Major Korean telecom carriers grapple with non-telecom business growth

SK telecom Co.’s AI service, A Dot [Photo provided by SK telecom]

The three major Korean telecommunications carriers are coping with sluggish growth in their non-telecom businesses, particularly in areas like artificial intelligence (AI), smart factory, and urban air mobility (UAM), in contrast to the multi-million-dollar quarterly operating profits they are generating from 5G network services.

According to industry sources on Wednesday, SK telecom Co. has set a goal to expand its revenue from non-telecom businesses, including enterprise, media, and AI, to 8.1 trillion won ($6.4 billion) by 2025, a 2.7-fold increase from 2.9 trillion won in 2021. The company has also set a target to increase the revenue share to 36 percent. The carrier’s initial plan was to achieve an average 30 percent growth in the enterprise business, which oversees data centers, cloud, and AI call centers, but its revenue growth fell short of the initial target, reaching only 12.5 percent last year and 5.8 percent in the first quarter of this year.

The telecom carrier is also making a substantial investment in AI projects led by SK Group Chairman Chey Tae-won. SK telecom invested over 150 billion won to launch the AI service, A Dot. The company made another 15 billion won investment in April in AI startup Scatter Lab Inc., as part of its efforts to strengthen development capabilities. “Chey has reportedly called for greater growth,” said one industry insider. Another unnamed insider expressed concern about the company’s aggressive investment moves. “The departure of Kim Yoon, the chief technology officer who played a key role in developing Apple‘s Siri, has had an impact. Some worry that these latest services may end up like the intelligent robot agent service back in 2006.”

KT Corp. has achieved external growth in non-telecom businesses, with a 40 percent share in its revenue, the highest ratio among the three major carriers. However, there are questions about certain businesses. When looking into the financial results of around 50 companies in which KT has invested, including Kbank and Megazone Cloud Corp., the telecom carrier posted a loss of 17.2 billion won last year, in contrast to a profit of 116 billion won in 2021. KT is also pursuing the “AI full-stack” service, which packages cloud and AI semiconductors together. While the business is doing well on the surface, primarily thanks to orders from the government, critics say the company requires a more concrete strategy to compete with foreign competitors.

LG Uplus Corp. is seeking to expand its non-telecom sector through corporate infrastructure lines and its own over-the-top platform. While some areas, including its own OTT service, are showing some positive results with increasing subscribers, most of the carrier’s profits still come from 5G. The carrier set a target of 40 percent share in the revenue from non-telecom sectors by 2027, twice the present level, which some industry insiders think too ambitious.

“The smart factory business is posting losses as profits from the business are needed to be shared not only with telecom carriers but also with AI vision companies and other related parties. Substantial investment is being made into non-telecom sectors, but the performance still does not meet the expected level,” said an industry insider.

Within the industry, however, there are views that non-telecom sectors need time to see notable growth, much like startups, as they are part of a future industry. China Mobile Ltd., China’s leading mobile telecom carrier, recorded revenue of 14.6 trillion won last year, with about 4 trillion won or 25 percent coming from non-telecom areas. The Chinese carrier has shown visible results in non-telecom areas such as cloud, edge computing, and corporate digital transformation, leveraging the scale of the Chinese domestic market.

Meanwhile, the major Korean telecom carriers have faced criticism for their alleged cartel, leading to government measures to foster new operators.