KT Hampered by 5G Competition, Operating Profit Falls 8.8%... Maintains 1 Trillion Won Club (Comprehensive)

5G Commercialization First Year Report Card 'Setback'
Massive Investment and Cutthroat Competition Drive Costs Up
Revenue Grows with Subscriber Expansion... Performance Improvement Expected

[Asia Economy Reporter Joeslgina] KT has once again taken a step back in its first annual report since the world's first commercialization of 5G. This is due to the burden of large-scale 5G investments and a surge in marketing costs caused by cutthroat competition to attract customers. Although KT succeeded in maintaining its membership in the 1 trillion won operating profit club, the decline compared to the previous year reached 9%. However, wireless service revenue turned around as 5G subscribers approached the target level, and the media and content business also recorded double-digit growth. With the 5G 10 million subscriber era approaching, rosy forecasts suggest that the performance of KT and the other two major telecom companies will improve significantly starting this year.

◆ KT, the first among the three telecom companies to announce results, sees single-digit decline in operating profit = KT announced on the 6th that it recorded sales of 24.342 trillion won and operating profit of 1.151 trillion won in 2019 (consolidated basis), the first year of 5G commercialization. Sales increased by 3.8% year-on-year due to growth in wired and wireless telecommunications and media businesses, but operating profit decreased by 8.8%.

This is interpreted as a result of increased costs for 5G network investment and marketing. Last year, KT's capital expenditure (CAPEX) for 5G network construction and other investments increased by 65% year-on-year to 3.2568 trillion won. Marketing expenses rose by 18.4% to 2.7382 trillion won compared to the previous year. However, the annual decline in operating profit narrowed to single digits from double digits in 2018, when the Ahyeon exchange fire disaster also had a negative impact.

By segment, wireless business sales recorded 6.9707 trillion won, up 0.2% year-on-year. Among these, wireless service revenue (6.5663 trillion won) turned around thanks to the increase in 5G subscribers. The total number of wireless subscribers reached 21.92 million, with a net increase of 800,000 over the year. The number of 5G subscribers reached 1.42 million, accounting for about 10% of all postpaid mobile phone subscribers. However, this figure slightly missed KT's expected target of 1.5 million.

The average revenue per user (ARPU) per wireless subscriber in the fourth quarter decreased by 0.3% year-on-year and 1.8% quarter-on-quarter due to a change in accounting standards that deducts membership point usage from revenue. The fourth-quarter ARPU calculated using the previous method showed growth of 2.1% year-on-year and 0.6% quarter-on-quarter.

Wired business sales decreased by 1.0% year-on-year to 4.6971 trillion won. Ultra-high-speed internet sales (2.0157 trillion won) continued to grow for the fifth consecutive year. Media and content business sales increased by 13.5% to 2.74 trillion won. In addition, financial business sales decreased by 1% to 3.4118 trillion won due to the reduction in domestic merchant fees by BC Card, and other service sales remained similar to the previous year at 2.4267 trillion won.

A KT official explained, "Overall sales increased due to the expansion of 5G subscribers, and we joined the 1 trillion won operating profit club for the fifth consecutive year. Internet and media sales also surpassed the 2 trillion won mark each, maintaining steady growth." As of February, the number of KT's 5G base station equipment exceeded 71,000 units based on activated stations. This year, KT aims to expand indoor coverage and introduce 5G standalone mode (SA).

◆ Telecom companies expected to improve performance this year thanks to 5G= This earnings announcement is particularly noteworthy as it reflects the results of the world's first 5G commercialization. Following KT, which took the lead among the three telecom companies, SK Telecom and LG Uplus will disclose their results for last year on the 7th. It is understood that they also have not escaped the burden of large-scale investments and cutthroat competition.

These results were anticipated early on. The three telecom companies engaged in self-destructive competition by offering public subsidies in the 700,000 won range immediately after the 5G commercialization in April last year. As a result, operating profit in the second quarter of last year fell by more than 23% quarter-on-quarter. For companies already burdened with large-scale investments, this was an unavoidable direct hit. Although subsidy competition has somewhat eased since then, the impact of cutthroat competition is analyzed to have negatively affected fourth-quarter marketing expenses as well.

The market expects poor performance to continue at least through the first quarter. It is predicted that this year will be the first year to enter a full recovery phase with the popularization of 5G. Among the three telecom companies, SK Telecom, which attracted the most 5G subscribers (2.08 million), has seen its ARPU turn upward since the second quarter of last year. ARPU for KT and LG Uplus is also expected to improve. As the number of 5G subscribers, currently approaching 5 million, expands to 10 million, it is anticipated that high-priced 5G plans will support performance growth.

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