Korea Telecom Insights

Summary

• Telcos to share not only fixed-line communication facilities but mobile communication facilities as well, as part of regulatory efforts to accelerate the introduction of 5G services.
• The move will help telcos to save time and reduce capex.
• Shift focus to 5G momentum rather than worry about possible rate reductions.

Telcos to share mobile communication facilities to accelerate 5G services

In an effort to accelerate the adoption of 5G services and efficiently build 5G infrastructure, the Ministry of Science and ICT announced yesterday a plan to make telcos co-build new facilities and share existing infrastructure. The gist of the plan is to extend the past practice of sharing fixed-line communication facilities to mobile communication, thereby facilitating the rapid development/introduction of 5G services. So far, telcos have been sharing fixed-line communication facilities owned by KT (NYSE:KT) but the decision will allow them to use mobile communication facilities owned by SK Telecom (NYSE:SKM) as well. These facilities include cell sites and antenna racks, to name a few, in addition to existing fixed-line infrastructure such as communication conduits and electric light poles. With this, telcos will save time when building 5G infrastructure and reduce capex, by eliminating the need to build duplicated facilities.

Focus more on 5G momentum than rate discount concerns

Telco shares remain bearish on worries about the risks of further rate reductions. While there are still debates about rate discounts for senior citizens and the introduction of universal cell plans, it is reasonable to believe that shares have mostly priced in rate reduction issues. We note that telcos are making efforts to streamline their cell plan structure to stave off regulatory pressure. We also believe that regulators need to come up with regulatory support to fast commercialize 5G services rather than further pressuring telcos about rate reductions. In all, we believe it is time that we shifted our focus to the launch of 5G services slated for Mar 2019. We see multiple catalysts for positive momentum, including 5G migration which will fuel growth momentum, punitive valuations (at the lowest end of valuation bands), and attractive dividend yields.

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