Can SK Telecom Write a New Telco Growth Story?

The South Korean operator is under pressure to show there is money to be made from technology diversification.

Iain Morris, International Editor

February 3, 2017

4 Min Read
Can SK Telecom Write a New Telco Growth Story?

South Korea's SK Telecom enjoys a reputation as one of the most far-sighted telcos on the planet. Besides helping to pioneer the development of next-generation network technologies, including the 5G standard now taking shape, it has made a bold push into the Internet of Things (IoT), and is experimenting in areas such as robotics and artificial intelligence (AI).

But its latest results show that it remains almost as dependent as Europe's beleaguered operators on its mainstream connectivity business. And that business is also feeling the heat. Excluding broadband, about 72% of its 2016 revenues came from connectivity services, and those sales were about 1.6% less than in 2015, at 12.35 trillion Won (US$10.8 billion). The SK Broadband division reported 7.7% growth in sales, to about KRW2.9 trillion ($2.5 billion), but overall company revenues dipped 0.3%, to KRW17.1 trillion ($14.9 billion).

As in parts of Europe, the revenue stagnation came despite continued growth in subscriber numbers. At the end of 2016, SK Telecom (Nasdaq: SKM) had about 29.6 million mobile customers on its books, 3.4% more than a year earlier. Yet customers are spending less. Average revenue per user fell 3.6% in the fourth quarter, to KRW31,788 ($27.70) per month, compared with the year-earlier period.

The operator remains bullish. This year, it aims to make KRW17.8 trillion ($15.5 billion) in revenues, and it plans to invest about KRW2 trillion ($1.7 billion) in capital expenditure -- exactly the same amount it spent last year. But it has been notably vague about the supposed drivers of this 4% sales growth. "We will do our best to grow our revenue by launching new products and services that provide greater customer value for data usage," said Ryu Young-sang, SK Telecom's CFO and the executive vice president of its strategy and planning division, during an earnings call this week (see this Seeking Alpha webpage for a full transcript).

The executive's other remarks during that call seem to betray the difficulties that SK Telecom is having on the commercial side. SK Telecom is to become Korea's "leading new ICT company by discovering new business models," he said. Having deployed an IoT network based on the low-cost LoRa technology, it will also "continue to seek various business models and monetization" in the IoT market. And its NUGU-branded voice-recognition device is to get more functionality even as "such AI-based platform technologies seek their own business models." The hunt is most certainly on, but it does not yet appear to have unearthed any treasure. (See SKT Gets Deeper Into IoT Game.)

Want to know more about 5G? Check out our dedicated 5G content channel here on
Light Reading.

For telcos elsewhere, SK Telecom is something of a guide, pointing out the direction the industry will follow. Many will be watching its trials of 5G, for instance, to see what new services and business models the technology will support. That is some responsibility to bear amid growing concern about the future prospects for network operators. But so far the South Korean player is giving them little reason to be optimistic that new technologies will fuel revenue growth. (See SK Telecom Targets Pre-Commercial 5G Deployment In 2017 and 5G: Another Next-Generation Disappointment?)

That does not, of course, mean SK Telecom is some kind of lost cause. Given cutbacks by other service providers, its plans to maintain capital expenditure at 2016 levels are encouraging, even if the implied capital intensity (capital expenditure as a percentage of revenues) of 11.2% is relatively low. While depreciation expenses and a rise in the commissions it paid sent operating income for 2016 down 10.1%, to KRW1.5 trillion ($1.3 billion), it remains highly profitable, with an EBITDA margin of about 27%. And its bottom line was bolstered by sale of stakes in Loen, an entertainment company, and Posco, a steel producer, which helped net income rise by 9.5%, to about KRW1.7 trillion ($1.5 billion).

But if SK Telecom can demonstrate there is real sales potential beyond the carriage of data traffic, it will be toasted by the industry at large -- and not just SK Telecom's investors.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

Read more about:


About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like