November 22, 2024

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[THE INVESTOR] With Koreas’ mobile carriers gearing up to rollout their 5G networks for regular consumers nationwide as early as March, they face a dilemma over whether to charge more for the faster new service.

The country’s three telecom giants -- SK Telecom, KT and LG Uplus -- began operating 5G networks for a select group of businesses last month. But the big three have remained mute about how much they would charge when the first 5G smart phones roll out in the first quarter of this year. 

A visitor at CES 2019 uses 5G technology-powered XR device on Jan. 9. Yonhap

While the average price per unit of data will decrease, as ultra-high, low-latency 5G network delivers data at much faster rates, the overall price of 5G price could initially be higher than existing services, as companies seek to recoup the cost of establishing new networks.

“There is a consensus that the average 5G monthly price would increase,” said Choi Nam-gon, an analyst from Yuanta Securities Korea. “I expect it will be about 10,000 won to 15,000 won (US$8.84 to US$13.26) more expensive than 4G service.”

The current most popular price plan for LTE users here stands between 40,000 won to 60,000 won per month with the use of up to 6.5 gigabytes of data. Unlimited data packages begin at 70,000 per month.

The growing popularity of mobile video content, however, has prompted subscribers to become more attracted to unlimited data plans. According to statistics from the Ministry of Science and ICT last month, an average LTE subscriber used up to 8 gigabytes in October, 12 percent up from the month before.

While it is uncertain what price model will be applied to 5G-powered handsets, analysts predicted limited data plans would be about 60,000 won to 70,000 won per month. For unlimited data plans, fees could reach 100,000 won per month, they added.

“Assuming that 5G subscribers would use an average of 20 gigabytes per month, most consumers are likely to choose a 5G price plan with the range between 60,000 to 70,000,” Kim Hong-sik, analyst at Hana Financial Investment Co.

In a meeting with reporters this month, SK Telecom chief Park Jung-ho said if 5G subscribers were to use the same amount of data as 4G subscribers, 5G would be cheaper by up to a third.

But as consumers get used to faster data speeds brought on by the 5G network, they are expected to end up using more data. The 5G network is expected to be 10 to 40 times faster than 4G, allowing users to download high-definition movie in a few seconds.

Even if users constrain their data use, companies will be under pressure to raise prices to pay for the extensive infrastructure they needed to install to introduce 5G. they also spent about 3.6 trillion won last year to purchase the rights to use certain frequencies for 5G services.

“It is true that we feel the pressure because each company has already spent 4 to 5 trillion won for long-term investment,” LG Uplus chief Ha Hyun-Hoi told reporters at the Consumer Electronics Show in Las Vegas earlier this month.

But without “killer contents” that can highlight strength of 5G consumers might not be won over to the new service, limiting firms’ ability to increase prices.

While the first 5G-capable smartphone is expected to arrive at the market within the first quarter of this year, it would take years for the upcoming network to become as commonplace as 4G is today with mobile games and movies.

According to a survey by LG Uplus last month, 76 percent of respondents said they were not aware of what positive impact 5G will bring. About half of respondents said they would reserve their decision to use 5G until they see the responses from other consumers.

“Technically speaking, mobile carriers should charge more for the 5G service,” said Kim Yeon-hak, a business professor of Sogang University. “But they will be cautious about it until they come up with service that can make subscribers feel the difference.” 

Visitors stand near a 5G logo at a display the PT Expo in Beijing on Sept. 26, 2018. AP-Yonhap

While telco chiefs have offered a glimpse into the pricing plan, industry watchers stressed that it is still anyone’s guessing game in South Korea, where pricing is also affected by various indirect factors.

Among them are the prices of the first 5G smartphones, which are often incorporated into overall mobile bills for subscribers. Koreans usually purchase new smartphones with an installment plan that is combined with their monthly phone bills.

And the government policy is also an important factor in determining optimal 5G price amid intensifying global competition over advanced technology. In one instance, the government urged mobile carriers to lower prices to increase the penetration rate of 5G, analysts pointed out.

“There are so many factors that can affect pricing plan until the last minute,” said an industry watcher, who requested anonymity. 

“Even if each company manages to come up with their own pricing plan, they would wait until other players reacts to the first rollout of 5G smartphone.”

By Yeo Jun-suk/The Korea Herald (jasonyeo@heraldcorp.com)