Telecoms have good Q2, but profit-per-customer is slowing

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Telecoms have good Q2, but profit-per-customer is slowing

The nation’s three largest telecoms had satisfying second-quarter profits, thanks to reduced spending on marketing and promotions after the government’s Device Distribution Improvement Act fully tamed the market since its launch last October.

At the same time, the telecom industry is seeing slowed growth of revenue per customer, mainly as customers move to cheaper monthly plans.

According to the telecom industry on Sunday, the three carriers’ average revenue per user (ARPU) growth rate has slowed to the 2 percent range in the first and second quarter of this year, much lower than the 6 percent growth seen in the third and fourth quarters of last year.

In the past, telecoms still made lots of money, even while spending massive amounts on marketing budgets to lure more customers to sign up for high-end monthly plans, by intentionally offering few choices in plans.

The carriers competed with each other with smartphone subsidies for customers who subscribed to those pricey monthly plans, sometimes by getting their affiliated retail shops to offer subsidies beyond the legal limit.

But the Distribution Improvement Act prohibits the telecoms from offering big subsidies on handsets for people who subscribe to pricey monthly plans, and urges them to allow customers to use old mobile phones and still receive subsidies on their monthly billing, so the telecoms are seeing a slowdown of per-customer profit. The new rules inhibit customers from upgrading their phones as often as in the past, and encourages them to go for cheaper monthly plans.

Almost 34 percent of the nation’s mobile phone users were subscribed to high-end monthly plans - priced 60,000 won ($51.42) or more - last fall, three months before the Act came into effect, according to recent data from the Ministry of Science, ICT and Future Planning. However, people on pricey plans halved to 13.1 percent from last October to March this year.

Meanwhile, users of low to mid-end plans increased. Users of plans priced 30,000 won or lower jumped to 58.1 percent in the first six months of the new law, and those who use plans in the 40,000 and 50,000-won range increased to 28.8 percent from 17.1 percent before the new law.

Industry insiders expect the slowdown of ARPU growth to continue after the ICT Ministry last week permanently implemented subsidies in the form of a 20 percent discount on monthly bills for customers who use old phones or buy new ones at full price. Before the Act came into effect, only buyers of new smartphones could receive mobile service subsidies.

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