"Increase in Official Subsidies Unlikely to Affect Telecom Industry Stock Prices"

Increase in Official Subsidies Reflects Manufacturers' Willingness to Clear Inventory
Focus on Select Models Makes It Difficult to Interpret Structural Competition Among Carriers

[Asia Economy Reporter Minji Lee] There is an opinion that the increase in publicly announced subsidies is unlikely to lead to structural competition among telecom companies. This is because the publicly announced subsidies were set at a lower level compared to fee discounts, and it is judged that if the selection rate of publicly announced subsidies increases, operating profit margins could improve in the short term.

According to Yuanta Securities on the 9th, the publicly announced subsidies for Samsung Electronics' Galaxy S20 model and LG Electronics' V50 model have increased nearly threefold by segment compared to the previous month, raising investors' concerns about telecom operators.

Namgon Choi, a researcher at Yuanta Securities, said, "Amid growing cost control theories for 5G services, the sudden increase in publicly announced subsidies has heightened investors' psychological anxiety," adding, "Concerns about the possibility of 5G acquisition competition deepened, and telecom companies' stock prices recorded weakness after the holiday."

[Image source=EPA Yonhap News]

Looking at the publicly announced subsidies, they were concentrated on the S20 and V50. In the case of the Note 256G model, the publicly announced subsidy was actually reduced compared to before. The iPhone SE model also has a very low publicly announced subsidy. Researcher Namgon Choi said, "This means that the competitive situation has not been fully determined overall."

It is also noteworthy that the publicly announced subsidies are lower than the fee discounts. Despite the upward adjustment of publicly announced subsidies, they remain at a low level compared to the scale of fee discounts. This contrasts with the fact that throughout 2019, publicly announced subsidy benefits surpassed fee discount benefits. For rational consumers, it is advantageous to choose fee discount benefits even with the increased publicly announced subsidy standards.

Researcher Namgon Choi explained, "This increase in publicly announced subsidies reflects the will of manufacturers rather than telecom operators," adding, "Samsung Electronics and LG Electronics need to clear inventory of existing 5G flagship models, and from the telecom operators' perspective, having completed investigations into illegal subsidy payments, there is no need to provoke the government."

Looking at the quarterly sales volume of mobile communication devices, the first quarter recorded an all-time low sales volume of 4.54 million units. In this situation, LG Electronics' Velvet is expected to be released on the 15th, and the Note 11 is expected to be released in July, indicating that manufacturers need to clear inventory.

From the telecom operators' perspective, the current situation is not expected to have a negative impact. Researcher Namgon Choi diagnosed, "It is an opportunity for the three telecom companies to raise prices backed by manufacturer support," adding, "From an accounting perspective, if the selection rate of publicly announced subsidies increases, operating profit margins improve in the short term."

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