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July 19, 2019

Telcom firms under earnings pressure with 5G expenditure

PUBLISHED : May 13, 2019 - 15:08

UPDATED : May 13, 2019 - 15:08

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South Korean telecom firms are expected to post lackluster earnings in the second quarter due to heavy spending on 5G infrastructure, analysts said on May 13.

The nation’s three carriers -- SK Telecom, KT and LG Uplus -- rolled out their 5G commercial services in early April, but they have been extensively expanding their base stations with a goal of completing national coverage by the end of this year.
 


Despite their aggressive promotion for 5G smartphones by Samsung Electronics and LG Electronics over the past month, market watchers expected their increased capital spending and marketing costs to weigh down on their profits in the short term.

“The 5G services are innovative, but they are limited in expanding customer base due to expensive devices and mobile plans as well as a lack of mobile coverage in the early stage,” Kim Hoi-jae, an analyst at Daishin Securities, said. “They are expected to draw real attention from the market when carriers complete establishment of national coverage and launch relevant services.”

While the three carriers posted relatively robust earnings in the first quarter thanks to IPTV services, company officials warned of lackluster profitability this year on continued investment in 5G networks.

SKT said its capital expenditure soared 280 percent on-year to 331 billion won in the first quarter as it jacked up investment for its 5G network.

No. 2 KT’s capital spending jumped 133 percent to 552 billion won, and the corresponding figure for LG Uplus Corp. rose 34.8 percent to 277 billion won over the period, the firms said.

LG Uplus also remained downbeat over the firm’s profitability in the latter half of this year as it aims to increase the number of 5G base stations to 80,000 by the end of this year.

“The earnings outlook for the latter half is not optimistic due to excessive competition for 5G service,” Lee Hyuk-joo, LG Uplus’ CFO, said in a conference call last week. “The three carriers will have to return to normal business competition at some point.”

By Ram Garikipati and newswires (ram@heraldcorp.com)

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