Fitch Ratings has revealed the telecom sector forecast for mobile operators in South Korea.
Fitch said it expects net leverage to remain flat at about 1.5x in 2021 (2020F: 1.5x) amid the progressive pace of 5G network upgrades and our view of stable competition.
Our October 2020 revision of the Outlook on SKT to Stable from Negative underscores improving operating cash generation due to continuous 5G adoption.
KT Corporation, the second-largest wireless operator, also has a sufficient financial buffer to fund 5G capex.
FCF is likely to turn positive, thanks to improving operating cash generation and tightly controlled Capex. 5G monetisation from the upselling of higher ARPU plans and expansion into non-telecom businesses, such as media, security services and e-commerce, should boost operating cash flow.
Capex will continue dropping following a peak in 2019. Telcos will achieve robust growth in 5G subscribers, helping to lift wireless ARPU and expand revenue. This is supported by better availability of 5G handsets, subsidies and the popularity of unlimited data plans bundled with peripheral services, such as music streaming and media content.
Korea’s 5G user base reached 8.7 million in August 2020, representing around 12 percent of total mobile connections.
SK Telecom leads with a 46 percent 5G subscriber base, followed by KT (30 percent) and LG Uplus (24 percent).
Expansion into non-core segments, such as SKT’s security services under its subsidiary, ADT Caps, and e-commerce business, should contribute to cash flow generation and diversification.
KT and SKT’s internet-protocol television segments will benefit from subscribers switching from cable-TV operators amid bundling and better content. Revenue from pay per view, home shopping and advertising should also rise in line with an increasing segment market share.
The flurry of M&A is likely to continue following the easing of rules that enabled local operators to strengthen their positions against foreign-based streaming companies, such as Netflix.
KT Skylife, KT’s satellite-TV subsidiary, was named as a preferred bidder in July 2020 to acquire Hyundai HCN, Korea’s fifth-largest cable operator. This is after two major deals by SKT and LG Uplus, which acquired the country’s first and the second largest cable-TV operators, respectively. There will be more deals as other cable-TV operators are up for sale, the report said.
