Scaling non-connectivity revenues through partnerships and acquisitions

In our previous report on the Top 10 Asia Pacific telecom providers to ace non-connectivity revenues, we spoke about how telecom operators are diversifying their business operations beyond core connectivity services. This can be a complex task to execute, but SK Telecoms triumphed and was one of the top players to nail this challenge. It had solid footage in almost every segment – e-commerce, content & media and other services.

In our next segment, we find out how SK Telecom accomplished its highest revenue ever.

SK Telecom in 2020

In 2020, SK Telecom hit its highest revenue ever at USD 14.8 billion. The growth in its operating revenue was at 6.7 % Y-o-Y and driven mainly by non-connectivity business segment growth. However, the company’s non-consolidated revenues from MNO businesses had a mere 2.8% Y-o-Y growth, brought about by 5G subscribers. This plateau is not surprising, as the Korean wireless telecoms industry has reached its maturity.

On the other end, SK Telecom’s non-connectivity revenue grew by 15.3% Y-o-Y.

Figure 1: Growth in non-connectivity revenues

Source: SK Telecom annual report

SK Telecom is collaborating with global companies (Microsoft, Amazon and Uber) to be competitive and serve its customers better. In addition, SK Telecom has restructured its business segments and now caters across these five segments – MNO, media, commerce, security and mobility. The robust infrastructure of 5G and AI back the advancements in these domains.

This report is a case study on how SK telecom managed to set foot in different segments of non- connectivity and the impact of these services on its business.

1. Media is a key growth engine contributing to 21% of total revenues

The media segment revenue grew 17% Y-o-Y during 2020.

	2020	% of total	2019	% of total
Media	USD 1.67 bil	9.97 %	USD 1.42 bil	8.93 %

A merger between SK Broadband and t-broad bumped media contribution to non-connectivity business

Figure 2: Growth in Pay TV subscribers and revenue post-merger

Source: SK Telecom annual report

1. Upon completing its merger with t-broad, SK Telecom became a media platform company with 8.4 million paying subscribers. These include 5.4 million IPTV subscribers and 3 million CATV subscribers. The growth in Pay-Tv subscribers is 68%, with an impact of a 16.2% increase in revenues and a rise of 45.7% in operating income Y-o-Y reported in the second quarter post-merger.
2. SK Broadband’s IPTV subscriber base has been growing on the back of the surge in one-person households. It is now gaining more timeshare of users based on stronger content competitiveness and AI-based personalisation.
3. The t-broad merger helped SK Telecom become the third-largest Pay TV provider in South Korea in terms of the number of subscribers (8.6 million) as of December 31, 2020. KT SkyLife held the top position with 10.97 million subscribers, followed by LG Hello with 8.7 million subscribers.
4. As a result of this subscriber growth in 2020, SK Broadband’s revenue grew to break the previous year’s record.
5. BTV, IPTV service with VOD (Video on demand) contents’ core business is providing a variety of content and services tailored to its customer expectations and needs. In July 2020, SK Telecom launched the concept of ‘lovely BTV’, which puts customers first as its core value. It also overhauled UI and UX and launched innovative services such as ZEM Kids, Mobile TV and OCEAN, a monthly movie subscription plan. Additionally, SK Telecom also offers ‘B tv UHD,’ an ultra-high-definition IPTV service with resolution four times as high as the standard HD broadcasting service in the IPTV industry.

wavve strengthened its premium content capabilities by expanding the original content

Figure 3: wavve investment plans

Source: SK Telecom annual report

1. wavve is a Korean OTT service launched by SK Telecom in 2019 with three terrestrial broadcasters for partners. Its shareholding pattern is 30.1% SK Telecom and 23.3.% each for KBS, MBC, and SBS.
2. wavve released its first content in September 2019. In the following year, the company invested USD 50 million and produced a variety of dramas. Moving on to 2021, the company plans to invest USD67 million (KRW 80 billion) to release more original content on the platform. With the ambition to reach 5 million paying subscribers by 2023, wavve plans to invest USD250 million (KRW 300 billion) during the same period.
3. wavve’s strategy is to strengthen its partnerships with domestic and global content providers and expand investment in original content production to achieve its target subscriber count.
4. wavve may be the strongest home-grown contender to challenge Netflix’s growth in the country.

Figure 4: Netflix in South Korea

Source: Nielsen Koreanclick

Steps that the company took in 2021:

1. Signed an exclusive content distribution contract with HBO
2. Hired a Chief Content Officer and increased the investment for the production of original content through its studio in H1 2021.

Outlook for the media segment:

1. Evolve into a home entertainment platform that encompasses the entire media industry, including TV content, games and music
2. Evolve into a home entertainment platform that encompasses the entire media industry, including TV content, games and music

2. E-commerce benefitted from the move to a contactless environment

Sales in the commerce business sector come from the consolidated subsidiaries, 11st and SK stoa. Despite the segment only contributing about 4.6% to the overall consolidated revenues of SK telecom, it has shown an increase of 12% in revenues. Operating income from the commerce segment was USD -71.4 million (KRW -85.1 billion) in 2018. This was a turnaround for SK Telecom when they reported operating income at USD 9.2 million (KRW 11 billion) in 2020. The positive change traces back to the rapid transition to a contactless environment (due to the pandemic) and the services provided.

	2020	% of total	2019	% of total
E-commerce	USD 684 mil	4.62 %	USD 610 mil	4.40 %

Mobile became a mainstream platform with transactions accounting for approx. 70% of total GMV

1. 11st, a commerce subsidiary of SK Telecom, is an online marketplace that offers a wide range of products through online and mobile interfaces. It provides customised solutions for customers in their entire shopping process, from product search to purchase, based on ICT technology.
2. 11st is evolving into a commerce portal that offers a differentiated customer experience beyond an open market.
3. November 11^th is also becoming a major retail event in Korea, similar to Single’s Day in China and Black Friday in the US.
4. 11st generates revenue principally through third-party seller fees earned (including commissions) for transactions, as well as advertising revenue and other commerce solutions from 11st.
5. In 2020, to respond to the online consumption trends, SK Telecom provided a differentiated customer experience by enhancing live commerce, video product reviews, and delivery services.
   1. In June 2020, SK Telecom improved customer retention by launching SK pay money; it also enhanced delivery competitiveness through the launch of a same-day delivery service
   2. In July 2020, SK Telecom expanded its grocery shopping service (exclusive launch of E – mart mall) and also enhanced product search convenience (multi-tab search)
6. SK Telecom also plans to join forces with Amazon in 2021. As a result, consumers will be able to shop for Amazon-listed products through 11st, enabling customer experience and boosting shopping convenience.

SK stoa achieves No. 1 position in the T-commerce market in South Korea.

It recorded a Y-o-Y increase of 37.1% in revenue, generating sales through third-party sales fees (including commissions) for transactions by acting as a sales representative.

Steps that the company took in 2021:

1. Strengthened delivery competitiveness through partnerships with various companies such as e-mart and GS for early morning deliveries and Korea Post for next-day deliveries
2. Differentiated live-commerce with entertainment show-type formats and thematic product offerings alongside sellers; there are plans to expand the live commerce platform so that sellers can create and run their live commerce sessions
3. Increased the portion of margin on a few products, preparing for offline shopping growth

Outlook for the commerce segment:

1. Achieve e-commerce business growth by offering differentiated customer experiences
2. Strengthen delivery competitiveness in grocery shopping, early morning delivery, etc.
3. Secure a position as a global distribution hub platform through collaboration with Amazon.

3. Plans to become South Korea’s leading integrated security business

The security business also enjoyed a growth of 12.2 % Y-o-Y, owing to the growth of both ADT caps and SK infosec reported in this segment. The annual revenue for SK infosec and ADT caps grew by 16.4% and 11%, respectively.

	2020	% of total	2019	% of total
Security	USD 1.12 bil	7.60 %	USD 1.0 bil	7.23 %

In 2018, SK Telecom acquired ADT Caps, the No. 2 physical security company, and SK infosec, the No. 1 information security company, to build a foundation for its security business. The launch of new services was in response to the rising demand for non-contact services in 2020. The security business enjoyed sustained growth and recorded double-digit revenue growth.

SK Telecom is bringing together two distinct forms of security. ADT Caps, company that specialises in physical security, mainly gate systems, alarm systems, etc. Meanwhile, SK Infosec is a managed security services provider (MSSP), offering services like network monitoring, cybersecurity threat defence, cloud security.

• For SK telecom to become Korea’s top integrated security business, it planned a merger for both entities into a single corporation in 2021. This merger becomes a foundation for the group to enhance operational efficiency and provide combined information and physical, operational technology-based security services from one platform.

Steps taken in 2021:

1. S&C has built new businesses such as cloud, home safety & care, security for unmanned operation, and integrated security solutions to become a Life Care Platform Provider
2. Plans to carry out a successful IPO as the only Korean company that encompasses both physical and cyber security domains
3. Upgrades to the services provided under home safety and care, such as facial recognition for better security and convenience (AI-based) and launched mobile security app for smartphone protection to enter the B2C security domain
4. Signed partnership with AWS for cloud security and expansion of the business opportunity

Outlook for S&C segment:

1. Lead the convergent security market comprising physical security and information security
2. Increase profitability and corporate value in the tech-based convergent security service market
3. Increase operational efficiency and synergy by combining 5G with AI technology, information security platforms and security infrastructure

4. Adding more to its portfolio: Mobility

1. Launched in December 2020, T map Mobility Co. is a mobility specialist leading the innovation of mobility services by introducing an all-in-one mobility service for navigation, surrogate driving and public transportation. In particular, T Map Mobility will bundle up multiple services into subscription-based products. For example, services such as car rental, taxi-hailing, electric kickboards, shared bicycles, and shared parking will be bundled up into a monthly subscription service, offering a better price than purchasing them individually.
2. In 2021, SK Telecom is planning a joint venture with Uber, the world’s largest car-sharing company. By combining T Map’s map and vehicle traffic analysis technology with Uber’s management and operation know-how, the duo plan to introduce innovations to taxi-hailing platform services.

Outlook for the mobility segment:

1. Achieve customer value innovation through MaaS (Mobility-as-a-Service) that uses a variety of transportation means in one service
2. Promote service innovation by offering a taxi-hailing service in cooperation with Uber, a global leader in ride-sharing services

• Note: Conversion rate to USD used in the report – USD 0.00084