The aftershocks of the hacking incident that rattled the telecom industry last year are expected to be fully reflected in first-quarter results this year. With rising compensation expenses during the response, subscriber churn, and higher marketing expenses driven by an overheated number portability market overlapping, SK Telecom and KT are expected to post negative growth. In contrast, LG Uplus appears poised to continue growing by absorbing demand from subscribers leaving rivals.
◇ Only LG Uplus grows alone, sidestepping the hacking aftershocks
According to FnGuide on the 14th, SK Telecom's first-quarter operating profit is expected to fall about 10% year over year to 506.9 billion won. Analysts say the fallout from reduced subscribers has persisted as new sign-ups were halted and early termination fees were waived following the hacking incident in April last year. In January, during KT's early termination fee waiver period, subscribers rose by about 160,000 on a net basis, but the net decrease remains around 520,000 compared with before the hacking incident. The company has not fully reversed the shock that pushed its mobile market share below the 40% mark after last year's incident. On top of that, intensified competition to attract subscribers has increased marketing expenses, creating a double drag on first-quarter results.
KT's situation is not much different. KT's first-quarter operating profit is projected to decline about 18% year over year to 560.5 billion won. The company suffered a reduction of about 310,000 subscribers after the hacking incident, and analysts say the burden of expenses grew due to expanded subsidies and other efforts to make up for the losses. KT saw an increase in subscribers after SK Telecom's hacking incident in April last year, but after experiencing its own incident in September, its net subscriber additions shrank to around 60,000. Still, KT is seen as having partially absorbed the shock from wireless subscriber losses because of its relatively higher share of wireline and B2B (business-to-business) operations. In other words, revenue streams outside the core telecom business played a partial buffering role. Even so, the rapid increase in marketing expenses and subscriber retention expenses acted as factors that made it difficult to avoid a drop in profitability.
By contrast, LG Uplus appears to have enjoyed a windfall by absorbing demand from subscribers leaving rivals due to their hacking incidents. LG Uplus's first-quarter operating profit is forecast to rise about 10% year over year to 281.5 billion won. The company is cited as having widened its wireless business base by recording a net increase of about 340,000 subscribers after SK Telecom's hacking incident in April last year, supporting the improvement in results.
In addition, the effects of restructuring carried out last year appear to have eased fixed cost burdens such as labor costs, helping to defend earnings. A strategy led by mid- to low-priced plans and bundled products also appears to have worked positively by drawing value-for-money demand. Observers say LG Uplus seized an opportunity to expand market share while rivals were tied up managing the incidents. Inside and outside the industry, there are projections that LG Uplus's mobile market share, currently around 19.7%, could exceed the 20% mark in the first half of this year.
◇ Telecom big three tripped up by hacking in results… recovery seen from the second quarter
The combined first-quarter consensus for the three telecom companies is 15.0779 trillion won in sales and 1.3489 trillion won in operating profit. While sales show a similar trend to a year earlier, operating profit is estimated to have fallen by about 11%. In other words, the top line held, but profitability clearly weakened.
The industry views this as the result of a combination of early termination fee waivers, customer compensation, and expanded marketing expenses incurred during the response to the hacking incidents. In particular, as the number portability market overheated again, subsidy competition intensified, which is cited as a key factor that increased expense burdens in the short term.
The market is leaning toward the possibility that one-off expenses related to the hacking will be largely reflected from the second quarter, allowing the earnings trend to gradually stabilize. The number portability market is also entering a calmer phase, so the bleeding competition seen in the first quarter is expected to ease somewhat.
Still, the key variables for an earnings rebound are likely to be artificial intelligence (AI) and B2B operations. As all three telecom companies are accelerating expansion into new businesses such as AI infrastructure, data centers, and cloud, when and how much these efforts become visible will likely determine second-half results.
With SK Telecom and KT recently changing their chief executive officers (CEOs), attention is also on whether organizational reshuffles and investment strategy adjustments will lead to expense efficiencies and stronger new businesses. A telecom industry official said, "The first quarter saw the most concentrated impact from the hacking incidents," adding, "From the second quarter, expense burdens are likely to ease and AI and B2B operations to ramp up in earnest, potentially setting up a recovery in results."