South Koreans were eager to sign up for mobile phone service during the last few months of 1997, but some analysts speculate carriers will hit difficult times in 1998 as consumers tighten their belts in the wake of the country’s economic problems.
SK Telecom Co. Ltd., the country’s largest and oldest cellular operator, saw its subscriber growth remain strong in 1997, despite heavy competition from three personal communications services carriers that entered the market Oct. 1 and blitzed consumers with advertising and promotional campaigns. Shinsegi Telecomm Inc., South Korea’s other cellular operator, did not fair well with the competition.
One analyst in South Korea expects the country’s churn rate to rise significantly during the next six months as South Koreans begin to cancel their mobile phone service in attempts to limit their spending during the economic crisis. SK Telecom could be vulnerable because 80 percent of its customers are business users. Most South Korean businesses are significantly cutting down on expenses, and analysts expect several bankruptcies this year. South Korea’s currency has fallen by at least 44 percent since September 1997, while its stock market has declined by at least 50 percent since June.
SK Telecom ended 1997 with 4.57 million subscribers-3 million of which were Code Division Multiple Access subscribers-and added 423,494 subscribers between October and December. Shinsegi added only 91,269 during that period, while Hansol PCS, LG TeleCom Ltd. and Korea Telecom Freetel added 416,363, 370,000 and 350,000, respectively, during the three months, said an SBC Warburg Asia Ltd. report.
The report indicated Shinsegi’s subscriber additions fell sharply after the three PCS carriers introduced service, with the carrier adding only 28,000 customers in November and December, compared with an average of 83,000 new monthly subscribers from January to October. Shinsegi, which launched service about two years ago, ended the year with 1.13 million subscribers.
South Korea’s three PCS carriers together had 1.14 million subscribers by the end of 1997 despite a PCS handset shortage that started in October and lasted until the middle of December. SK Telecom’s subscriber additions during December fell slightly.
It’s unclear whether mobile phones will remain a popular consumer item in South Korea throughout 1998. Most analysts believe that Asian countries impacted by the currency crisis are likely to experience some form of slowdown in wireless demand. SK Telecom said it expects slower subscriber additions and increased churn due to the country’s unstable foreign currency market.
While South Korea added a total of 3.7 million subscribers during 1997, SBC Warburg anticipates only 2.3 million customers will sign up for service in 1998, and it expects SK Telecom, which added 1.68 million new subscribers during 1997, to add only 500,000 customers this year, with no significant increase through 2000. This is not good news for Shinsegi, which already is struggling with the increased competition in the market.
Currencies in Indonesia, Thailand, Malaysia and the Philippines, once wireless hotbeds, have been hard hit longer than South Korea’s and are now beginning to show slowed subscriber growth. The Jakarta Post in December reported that the Indonesian mobile phone market fell by about 40 percent during the last three months of 1997. Handset providers there said mobile phone sales dropped by as much as 30 percent because consumers’ purchasing power is weakened, while mobile phone prices increased, a trend expected to continue through this year.
The Strategis Group, a consulting firm in Washington, D.C., expects the affected wireless markets in Asia to reflect those in Mexico, which saw its peso plunge by about 50 percent in December 1994. Mobile phone operators in Mexico added about 50,000 fewer subscribers during 1995 than in 1994-which ended with a total of 200,000 customers added.
But only South Koreans know if mobile phones are a necessity for them. Mobile phones are a status symbol to many consumers, and their seemingly insatiable appetite for talking on the phone could allow mobile phone operators there to emerge from the economic crisis almost unscathed. Strategis still has very bullish projections for subscriber growth in South Korea and other affected regions in Asia. It expects the number of subscribers in South Korea to reach nearly 25 million by 2004. The country had 6.8 million subscribers at year-end 1997.
Pyramid Research’s latest forecast indicates cellular and PCS subscribership in Southeast Asia will grow from more than 7.4 million in 1997 to more than 21.6 million in 2002.
