SKT, KTF lead 3G mobile services with EV-DO technology
SK Telecom, the country's largest mobile carrier, and its rival KTF are rushing to kickstart cdma2000 1x EV-DO services in a bid to nurture the fast-evolving wireless multimedia and Internet services.
Although both firms are scheduled to launch competing third- generation (3G) services known as W-CDMA later this year, the primary concern will be placed on activating the multimedia services over the EV-DO, or evolution data optimized, network.
The shift in strategy came after both domestic and foreign investors expressed concerns over the commercial viability of W-CDMA in the Korean market where its rival standard cdma2000 1x has been flourishing.
Analysts said carriers appear reluctant to make another major network investment fraught with risks and uncertainty, even though the Korean government is keen to promote a dual wireless system.
The Ministry of Information and Communication awarded the so- called W-CDMA 3G spectrums to SK Telecom and KTF.
SK Telecom and No. 2 player KTF, however, seem increasingly hesitant in mapping out their W-CDMA plans, adapting to the changing investor sentiment. Earlier, KTF said it would launch W- CDMA 3G service in June, while SK Telecom said it will follow suit in September.
Now, their plans might be modified in a way that could pose a question about the whole idea of setting two different, yet competing mobile networks in a country where CDMA (code division multiple access), developed by U.S.-based wireless technology powerhouse Qualcomm Inc. remains dominant.
All the three carriers in Korea - SK Telecom, KTF and LG Telecom - are currently offering 3G services known as cdma2000 1x, which is essentially based on Qualcomm's wireless technology patents.
In particular, SK Telecom and KTF launched what is called EV-DO services last year, something that they hope will jumpstart the data- oriented wireless content market. EV-DO is an upgrade to the existing 3G network, increasing the data transmission speed to 2.4Mbps under ideal conditions. Interestingly, SK Telecom and KTF are now confronting a serious dilemma in pushing for dual standards. W-CDMA 3G service is based on the European mode of GSM (global system for mobile communication).
Analysts and experts said it will take some time before the two carriers will refine their W-CDMA technology and churn out related mobile content. Also in dispute is whether W-CDMA services would benefit investors' interest amid rising worries over the overlapping facility investment.
With investors expressing concerns over the envisioned W-CDMA service, SK Telecom and KTF are now showing some reservations over the issue.
SK Telecom shares recently suffered a setback, hurting the overall Seoul bourse and sending stock analysts wonder what went wrong and whether things could get worse. SK Telecom officials said the company's fundamentals remain solid, and a recent gyration has gone too far.
"Some investors are still worried about the facility investment plan for W-CDMA technology this year but we continue to say that we'll adjust W-CDMA investment flexibly, depending on market conditions," a high-ranking SK Telecom official said.
Samsung Securities recently said it has upgraded the investment rating for SK Telecom from "market under performer" to "market performer," while keeping the target price at 190,000 won.
The local brokerage house said additional fall in share price of SK Telecom is unlikely as the recent gyrations factored in the concerns about W-CDMA investment plan. It said the latest conference call is reassuring since SK Telecom has made clear it will not make an aggressive investment for W-CDMA unless it sees tangible profits to make in doing so.
Meanwhile, SK Telecom officials the company will meet with analysts and institutional investors in order to narrow the gap in perspective over major issues.
"Some analysts and investors are still misunderstanding the W- CDMA investment plan, and we will help them better understand the fact that SK Telecom will be very flexible in executing the investment for W-CDMA service," SK Telecom spokesman said.
"But we have to set aside a certain amount of money for such investment as a company listed on the stock market. If we pour some money into a new business without finalizing budget plans, albeit roughly, people could interpret it in a negative way, and we don't want such thing to happen," he said.
SK Telecom officials argued that the company's fundamentals are sound and healthy, but there has some "mis-communication" about its investment plan for W-CDMA service.
SK Telecom plans to launch W-CDMA third-generation mobile service in September this year. The company is already offering a similar 3G service known as cdma2000 1x EV-DO. Investors and analysts have long questioned the commercial viability of the dual wireless standard.
Whenever skeptical views about W-CDMA arose, SK Telecom executives rushed to defend their position by saying the company needs extra spectrum to handle the surging data traffic over the existing network and W-CDMA 3G service is also expected to be profitable.
The trouble was that investors, both domestic and foreign, wanted something more reassuring, namely a cut in the capital expenditure for W-CDMA.
In a latest conference call, SK Telecom president and chief executive Pyo Moon-soo said capital spending this year will stand at about 2 trillion won, excluding W-CDMA investment of some 520 billion won during a conference call.
Pyo said the company's W-CDMA investment strategy is based on economics and its capital expenditure may be changed in accordance with market factors such as a timely rollout of compatible handsets.
In other words, SK Telecom will possibly reduce the capital spending for W-CDMA, bowing to pressure from investors, many of whom are concerned about the negative impact.
SK Telecom officials emphasized Pyo's key comment is that W- CDMA investment plan is subject to revisions and reductions if the company sees no viable economics.
Analysts noted that chief executive Pyo himself tried to clarify some tricky issues in a bid to allay the concerns of investors, which is positive for the future performance of SK Telecom shares.
Another positive aspect is that SK Telecom executives remain confident about the company's market position even though the Korean government said it will take a series of policy initiatives that might put the mobile carrier at a disadvantage.
The Ministry of Information and Communication recently gave a green light to what is known as "number portability" system. Under the new policy, subscribers will be allowed to switch to other carriers freely - while retaining their mobile number.
That may pose a serious setback to SK Telecom since the company has poured a huge amount of money to build a premium brand that revolves around its access code, "011." During the conference call, however, Pyo said the number portability will have "minimal impact" on the company.
The conference call came after SK Telecom reported a 24 percent drop in its fourth- quarter earnings last month, leading to downgrades by analysts. It posted 164 billion won in net profit in the most recent quarter, hurt by hefty marketing costs and write-offs.
But revenue in the fourth quarter surged 38 percent on year to 2.366 trillion on the strength of a higher demand for mobile Internet services. SK Telecom remains a dominant player in the fast- evolving domestic mobile market. Its market share was 53 percent at the end of 2002.
Meanwhile, KTF is also restraining itself in pursuing a dual standard in response to the hostile market sentiment. Its key officials reiterated that the W-CDMA investment will be "flexible."
Early this month, KTF announced it posted a revenue of 5.353 trillion won last year, up 20 percent from 2001. Operating profit went up 13 percent to 844.2 billion won, and net profit climbed 23 percent to a record 532.2 billion won.
The company it added 740,000 subscribers last year, increasing the total to 10.33 million users.
KTF said the number of 3G subscribers shot up to 4.86 million as of end-December last year, compared with 750,000 a year earlier. The 3G users who have purchased or upgraded cdma2000 1x phones turned out to generate higher ARPU, or average revenue per user, than conventional subscribers.
KTF is set to integrate its sister wireless unit KT ICOM in early March. Late last year, it said it aims to post 550 billion won in net profit on revenue of 5.8 trillion won in 2003, while increasing the total number of subscribers to 11.5 million.
The envisioned W-CDMA services by SK Telecom and KTF, in fact, are designed to help boost the country's competitiveness of GSM handset exporters.
CDMA technology is benefiting Korea's telecom industry in various ways, but analysts said GSM is also playing a significant role in the country's export drive in the mobile sector.
If W-CDMA 3G services are available later this year, analysts expect Korea to utilize the forthcoming dual standard to produce better mobile products and solutions while increasing export volume.
The Ministry of Information and Communication projected that the total output of the mobile phone industry would reach 24.88 trillion won in 2003, up 21.6 percent from 2002. It said the export of handsets would go up 26.8 percent to $14.26 billion in 2003, while the domestic output will remain flat at 5.2 trillion won.
The information ministry projected that the number of mobile phone users will grow 10.6 percent to 36.4 million in 2003, while the domestic handset market will be valued at 5.2 trillion won.
It also forecast that mobile handset export will shoot up 26 percent to $14.2 billion in 2003, helped by the growing demand for Korean GSM handsets. The ministry said that GSM handsets will account for 70 percent of total handset export volume.
(insight@koreaherald.co.kr) By Yang Sung-jin Staff reporter
2003.02.18
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