The country’s three mobile carriers – SK Telecom Co., KT Corp. and LG Uplus Corp. – offer bundled products combining their data and telecom services with OTT operators’ online video streaming services to keep their customers from OTT-only players. In return, they pay royalties to OTT operators.
With OTT companies recently raising their subscription rates, however, the telecom firms find themselves in a quandary; they can’t raise their bundled service rates as much, resulting in lower profits.
Netflix, the dominant OTT player in Korea, last month banned Korean users from sharing their accounts with others – a practice the US company has used for years in Korea to widen its subscriber base – as it moved to strengthen its profitability.
Disney Plus, which is catching on among Korean viewers with its recent big-hit “Moving” K-drama series, last month raised its ad-free premium service rates to 13,900 won ($11) a month from the previous 9,900 won.
Korea's mobile carriers face falling profitability TVing, a home-grown OTT owned by Korean entertainment powerhouse CJ ENM Co., has also increased its standard service rates to 13,500 won from 10,900 won and its premium service to 17,000 won from 13,900 won.
UNDER GOVERNMENT PRESSURE
The OTT players’ subscription rate increases tend to push up the domestic telecom operators’ package service rates, but this time the chances of a rate hike are low.
Industry sources said on Wednesday that SK Telecom, KT and LG Uplus have decided not to raise their bundled telecom-OTT service rates, at least through the end of the first quarter. Any subscription rate increases will likely come in the second quarter at the earliest, sources said.
“We can’t raise our bundled service rates at a time when the government wants us to cut telecommunications rates further. We’re kind of in dilemma,” said an industry official.
'Moving' is the most-watched drama series ever on the Disney+ app Last month, the Ministry of Science and ICT, Korea’s telecom policy regulator, announced measures to lower telecom service rates while urging mobile carriers to cooperate as the country was grappling to tame elevated consumer price inflation.
“We’re forced to cut our service rates as OTT operators increase their service charges,” said an official at a domestic telecom company.
He said the three telecom companies will soon embark on talks to slash royalties they pay to OTT players.
SINGLE-DIGIT PROFIT MARGINS
Weighed by worsening business conditions, KT’s operating profit margin in the third quarter dropped to 4.81% from 8.8% in the second quarter.
LG Uplus, Korea’s third-largest telecom operator, saw its third-quarter profit margin decline to 7.1% from 8.4% in the previous quarter.
Concerning OTT operators’ subscription rate increases, telecom companies said they were caught off guard, with little time to respond.
Korea’s three telecom companies said they were notified by Google of its decision earlier this month to raise subscription rates for YouTube just one day ahead of its public announcement.
Industry officials said telecom companies’ bundled products, in some cases, have a price edge over OTT players’ services.
With an extra fee of 9,900 won added to its monthly telecom and data services, SK Telecom users can enjoy YouTube’s premium OTT service through a bundled product. By comparison, YouTube offers its premium OTT service at 14,900 won monthly.
KT also offers YouTube’s premium OTT service to its telecom users with an extra monthly fee of 9,450 won.
Separately, KT and LG Uplus allow customers unlimited data use and access to one of three OTT services – YouTube, Netflix and TVing – at rates between 90,000 won and 105,000 won.
Write to Ji-Eun Jeong at jeong@hankyung.com In-Soo Nam edited this article.
