South Korea’s incumbent fixed-line carrier KT Corp (KTC) is launching a single rate plan for both local and long-distance calls. The new service plan, which requires customers to sign a three-year contract, will offer long-distance calls at KRW39 (US$0.03) per three minutes, at par with the local calling rate. Moreover, legacy landline customers who subscribe to an additional Internet phone line will be exempted from the KRW 2,000 (US$1.54) basic monthly fee levied for such services. 

With approximately 19.5 million fixed-line subscribers, KT Corp is South Korea ’s dominant provider of traditional telephony services including local and international long distance calling services. The company controls approximately 90% of the local phone market and 85% of the long distance market in South Korea . Fixed-line telephone services represented roughly 34% of KT Corp’s 2008 revenues

However, KT Corp continues to experience greater than expected declines in its legacy wireline business due to intense competition in the highly matured domestic fixed-line market. 

Increasing presence of alternative service offerings such as the Voice-over-Internet Protocol (VoIP) service has resulted in persistent erosion in wireline subscriber base. Moreover, KT Corp is losing market share to its archrival SK Telecom (SKM), which has acquired a controlling stake in SK Broadband, Korea ’s leading broadband service provider. 

Deceleration in fixed-line voice business continues as KT Corp reported 8% year over year decline in revenue from this business in the last quarter, primarily due to service terminations and decreased usage. This has largely contributed to the decline in overall revenues. The company’s efforts to offset fixed-line erosion with broadband Internet service have been limited by the high broadband penetration (approximately 95%) in South Korea. 

Under this scenario, the new uniform calling rate plan is expected to offer KT Corp a useful means to counter competition and contain fixed-line subscriber attrition moving forward.
Read the full analyst report on “KTC”
Zacks Investment Research