Korea’s top mobile carrier SK Telecom Co. and other industry players are ramping up efforts to claim a bigger share of the fast growing long-term evolution market deemed a future money spinner, market watchers say.
The LTE service, or the fourth-generation of wireless technology, enables smartphone users to access a stream of data faster than the current 3G network and download and watch movies more quickly.
In a country where four out of 10 people use smartphones, SK Telecom and two other carriers ― KT Corp. and LG Uplus Corp. ― are rushing to satisfy data-hungry users, betting that the new service will help them continue to turn a profit in the already saturated wireless market.
“Offering the LTE service can be likened to expanding a congested road to make traffic flow more smoothly,” said Kim Jang-won, a senior analyst at IBK Securities Co.
The LTE service kicked off in July last year in South Korea, led by SK Telecom, which controls about half of the local mobile market, and LG Uplus, the country’s smallest mobile operator.
KT Corp., the No. 2 mobile carrier and the country’s top fixed-line operator, belatedly launched the LTE service this month as its move to shut down the 2G service, aimed at using the same bandwidth for its LTE service, hit a snag due to a court injunction.
According to a report by Strategy Analytics, global sales of smartphones based on the LTE technology are expected to grow around four times to around 32 million units this year. The annual growth rate of the LTE market is expected to reach an average of 103.5 percent by 2016, it added.
South Koreans, who live in one of the world’s most wired countries, are fast adapting to ever-changing technology and a slew of new mobile gadgets.
The number of smartphone users exceeded the 20 million mark in October last year, indicating that about 80 percent of 25 million economically active people are using smartphones.
Since Apple Inc’s iconic smartphone iPhone was introduced in the local market in late 2009, smartphone subscribers have undergone explosive growth as they are estimated to have accounted for more than 40 percent of the total mobile phone users as of end-2011, according to data by the state-run telecommunications watchdog.
“The growing use of smartphones is leading more people to have an interest in how fast they can access a slew of data,” said Kim at IBK Securities Co.
In an attempt to gain the upper hand in the LTE market, the three local mobile carriers are making efforts to lure more subscribers to their LTE services, which entail higher service fees than the 3G network, and also to spend more money on marketing.
Some of them are not hesitant to air comparison TV commercials to highlight their strengths in the LTE market.
Market analysts said that the number of LTE subscribers is estimated to stand at about 1 million for now and is highly likely to top 10 million by the end of this year.
SK Telecom said it attracted around 660,000 subscribers to its LTE service as of the end of December and is seeking to target 5 million by end-2012.
KT is aiming to lure about 4 million customers by the end of this year and offer a nationwide LTE service by April.
LG Uplus, the sole local carrier not providing the iPhone, is pinning its hopes on the LTE service to drive subscribers and revenue growth as it lost to its two bigger rivals in the lucrative 3G smartphone market. Its 2012 subscriber target is set at 4 million.
Analysts said that competition for survival among the local wireless operators is likely to heat up this year and the long-term outlook for the market remains firm.
But they noted that in the short term, high marketing costs and capital spending used for setting up the network would weigh on their earnings.
“As using the 4G service imposes higher service rates, the expansion of the LTE service will help raise local carriers’ average revenue per user, a gauge of profitability,” said Lee Ji-yeon, an analyst at KB Investment & Securities Co.
“But it would be difficult to expect short-term gains due to higher marketing costs and cut-throat competition.”
The LTE network charges higher service fees than the 3G wireless service and the 4G service also does not provide unlimited data access with fixed rates, which indicates it will further push up users’ burdens to foot the bill.
In a country where mobile service rates take up a big part of consumers’ spending, higher rates for the high-speed wireless service could unnerve a bulk of smartphone users, market analysts said.
“The local mobile carriers’ competition to draw more subscribers is expected to be intense once they complete nationwide networks around April,” said Hwang Sung-jin, an analyst at HMC Investment Securities Co.
“I think that the LTE service will likely benefit the local mobile carriers in terms of earnings after the second half.”
