South Korea Telecommunications Report Q4 2011

Our Q411 report on South Korea's telecommunications market provides a comprehensive overview of the latest developments to occur within the country's mobile, fixed-line telephony, and internet sectors. Our five-year growth forecasts for each of these sectors are based on Q211 data published by South Korea's leading operators - SK Telecom, SK Broadband, KT, and LG Uplus.By the end of June 2011, Korea had 52.23mn mobile subscribers, reflecting a net gain of 1.462mn clients in the first six months of the year. We maintain our forecast that, by the end of 2011, the mobile subscriber base will increase to 53.4mn. This gives South Korea a mobile penetration rate of 109%. Though the South Korean mobile market is already mature, continued mobile customer growth has been the result of stronger smartphone handset penetration rates and the provision of flat-rate data services offering cheaper tariffs. Growth in the number of smartphone clients has a direct impact on the country's 3G subscriber base, which we estimate will reach 49.643mn by YE11.By the end of 2011, we estimate that Korea will have 27.155mn fixed-line subscriptions, reflecting annual growth of 3.5% and representing a penetration rate of 55.4%. Much of the recent growth that has characterised South Korea's fixed-line sector is the result of an increasing number of VoIP (Voice over Internet Protocol) subscriptions; these are offered over broadband internet connections of a bundled service offering.We maintain our view that South Korea had just more than 37.4mn internet users at the end of 2011, up by 1.1% over the year. In the meantime, we forecast that, in 2011, the number of broadband subscribers will increase by 5.1% to reach 18.102mn. This would give Korea a broadband a penetration rate of 37.4% at the end of the year. We expect slower broadband subscriber growth to result in increasing competition in the area of bundled and converged services.Key developments of note in South Korea's telecoms sector include the news in August that SK Telecom had emerged as the winner in a bidding process for new 1800MHz spectrum. South Korea's first ever auction for mobile spectrum came to a close afterwards KT Corp, the country's second largest cellco by subscribers, withdrew from the race. Previously in August, South Korea's third-ranked mobile operator by subscribers, LG Uplus, was declared the winner in the sale of 20MHz of spectrum in the 2.1GHz band. LG plans to use the frequencies to support its LTE services, which it launched in July 2011.South Korea remains in fourth position in our latest set of Business Environment Ratings for the Asia Pacific Telecoms markets. This is despite receiving higher scores in the Industry Rewards and Country Rewards categories and a higher overall Telecoms Market score. Contributing to the higher Industry Rewards score this quarter are the higher subscriber growth and the more healthy ARPU performance, which was reported by all three of the country's mobile operators in Q211. The higher Country Rewards score reflects evidence that inflation has peaked and disinflationary pressure is mounting.

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