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An Unbeatable First-Mover in the Telecom World

April 21, 2014 | About:
Pato Kehoe

Patricio Kehoe

7 followers

Of all the industries I can think of, Telecommunications is probably the most omnipresent these days. In ordinary life as well as in business, we all need to be connected, and communications technologies play a key role in defining how effective this connection is.

In this scenario, innovation races at high speeds. And first-movers take the lead.

Such is the case of SK Telecom Co. Ltd. (SKM). The company was the first wireless operator in South Korea, a country that has historically been in the forefront of personal technology and boasts a 90% broadband penetration rate, one of the highest in the world. The firm made the best of the growth potential the South Korean market offered and was the first operator to offer LTE services in 2011. Recently, it has also overtaken its rivals with the launch of LTE Advanced.

A Successful Recipe

Being ahead of its competitors earned SK control over the country’s wireless market with a share of over 50%, which it has successfully maintained over time. Its huge subscriber base generates an equivalent volume of calls that remain on its own network, which results in significant cost savings that increase the company’s margins.

Furthermore, to bolster growth and shield its business against competition from KT Corp. (KT), SK acquired control over Hanaro Telecom, the second-largest fixed-line operator in the country. This acquisition increased the firm’s revenue and, most importantly, allowed it to offer bundles of broadband, fixed-line and wireless telephony, granting the company a better competitive position.

High-End Customers

Apart from the aforementioned advantages, SK has the leading position among postpaid customers, who are mostly smartphone users. These devices typically boost data usage, which has further accelerated with the company’s launch of LTE services in 2011 and its launch of LTE Advanced. As a result, SK now has 13.5 million LTE subscribers and boasts the highest average revenue per customer in the Korean wireless industry.

Leading Innovation

Keeping its first-mover strategy, SK recently announced that it achieved the world’s first commercialization of Uplink CoMP (Uplink Cooperative Multi Point) a technology that will improve mobile data upload speed by 20% on its LTE network. Importantly, since it is applied to base stations, no upgrade is needed for LTE devices. The company said that it plans to implement Uplink CoMP to all its LTE base stations by the end of 2014.

Valuation

SK Telecom has maintained a solid growth trajectory, which the company has supported by continuously improving the quality of its services with the latest technologies.

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Sk’s stock trades at 9.4 its trailing earnings, a compelling multiple compared to its peers’ average of 16.50. Its return on equity is also attractive, showcasing 12.2% almost on a par with the industry median of 12.53%. And its revenue is growing at a healthy pace of 5.5 against its rivals’ 3.3.

Hence, although investment guru David Dreman (Trades, Portfolio) reduced his holdings in the company by 38.56%, I believe SK Telecom holds a strong position in the South Korean telecom industry, which it will most likely support in the long run.

Disclosure: Patricio Kehoe holds no position in any stocks mentioned.

About the author:

Patricio Kehoe
A fundamental analyst at Lone Tree Analytics

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