Over the Last Decade Mobile Telecom Businesses Made Higher Expenditures than Profits Earned

- They can lower charges imposed on consumers through cost reduction efforts

 

The Cost Analysis Team of the Korea National Council of Consumer Organizations (KNCCO / Chairperson: Kim Yeon-hwa) analyzed SK Telecom’s financial statements for the last 10 years (2002-2012) in order to propose that domestic mobile telecom businesses should lower charges imposed on consumers, in connection with complaints that households feel burdened about the heavy communications charges.

 

With regard to SK Telecom’s financial statements for the last 10 years (Ref. Table 01), its operating income increased by about 4 trillion won (from 8.6 trillion won in 2002 to 12.5 trillion won in 2011), but its operating expenses also increased by about 4.5 trillion won (from 5.9 trillion won in 2002 to 10.4 trillion won in 2011). The foregoing means that the rate of increase in operating expenses (6.55%) exceeded that of the increase in operating income (4.30%). Looking at the absolute amount, its annual operating income has remained little changed over the last decade, with a 17% profit rate in 2011. It is thought that most of the operating expenses are spent for marketing, i.e., efforts to attract customers. This means that telecom businesses are shuffling off such expenses, which are made higher due to fierce competition among themselves, to consumers. Accordingly, they can lower charges imposed on consumers with efforts to reduce cost.

 

[Table - 1] SK Telecom’s overall status of operation

<Unit: million won>

 

	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
Operating income	8,634,049	9,520,244	9,703,681	10,161,129	10,650,952	11,285,900	11,674,662	12,101,184	12,550,497	12,575,129
Operating expenses	5,950,373	6,439,585	7,344,100	7,507,559	8,066,583	9,114,357	9,614,765	9,921,847	10,195,469	10,488,480
Operating profit	2,683,676	3,080,659	2,359,581	2,653,570	2,584,369	2,171,543	2,059,897	2,179,337	2,355,028	2,086,649
ratio of operating profit to net sales	31.08%	32.36%	24.32%	26.11%	24.26%	19.24%	17.64%	18.01%	18.76%	16.59%

 

 

 

 

 

 

Telecom Businesses’ Depreciation Cost (a type of fixed cost) has Decreased Amid an Increase in Service Subscribers.

- That translates into a decrease of at least a thousand won in monthly communications charges.

 

Depreciation cost is a cost related to a business’s facility investment and development expenses recovered over a given period of time. Depreciation cost is a type of fixed cost and is included in consumer prices. Observing the ratio of depreciation cost in consumer prices, it appears that the businesses’ per-subscriber depreciation cost burden has decreased with an increase in the number of service subscribers (an increase of 9 million from 1.7 million in 2002 to 2.6 million in 2011). This translates into a decrease of at least a thousand won in monthly communications charges.

Please refer to the following Table-2.

[Table 2] Status of Depreciation Cost and Service Subscribers

 

	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011
Mobile phone-related depreciation cost (Unit: 1,000 won)	1,237,572,230	1,301,905,575	1,380,001,477	1,323,561,498	1,323,713,217	1,507,363,640	1,579,007,032	1,658,591,345	1,317,069,780	1,451,190,919
The number of service subscribers	17,219,562	18,31,135	18,783,338	19,530,117	20,271,133	21,98,169	23,032,045	24,269,553	25,705,049	26,552,716
Per-subscriber depreciation cost (Unit: won per year)	71,870	71,091	73,469	67,770	65300	68,616	68,557	68,340	51,238	54,653
Per-subscriber depreciation cost (Unit: won per month)	5,989	5,924	6,122	5,648	5,442	5,718	5,713	5,695	4,270	4,554

 

 

 

 

 

Communications charges comprise basic charges associated with fixed costs and call charges. Recently, the trend has been toward a blurred distinction between basic charges and call charges due to the adoption of diverse systems of charges.

At present, the three leading mobile telecom businesses offer similar services and charge systems. The number of service providers has increased by about 60% over the past decade and thus it can be said that the increase in their expenses is due to the excessive competition between them. Their efforts to reduce marketing expenses can result in the lowering of charges imposed on consumers.

 

SK Telecom’s Commissions Paid to Specially Related Parties Show an Increase in 2010 and Thereafter.

- Charges imposed on consumers can be lowered through a change in the monopolistic operational structure.

 

Over the past three years, the amount of commissions (which accounts for about half of the operating expenses) paid by SK Telecom to specially related parties stood at 2 trillion a year. It is noteworthy that the said amount increased with the establishment of Service Ace, Service Top, Network O & S, Hana SK Card in 2010 and of SK Planet in 2011. SK Telecom should make efforts to reduce operating expenses and adopt a system of open competition through transactions with third parties rather than a system of collaboration within affiliated businesses.

Businesses say that they cannot lower service charges due to aggravating business conditions, but they can reduce their operating expenses and lower service charges at least by a thousand won right now.