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Market Insight

SK Telecom’s 2017-2019 capex plans home in on IoT opportunity

January 27, 2017

Julian Watson Julian Watson Principal Analyst, IoT, IHS Markit

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SK Telecom’s capex plans for the next three years reflect its growing IoT ambitions.

  • The leading South Korean operator SK Telecom has announced that it will invest 11 trillion won ($9.4 billion) over the next three years (2017-2019).
  • Just over half of this (6 trillion won) will be invested the development of next-generation networks, including 5G.
  • 5 trillion will be invested in new ICT businesses such as artificial intelligence (AI), autonomous driving and IoT.

The South Korean operator has been ramping up its IoT capabilities steadily over the past year:

  • November 2016: SK Telecom signed a memorandum of understanding (MoU) with Honeywell to develop wireless sensors based on LoRa. Under the MoU Honeywell Korea plans to launch LoRa thermostats, presence sensors, pipe temperature sensors and fire safety products in the first quarter of 2017.
  • October 2016: The operator developed a smart shopping solution for the Lotte Department Store. The solution encompasses Smart Shopper (cartless shopping using a scanner which communicates with an order viewer and checkout counter via NFC and receives information on available discounts and promotions via Bluetooth Low Energy), Smart Table (a touchscreen table that offers varied shopping information) and Smart Locker (which allows shoppers to select a storage locker by touchscreen and open it via a code delivered to their mobile phones).
  • September 2016: SK Telecom unveiled NUGU, a virtual assistance based on voice recognition that enables users to control smart home devices, play music, access information and a range of other services through natural language. SK Telecom plans to introduce new functionalities, such as voice-enabled shopping, food delivery and internet radio through over-the-air software updates. It also plans to open up its APIs to developers in the first half of 2017 and also to extend the NUGU voice assistant beyond the speaker-type device to wearables, in-vehicle devices and robots.
  • August 2016: The operator signed a MoU with the SOCAR, South Korea’s leading car-sharing company, to jointly develop a connected car. SK Telecom will enable in-car connectivity via its Cat-M1 network and provide a tablet to support infotainment and navigation via its T Map service. The connected car service is set for launch in the first half of 2017.
  • July 2016: SK Telecom completed the deployment of its LoRa network to cover 99% of the population. At the same time the operator launched six IoT price plans ranging from 350 won ($0.3) per line per month (excluding VAT) for 100 KB of data to $1.7 for 100 MB of data. These plans are targeted at use cases such as metering and monitoring, tracking and control that consume modest amounts of data and require limited bandwidth. As well as providing connectivity, SK Telecom has developed several specific applications and services such as advanced metering service targeted at utilities, a Safe Watch wearable to aid the safety of children and the elderly and environmental monitoring services for manufacturing, public and commercial facilities. In addition to these initiatives SK Telecom will also set up a Partner Hub and Io Open Testbed to drive innovation among start-ups, SMEs and developers.

Our Analysis

SK Telecom has been an industry frontrunner with 3G and LTE and will be one of the first operators in the world to launch 5G. As well as being at the vanguard of new technology development, SK Telecom has experienced more success than its counterparts in Europe in developing service offerings that go beyond connectivity into mobile video, e-commerce and navigation.

Its T Map mobile app, which has been extended from providing navigation to channelling auto insurance and other services, now has over 9 million users among both its mobile customers and its competitors.

Nevertheless, such innovation hasn’t been sufficient to drive revenues, which were flat year-on-year in the three months to 30 September 2016. Like other operators, SK Telecom faces the dual challenge of slowing mobile subscription growth and a trend towards existing and new customers shifting to lower-price plans. Such dynamics drove SK Telecom to follow the footsteps of Vodafone and diversify further into broadband and TV content through the acquisition of a leading cable TV operator (CJ Hellovision). In the event, this acquisition was blocked on anti-trust grounds, increasing pressure on SK Telecom to search for new sources of revenue.

SK Telecom’s capex plans for 2017-2019 confirm IoT is central to its plans to drive future revenue growth. Although SK Telecom has offered IoT-related services for several years, their contribution to overall revenues is modest: 46.3 billion won in Q3 2016, up 40.7% year-on-year but contributing just 1% of the operator’s total revenues.

Currently, there are three major elements to SK Telecom’s IoT approach:

  • Rapid deployment of low-power wide area network (LPWAN) technologies. SK Telecom completed the deployment of its Cat-M1 network in March 2016 and LoRa network in July the same year. As such, SK Telecom has put itself in a position to provide almost ubiquitous connectivity to businesses planning to deploy IoT to support a range of applications such as metering, asset management and monitoring across their facilities in South Korea. The very low price points for LoRa access will make IoT innovation more affordable for developers and SMEs.
  • The development of services that provide connectivity and experiences to consumers at home, in the car and beyond. Not all of its services are sold directly to the consumer or household (B2C), but the ability to offer richer experiences to individuals run through its smart shopping, connected car and NUGU initiatives. Partnerships with both established companies like Honeywell and Lotte and disruptive players like SOCAR and opening up APIs will be critical to building services that consumers want to use on a recurring basis.
  • An ambitious device strategy: Few operators around the world are seeking to challenge Amazon, Apple and Google and develop their own voice-enabled personal assistants and services. SK Telecom needs to differentiate itself in this area because both of its domestic telecoms competitors are both developing their own capabilities. In 2017 KT Corp and LG Uplus are releasing new IPTV set-top models that integrate high-definition speakers, voice recognition and the ability to control other devices within the home. To date SK Telecom has sold around 40,000 NUGU assistants and plans to extend voice control to other services. 

SK Telecom has provided M2M connectivity and several IoT services, such as Smart Home, for several years. But to date such services provide only a modest proportion of the company’s overall revenues. The steps the operator has made in the past year and plans to invest over $4 billion in such areas as AI, autonomous driving and IoT underscore its ambitions to move well beyond providing the pipe to offering rich, proprietary services to consumers, households and businesses.

In IHS Markit’s view, SK Telecom is strongly positioned to benefit from growing demand for LPWAN connectivity and services and to exploit its existing navigation assets to branch further into the connected car. In other areas, such as smart home, it will face intense competition from other operators, device manufacturers and OTT providers for both mindshare and revenues. Its opportunity to drive both massive and mission-critical IoT revenues from its future 5G lies beyond the 2017-2019 timeframe. But its ongoing efforts to develop partnerships and a more extensive IoT ecosystem with will put in in good position to further diversify its revenues when 5G becomes available. 

Geography
South Korea
Organization
SK Telecom
Research by Market
Enterprise & IT
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