SKT Has Solid Core Telecom Growth With Investment in AI; Long-Term Revenue Target Looks Tough

SK Telecom's telecom market position is strong, and we like the free cash flow it generates. SK Telecom was Korea's first wireless operator, and we believe it has done a good job of maintaining a dominant position. The firm continues to claim just under 45% wireless market share, including the leading position among postpaid contract customers, which provides it with the highest average revenue per user among Korean wireless operators. However, this has come at a cost with wireless operating profit nearly halving between 2017 and 2019. More pleasing has been the wireless operating profit growth reported from 2020 to 2023 as competition seems to have stabilized with 5G generating incremental revenue. 

To tap into the fixed-line market and protect itself from further encroachment by KT into its wireless business, SK Telecom acquired a stake in Hanaro Telecom (now SK Broadband), Korea's second-largest fixed-line operator, in 2008, which it subsequently turned into 100% ownership. The company also bulked up this business through the merger with cable TV provider, T-broad, in 2020. While we would expect SKT to focus mainly on its core wireless and fixed-line businesses the company plans to augment its telecom revenue by overlaying its subscription platform called “T Universe” and its metaverse platform called “ifland”. T Universe is available to all customers (not only SKT telecom customers) and members get benefits for e-commerce platforms, Amazon and 11st, and choose from a variety of online and offline services such as Google One, Wavve, Baemin and Starbucks. The ifland metaverse platform was launched in Korea in July, allowing users to communicate with others through avatars that can be personalized. The company is also investing heavily in artificial intelligence, having launched its own GPT-3-powered virtual assistant app named A., while working with SK Hynix and Sapeon to develop AI chips.

Business Strategy & Outlook

We give SKT no moat rating based on the company’s low returns as compared with its cost of capital. We would normally expect a three-operator telecom market with mature operators to allow all operators to earn returns above cost of capital due to the efficient scale moat source where new entrants are precluded from market entry due to the very high cost of entering the market and uncertainty around the new entrants building enough scale to be viable. However, we have seen the Korean telecom operators earning average consolidated returns below their costs of capital over the past 10 years, despite enjoying a stable three-player market structure for the whole of this period. We see this as largely a result of 1) The operators being very competitive with each other, and 2) The two largest operators, SK Telecom and KT, investing aggressively in no-moat nontraditional telecom businesses. 

Given the market share advantages that KT and SKT have in the key mobile, fixed line broadband, and Pay TV markets, we would have expected them to earn at or above cost of capital returns from their telecom assets, but consolidated ROICs have been below WACC. We believe this is largely a function of the companies’ investment in nontelecom businesses such as artificial intelligence, e-commerce, and Metaverse social media. We’ve seen KT and SKT consistently invest in these types of businesses over the past 10 years, with SKT investing in semiconductor manufacturer, SK Hynix, in 2012, and making a string of acquisitions in security businesses. While some of SKT’s nontelecom businesses were spun off into a new business called SK Square in 2021, the remaining “telecom” business continues to invest in e-commerce (SK Stoa and T universe), metaverse (ifland), and Urban Air Mobility (joint venture with Joby Aviation). LG Uplus has far fewer investments outside its core telecom business, which we believe explains why its ROIC does not appear to be significantly lagging the other operators, despite its scale disadvantages.

Another reason for low returns for operators in Korea’s telecom market often cited is the highly competitive culture in Korea, with the most famous example being the extremely competitive schooling and education. It is difficult for us to verify this, but it could help explain why the telecom companies have always competed very hard against each other. 

Despite the Korean government attempting to attract a new, fourth mobile operator at least three times during the period from 2010 to 2020, no new licenses were awarded. Some small companies did make bids for licenses but were rejected by the regulators. Larger international telecom companies were reportedly concerned about the difficulties of entering the market due to cultural and language differences and did not bid for licenses. The Korean market was also already very well served by existing operators and was very competitive. Korean regulators are expected to announce policy changes to allocate 28 GHz mobile network to a new entrant, and the government has indicated that it will provide incentives to the newcomer in the form of tax cuts and loans. Given the struggles that new mobile entrants have had to date in Singapore and Japan, and the history of little interest in new licenses in Korea, we do not expect much interest in this license from serious mobile operators. 

KT generates around 60% of its revenue from traditional telecom services and the remainder from nontraditional telecom services such as ICT, data centers, cloud services, robot, blockchain, energy and real estate. We see these businesses as generally operating in competitive markets where KT has few competitive advantages, except perhaps real estate where it is monetizing telecom real estate that it no longer needs as network equipment gets smaller and it consolidates buildings required for its network. 

China is another three-player telecom market where we have two companies surprisingly without a moat and only one, China Mobile, with a moat. All three operators are controlled by the Chinese government, which has shown a tendency to push telecom prices down to benefit the broader society to the detriment to the telecom operators. China Mobile has been able to maintain returns above cost of capital due to its dominant market share, while the smaller China Unicom and China Telecom have consistently earned returns below cost of capital.

None

Economic Moat

SK Telecom Co., Ltd.

SK Telecom Co., Ltd. engages in the provision of wireless telecommunication and internet services. Its products include mobile phones, wireless data, information communication, and others. The company was founded on March 29, 1984 and is headquartered in Seoul, South Korea.

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SEOUL, South Korea , April 18, 2024 /PRNewswire/ -- SK Telecom (NYSE:SKM, "SKT") today announced a collaboration with Aptos Labs, Brevan Howard, and Microsoft to deliver to the global financial market Aptos Ascend, a suite of end-to-end institutional solutions including a permissioned network and Digital Asset Controls powered by SKT's Wallet-as-a-Service product and the scalable, secure Aptos blockchain. Aptos Ascend will also tap Brevan Howard's industry leadership and expertise to develop a seamless path for any major bank or financial institution to begin offering digital currency and asset management to their clients responsibly and at scale.

SKT collaborates with Aptos Labs, Brevan Howard and Microsoft to bring global institutional finance on-chain with Aptos Ascend

The strong growth for SK Telecom's data center business is expected to be sustained for the future, considering the company's aggressive capacity expansion target. SKM's recent comments indicate that its focus on boosting shareholder value via capital return is unchanged. After assessing the takeaways from the company's Annual General Meeting for the current year, I still think that SKM is deserving of a Buy rating.

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The fast-track 5G rollout and solid wireless traction should help the Zacks Wireless Non-US industry thrive despite short-term headwinds. TIMB, SKM and KT are well-positioned to make the most of the demand for seamless connectivity solutions.

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SEOUL, South Korea , March 31, 2024 /PRNewswire/ -- SK Telecom (NYSE:SKM, "SKT") today announced that it has upgraded call-related features of its personalized  AI personal assistant, "A." (pronounced "A dot"), and made features such as "A.

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BARCELONA, Spain , Feb. 27, 2024 /PRNewswire/ -- SK Telecom (NYSE: SKM, "SKT"), Iceotope Technologies, the global leader in Precision Liquid Cooling, and SK Enmove, Korea's leading base oil and lubricants provider developing thermal fluids for data center, signed a memorandum of understanding (MOU) to collaborate on the development of liquid cooling technique/solution that optimizes energy-efficiency of AI data centers. Since air conditioning and cooling systems consume the largest amount of energy in data centers, the key to realizing an energy-efficient AI data center lies in reducing the power consumption of these systems.

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SK Telecom, South Korea's largest telco, is partnering with U.S. AI startup Perplexity to offer the artificial intelligence-based search engine to its users as an alternative to Google and Naver , the companies told Reuters.

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Joint Venture Company to develop Large Language Models (LLM) specifically for telecommunications companies  Joint Venture Company to be established within this year Initial fine-tuning of models takes place  BARCELONA, Spain , Feb. 26, 2024 /PRNewswire/ -- SK Telecom (NYSE:SKM, "SKT"), Deutsche Telekom, e& Group, Singtel and SoftBank Corp. today held the inaugural meeting of the Global Telco AI Alliance (GTAA) at MWC Barcelona 2024 and announced their plans to establish a joint venture. The meeting was attended by SK's Chairman Chey Tae-won, SKT's CEO Ryu Young-sang, Deutsche Telekom's CEO Tim Höttges and DT's Board Member for Technology & Innovation, Claudia Nemat, e& Group's Group CEO Hatem Dowidar, Singtel Group's CEO Yuen Kuan Moon, and SoftBank's CISO Tadashi Iida.

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SK Telecom Co Ltd (SKM) Q4 2023 Earnings Call Transcript

MEUDON, France--(BUSINESS WIRE)-- #ThalesIDWallet--In the context of 5G networks and the evolution of cryptographic standards, SK Telecom ("SKT”), the largest mobile operator in Korea, and Thales, leader in digital security, partnered to successfully test advanced quantum-resistant cryptography. Based on 5G standalone network and 5G SIM, the solution aims at encrypting and decrypting subscriber identity in a secure way to protect user privacy from future quantum threats. This achievement is already crucial today.

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SK Telecom Co., Ltd. (NYSE:SKM ) Q3 2023 Results Conference Call November 8, 2023 1:00 AM ET Company Participants Hee Jun Chung - IRO Jin-won Kim - CFO Choi Hwan-seok - Head of Corporate Strategy Office Kim Ji Hoon - Head of Growth Kim Ji Hyung - Head of Integrated Marketing Strategy Office Conference Call Participants Soojin Kim - Mirae Asset Securities Joonsop Kim - KB Securities Hoi Jae Kim - Daishin Securities Operator Good morning and good evening.

SK Telecom Co., Ltd. (SKM) Q3 2023 Earnings Call Transcript

SK Telecom (SKM) made it through our "Recent Price Strength" screen and could be a great choice for investors looking to make a profit from stocks that are currently on the move.

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Companies sign LOI for joint development of a large language model specifically for telecommunication companies. Telco-specific LLM will be built through collaboration with AI companies and unveiled in the first quarter of 2024.

SK Telecom and Deutsche Telekom to Jointly Develop Telco-specific LLM

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SK Telecom Co., Ltd.'s plan is to realize a revenue of KRW25 trillion by 2028, and the company is increasing its AI investments to meet this target. SK Telecom boasts a forward dividend yield at the high single-digit percentage level, and I think that there is a low risk of the company cutting dividends in the near future. Our Buy rating for SK Telecom Co., Ltd. remains intact, taking into account the acceleration in AI investments and the company's attractive dividend yield.

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-       SKT sets forth 'AI Pyramid Strategy' to accelerate innovation centered around three key areas: AI Infrastructure, AI Transformation (AIX) and AI Service. AI Infrastructure , which consists of data center, AI semiconductor, and multi LLM, will serve as a technology platform that forms the basis of SKT as an AI company.

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Anthropic, an artificial intelligence startup co-founded by former OpenAI leaders, will receive $100 million in funding from one of the biggest mobile carriers in South Korea, SK Telecom (SKT), the telco company announced on Sunday.

AI startup Anthropic raises $100M from Korean telco giant SK Telecom

South Korea's largest telco SK Telecom said it will invest $100 million in U.S. artificial intelligence firm Anthropic to strengthen its telecommunications-driven AI business.

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SK Telecom Co., Ltd. (NYSE:SKM ) Q2 2023 Earnings Conference Call August 8, 2023 3:00 AM ET Company Participants Hee Jun Chung - Investor Relations Jin-won Kim - Chief Financial Officer Kim Ji-Hoon - Head, Integrated Marketing Strategy Office Kim Myung-Gook - Head, Cloud Business Office Conference Call Participants Seung Woong Lee - eBest Investment & Securities Hoi Jae Kim - Daishin Securities Joonsop Kim - KB Securities Operator Good morning and good evening.

SK Telecom Co., Ltd. (SKM) Q2 2023 Earnings Call Transcript

Four major global telcos joined forces to launch the Global Telco AI Alliance to accelerate AI transformation of the existing telco business and create new business opportunities with AI services. They signed a Multilateral MOU for cooperation in the AI business, which includes the co-development of the Telco AI Platform.

SK Telecom, Deutsche Telekom, e&, and Singtel Form Global Telco AI Alliance for Collaboration and Innovation in AI

SK Telecom has disclosed its intention to implement a new share buyback plan in the near term, and this could be a timely move considering SKM's depressed valuations. SKM's metaverse platform, ifland, has the potential to be a major growth driver for the company in the long run, considering specific corporate and industry metrics. I retain my Buy rating for SK Telecom, taking into account potential catalysts like share repurchases and the faster-than-expected growth of its metaverse business.

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SK Telecom, one of the biggest telecom companies in South Korea, updated its artificial intelligence (AI) chatbot, ‘A.

SK Telecom Upgrades AI ChatBot, Expects Users to Treat It as a ‘Close Friend'

Joby Aviation

Joby Aviation Inc.'s stock JOBY, +40.22% jumped 8% premarket Thursday to extend its week-to-date gains to 42%, after the maker of electric air taxis said it has received a $100 million investment from SK Telecom Co. Ltd. SKM, -1.18%.

News for SK Telecom Co., Ltd. Stock (SKM)