Mobile rates cut plan called into question

Debate is raging over whether trimming telecom fees by a small margin was the best move by a government desperate to show action on previous pledges to rein in soaring communication expenses.

On Thursday, the Korea Communications Commission, the state telecom regulator, announced a discount plan for telecom fees that included a 1,000 won discount in basic service fees and 50 free text messages a month.

SK Telecom, the country’s largest mobile carrier, struggling against mounting pressure to lower its fees, will lead the discount campaign. SK is to be soon followed by rivals KT Corp. and LG Uplus.

Currently, basic service fees for the three telecoms are 12,000 won for both SKT and KT and 11,900 won for LG Uplus.

“It would have been better if we had provided a higher figure of discounts but we also had to put into consideration the telecoms’ big investments in next generation networks. We will work further to curb the rates in days to come,” KCC Chairman Choi See-joong said during a conference with the Korea Broadcasting Journalists’ Club in downtown Seoul on Friday.

The plan, however, is not being viewed positively by many, including the two other mobile carriers, each trying to devise an appropriate plan .

“But I doubt that our plan would look any different from SKT’s,” said an LG Uplus official.

Analysts also had dim outlooks on the telecom’s phone fee cut.

Ahn Jae-min, an analyst at Kiwoom Securities, said SKT’s accumulated sales will decrease 504 billion won per year on implementing the plan unveiled this week.

“This means that SKT’s overall revenue for next year will fall 3.7 percent from the current estimate and also record a 19.9 percent decrease in operating profit,” said Ahn.

“Sales produced from basic service costs and text messages are directly connected to operating profit, which is why it has a big impact on a telecom’s profitability.”

Another analyst at Woori Investment and Securities said the telecom’s move to cut fees is likely to have a negative influence on investors since there is no promise that this would be the last time telecoms are under such pressure from the government and political circles.

“It at least caused concern to some because it could put a limit on the increase of average revenue per user for leading mobile carrier SKT,” said Chung Seung-kyo of Woori.

“When looking at the future of the telecom industry, opportunities for growth are detected with the introduction of smartphones and tablet PCs. But we can’t deny that the industry will be met again with demands for phone fee cuts with the upcoming political elections.”

By Cho Ji-hyun (sharon@heraldcorp.com)