A string of hacking incidents last year is expected to affect the first-quarter results of South Korea's three telecom carriers this year. SK Telecom and KT are expected to struggle as compensation costs and marketing burdens weigh, while LG Uplus is likely to be the only one to post increases in both sales and operating profit, helped by subscriber inflows and growth in new businesses.

LG Uplus seen posting growth in both sales and operating profit

FnGuide said the combined first-quarter operating profit estimate for SK Telecom, KT and LG Uplus is 1.3 trillion won. That is expected to be down 14.08 percent from a year earlier, when they posted 1.51 trillion won. Combined revenue is forecast at 15.03 trillion won, likely to be similar to last year's 15.05 trillion won.

The direction of results differs sharply by company. KT's first-quarter operating profit is forecast at 505.3 billion won, down 26.64 percent from a year earlier. Revenue is expected to fall 1.10 percent to 6.77 trillion won. The estimate is attributed to a heavier cost burden as KT began compensation related to hacking in earnest from late last year.

KT waived cancellation fees for 14 days from Dec. 31 last year to Jan. 13 this year, and about 230,000 subscribers left. A customer compensation package worth 450.0 billion won and higher marketing costs are also assessed to have affected first-quarter results. Base effects from one-off gains such as property sales last year are also cited as factors that widened the decline in profitability.

SK Telecom is also expected to have a weak first quarter. Operating profit is forecast at 512.7 billion won, down 9.64 percent from a year earlier. Revenue is expected to fall 1.26 percent to 4.40 trillion won. Higher security investment and marketing costs after a SIM hacking incident are reflected, delaying a recovery in profitability.

LG Uplus is expected to be the only one among the three to post increases in operating profit and revenue. First-quarter operating profit is forecast at 281.2 billion won and revenue at 3.86 trillion won, up 10.07 percent and 3.09 percent, respectively, from a year earlier. Subscriber demand triggered by competitors' issues flowed in, expanding its subscriber base. Growth in its business-to-business operations, data centre revenue and the expansion of AI contact centre solutions are also seen supporting results.

Hacking fallout persists; recovery expected in second half

In the longer term, there is an assessment that all three telecom carriers have room to grow. SK Telecom and KT, which are expected to have weak first-quarter results, are also likely to see a gradual improvement from the second half.

SK Telecom is assessed to be maintaining its fundamentals despite cost burdens. Expectations for mid- to long-term growth are rising as its net increase in wireless subscribers continues and new businesses such as AI data centres (AIDC) and GPU-based services (GPUaaS) begin in earnest. If the introduction of 5G standalone (SA) gathers pace, tariff up-selling and network efficiency gains are expected to appear at the same time.

Hong-sik Kim (김홍식), a researcher at Hana Securities, said in a report that many opinions were raised that new 5G SA tariffs should be launched so that network investment can be carried out, although it would not be easy domestically. He added that expectations are growing that attempts at tariff up-selling could emerge.

KT also has weak near-term results, but an analysis says it has sufficient room to rebound. Tae-hyun Kim (김태현), a researcher at IBK Investment & Securities, said in a report that uncertainty stemming from issues such as small-payment damage and personal data leaks is judged to have entered a phase of being resolved.

It is also raising expectations that it has recently streamlined its cost structure through an organisational reshuffle and is strengthening an AX strategy centred on business-to-business transactions. There is a forecast that the pace of recovery could quicken if a shift to an 'AX platform company' becomes visible through expanding corporate AI and cloud businesses and combining them with existing telecom infrastructure.

While LG Uplus is expected to see growth in new businesses including AI data centres, there are also concerns. Recent controversy over the design of the international mobile subscriber identity (IMSI) and security-related issues have emerged, raising worries that the 'spillover benefit' it gained from hacking accidents at SK Telecom and KT last year could weaken. In particular, as demands for cancellation-fee waivers spread mainly in civil society, the possibility has also been raised that it could become a burden on retaining subscribers going forward.

An industry official said external variables also played a role in LG Uplus' earnings improvement, so it remains to be seen whether the growth trend will continue. The official added that with security controversy emerging recently, the speed of restoring trust will be a key variable for its mid- to long-term performance.