, Korea

South Korean telcos not threatened by mobile virtual network operators

Despite the attractive tariff plans, MVNOs will find it difficult to secure a line-up of attractive handsets due to their small subscriber base.

In a release, Fitch Ratings says that the advent of mobile virtual network operators from July 2011 will have only a limited impact on the competitive landscape of the South Korean telecommunications industry, and consequently the ratings of South Korean mobile operators.

"Ability to source attractive handsets and offer a high level of handset subsidies for subscriber acquisition, rather than offering cheap tariffs, remains the key competitive factor for telecom operators in South Korea," said Alvin Lim, Associate Director in Fitch's Asia Pacific Telecom, Media and Technology team.

"Low handset order volumes and limited funding options mean that the MVNOs will be disadvantaged compared with Korea's three main mobile operators, and accordingly any negative impact from their presence is likely to be marginal," he added.

MVNOs provide mobile service through networks leased from existing operators. Free of sizable capex requirements for establishing network infrastructure, MNVOs usually are able to offer cheaper tariff plans than existing operators.

Since 1 July 2011, a number of companies including Eyesvision Corporation, Korea Cable elecommunications, and others have launched or announced plans for MVNOs in South Korea based on 20%-30% cheaper tariff plans than those offered by existing operators.

Despite the attractive tariff plans, Fitch believes that MVNOs will find it difficult to secure a line-up of attractive handsets, especially smartphones, due to their small subscriber base. In addition, weak financial capacity will limit their ability to offer handset subsidies and hence attract subscribers. Other disadvantages include a small number of retail channels and the unproven quality of their customer service centres.

As a result, Fitch expects that only a small number of subscribers seeking lower tariffs will switch to MVNOs over the medium- to long-term. Fitch estimates that these subscribers are also likely to generate among the lowest average revenue per user and make significantly lower contributions to the operators' overall profitability compared with the average user.

Although existing operators will suffer revenue loss as a portion of their subscribers move to MVNOs, this will, to a certain extent, be offset by network leasing fees received from MVNOs.

In addition, Fitch believes that the advent of MVNOs will help ease regulatory pressure for tariff reductions. With MVNOs in the market, a stronger case can be made that an enhanced level of competition should eventually lead to lower average tariff levels. 

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