Unsuccessful ventures eat into No.1 mobile carrier’s value
SK Telecom, the nation’s No.1 wireless service provider, has proved to be far from savvy when it comes to overseas ventures.
After unsuccessfully knocking on the doors of numerous overseas markets including the U.S. and China for six years, the company was forced to call it a day.
The failure was such that former SKT chief executive Chung Man-won called it “the lost six years.”
How a company apparently so successful at home could have performed so poorly abroad lies mainly in its lack of understanding of the new markets and a reticence to make a financial commitment, experts said.
“In most countries, a telecommunications network is national property, which means it’s not an easy project for a foreign firm to claim success,” said Ahn Jae-min, an analyst at Kiwoom Securities. “This means large investments are a must, but the management is unwilling to make the financial commitment.”
SKT’s U.S. venture, meanwhile, was a classic case of not understanding the markets, industry watchers said.
“Although it’s difficult to achieve success abroad by just opening up services in the market, the company has been somewhat careless in trying to make efforts on understanding the culture of the market,” said Park Jong-soo, a senior analyst at Hanwha Securities. “To become a leading service operator there, you need money, human workforce and time.”
What is now more of a threat to the firm is that the company’s valuation of stocks may continue to have a 20-30 percent discount without the success of overseas projects, experts noted.
“One of the main issues in a company’s valuation is its business overseas expansion,” said Park. “When the company earns a reputation for being unable to cater to an overseas clientele, its future becomes dim because that’s an indication that the company has a limit to its growth and the firm’s valuation would eventually be curbed.”
Failure in the U.S.
When SKT inked a deal with U.S.-based Internet service provider EarthLink in 2005 to create a mobile virtual network operator, it marked the inception of a new firm called Helio.
Helio eagerly launched operations in May 2006 targeting the premium mobile market in the U.S.
With hopes to garner up to 3.3 million subscribers by 2009, SKT and Earthlink together poured in up to $440 million into the project over three years.
The Korean business communities in the U.S., buoyed by the prospect of future success, heartily welcomed the Seoul-based company’s expansion into overseas markets.
But Helio soon ran into a series of troubles, most of them which were of its own accord, such as bad reception, poor after-service and unfair billing.
The company’s customer service center soon earned a reputation for dodging customers’ complaints and acting as if they did not know what was going wrong.
“The biggest problem was that SK Telecom conducted its business in the U.S. just the way it did things in Korea, without thinking about the cultural differences or the huge gap in the business environment,” said an industry source, declining to be identified.
Not surprisingly, the country’s top mobile carrier was forced to pull back from its overseas venture in 2008, ending with 180,000 subscribers -- a little over 5 percent of its target figure -- and a deficit of $600 million.
The business was handed over to Virgin Mobile only two years after its ambitious launch.
The project, however, was not the only failure in the United States.
Also in 2008, SKT and Citi Bank formed a partnership to build a joint venture called “Mobile Money Ventures” in California to give mobile financial service solutions.
But the three employees dispatched from SKT received a phone call to return to Korea when the company decided to cancel its Helio project, according to an industry source.
SKT Holdings Americas Inc., the company’s U.S. headquarters, is now reported to be recording a loss of over 10 billion won every year.
Repeated mistakes in Vietnam, China
Vietnam and China were other markets where SKT failed to carve a name.
The domestic carrier began selling mobile phones under the name of S-Fone in Vietnam in July 2003, while making continuous attempts to break into the Chinese market by purchasing shares of China Unicom, the country’s second-largest mobile carrier.
But SKT released all of its China Unicom shares back into the market in 2009.
The details of the Vietnam project have since then been shrouded in secrecy, with SKT officials claiming that it is not completely over but not releasing any further information.
The net loss in 2010 for SKT Vietnam PTE and SKT China Holdings was also registering an annual 10 billion won, totaling up to 22.3 billion won when counting other accumulated losses.
“Looking at the big picture, SKT has not been able gain enough market share in its overseas business, which highlights its failed attempts to break into the U.S., China or Vietnam,” Park of Hanwha Securities said.
What lies ahead?
Despite its past failures, SKT is mulling over yet another overseas venture.
The latest project is to provide fourth generation telecommunications service in Brazil using the 2.1 gigahertz wireless broadband spectrum range.
“We made the proposal thinking this may be a chance for the company to contribute in building the telecommunications infrastructure in Brazil,” said an SKT spokesman, adding that the details have not been finalized at this point.
However, industry insiders question the whether offering telecommunications services in yet another country will indeed be the right choice for SKT considering the firm’s past track record.
Reflecting the firm’s faltering self-confidence in overseas wireless telecommunications services, SKT has also now turned to focus platform-related projects.
Last year, it exported “MelOn,” its mobile music portal service, to Indonesia. The move was marked the first time a local company unveiled a service platform in another country.
SKT also opened an application store called “T-Store” to customers in China and Japan earlier in May this year.
The company said the T-Store contents and applications will be sold through a shop-in-shop form within the Mobile Market, which is China Mobile’s application store, beginning in July. It plans to advance into the Japanese market by launching in September a localized version of T-Store, tentatively dubbed “J-Store.”
Noting the struggles, industry watchers predicted that the company would have to do a lot to prove that it can maintain the No. 1 slot it first attained more than a decade ago when wireless telecommunications service using code division multiple access first became available in Korea.
By Cho Ji-hyun (firstname.lastname@example.org)