 5G infrastructure and future investment costs are also significant. If fee reductions are implemented before a sufficient foundation is established, it will inevitably deal a direct blow to the telecommunications industry's performance, which was expected to gradually improve starting this year.

In the securities sector, it is expected that the annual performance of the three major carriers?SK Telecom, KT, and LG Uplus?due to announce next month, will fall slightly short of market expectations. These three companies recorded poor results in the third quarter of last year due to overlapping burdens from 5G investment and marketing costs. At that time, KT and LG Uplus saw quarterly operating profit declines of 15.4% and 31.7%, respectively. On the other hand, the scale of facility investment by the three carriers for 5G infrastructure construction last year is estimated to have doubled from the previous year to 8 to 9 trillion won.

The industry believes that to launch mid- to low-priced plans, the number of 5G subscribers needs to be at least 10 million, more than double the current subscribers. An industry official argued, "If pressure to reduce fees intensifies while large-scale investments must continue for 5G infrastructure construction, it will negatively affect performance and ultimately have an adverse impact on investment schedules."

This content was produced with the assistance of AI translation services.