In the first half of this year, device distribution and sales revenue at the three telecom companies rose by about 300 billion won from the same period a year earlier, while device installment receivables that the three carriers securitized into asset-backed securities (ABS) and converted into cash fell by about 400 billion won. Even though overall device sales grew, the amount purchased on installment through carriers declined. The telecom industry sees the expansion of subsidy competition since the repeal of the Mobile Device Distribution Improvement Act in Jul. last year as a key driver. However, the spread of factory-unlocked devices, increased credit card payments, and carriers' timing adjustments for securitization may also have played a role.
◇ Device revenue up 300 billion won, but installment receivables down 15.6%
An analysis by ChosunBiz on the 9th of the three carriers' semiannual reports and credit rating agency data found that device installment receivables the three carriers cashed out via ABS issuance in the first half totaled 2.152 trillion won. That was down 397.5 billion won (15.6%) from 2.5495 trillion won in the first half of last year. Carriers transfer device installment receivables due over two to three years to a special purpose company (SPC) to secure cash in advance, and the SPC issues ABS backed by these as underlying assets.
By company, SK Telecom fell 173 billion won (16.3%) from 1.0645 trillion won in the first half of last year to 891.5 billion won in the first half of this year. KT declined 85 billion won (12.6%) from 674 billion won to 589 billion won, and LG Uplus dropped 139.5 billion won (17.2%) from 811 billion won to 671.5 billion won. The number of ABS issuances was the same at 12 in both the first half of last year and this year.
It is hard to say the decrease in installment receivables was solely due to weak device sales. In the first half of this year, the three carriers' device distribution and sales revenue totaled 6.3583 trillion won, up 305.6 billion won from 6.0527 trillion won in the first half of last year. The growth rate was 5%.
In detail, LG Uplus' device sales revenue increased 13.6% from 2.7219 trillion won in the first half of last year to 3.0912 trillion won in the first half of this year. By contrast, over the same period LG Uplus' device installment receivables securitized decreased 17.2%. SK Telecom's device sales revenue is recognized under SK Networks' information and communications division (the device sales-focused institutional sector), which wholesales phones to agencies. This division's first-half revenue was 2.0575 trillion won, up 0.3% from 2.0522 trillion won a year earlier. However, over the same period SK Telecom's device installment receivables securitized fell 16.3%. KT's device sales revenue in the first half of this year was 1.2096 trillion won, down 5.4% from 1.2786 trillion won a year earlier. But the decline in ABS issuance was 12.6%, larger than the revenue decrease.
◇ After the repeal of the Mobile Device Distribution Improvement Act, subsidy competition grew, reducing customers' installment principal
In the telecom industry, expanded purchase subsidies after the repeal of the Mobile Device Distribution Improvement Act are cited as a main reason for the decline in installment receivables. Even if device sales-related revenue rises, larger subsidies can reduce the installment principal customers must pay back to carriers. For example, if a smartphone with a list price of 1.5 million won comes with an 800,000 won subsidy, the customer's installment principal falls to 700,000 won. Even if more phones are sold or the share of high-priced devices increases and boosts revenue, if carriers expand device subsidies, the amount of installment receivables they hold can decrease.
At the end of Jul. last year, with the repeal of the Mobile Device Distribution Improvement Act, carriers' obligation to disclose subsidies and the cap on additional subsidies by retail outlets disappeared. Previously, additional subsidies by outlets were limited to within 15% of carriers' posted subsidies, but now outlets can set subsidy amounts at their discretion. A telecom industry official said, "With the number of ABS issuances unchanged from the previous year and the issuance amounts at all three carriers falling uniformly by 12% to 17%, the expansion of subsidy competition after the repeal of the Mobile Device Distribution Improvement Act likely had a common effect of reducing customers' average installment principal."
Changes in how consumers purchase devices may also have had some impact. If consumers buy factory-unlocked devices without going through carriers, or pay off the device cost in full at activation using a credit card installment plan, no device installment receivable arises at the carrier. In addition, carriers choosing not to cash out some receivables and hold them directly, or adjusting the timing and scale of securitization, may have affected ABS issuance amounts.