SK Telecom [Summary] 5G to Be Commercialized in 2019
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2H19 Outlook Telecom Services 5G-driven paradigm shift Hakmoo Lee +822-3774-1785 [email protected] Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Contents [Summary] 5G to be commercialized in 2019 3 I. Short-term 5G strategy 4 II. Medium/long-term opportunities in the 5G era: OTT 10 III. Medium/long-term opportunities in the 5G era: Cloud gaming 16 IV. Top pick 20 SK Telecom [Summary] 5G to be commercialized in 2019 5G technology to stimulate innovation in various industries over the medium to long term Source: Mirae Asset Daewoo Research 3| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research I. Short-term 5G strategy Technological advances • 3G was expected to create newfound demand related to data transmission/consumption, but the technology did from 4G not find a strong foothold due to underdeveloped infrastructure. • Key to success for 4G High-speed data transmission based on orthogonal frequency division multiplexing (OFDM) • 5G is expected to increase the speed of existing applications in the near term; over the long term, the technology, along with 4G, will facilitate the proliferation of innovative equipment/devices such as autonomous cars. Telecom generations and key applications 1G 2G 3G 4G 5G Voice Voice Data Data Data Key applications Core FM CDMA CDMA OFDM OFDM technology Network speed - 10x 100x 70x 20x improvement Source: Press materials, Mirae Asset Daewoo Research 4| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research I. Short-term 5G strategy 5G service expansion to • Key differentiating factors for 5G: The high-speed transmission of large quantities of data, low latency, and hyper- progress in phases connectivity • In the early stages of 5G service deployment, the first point—the high-speed transmission of large quantities of data—will likely come into focus. • Once 5G is fully adopted, we are likely to see the expansion of markets for actual 5G applications, such as autonomous driving, IoT, and VR. Comparison of 4G and 5G Three major characteristics of 4G (IMT-Advanced) 5G (IMT-2020) 5G - High-speed transmission of 1Gbps Peak data rate 20Gbps large volumes of data - Low latency - Hyper-connectivity 10ms Latency 1ms Maximum no. of device 0.1/m² 1/m² connections (density) 10Mbps User-experienced data rate 100-1,000Mbps Spectrum efficiency 3x 4G 350km/h Mobility 500km/h Energy efficiency 100 times 4G level 0.1Mbps/m² Traffic capacity 10Mbps/m² Note: The International Telecommunication Union is a specialized agency of the UN that is responsible for issues that concern information and communication technologies; WP5D under the ITU-R group addresses all relevant technical issues related to the introduction and deployment of mobile networks. Source: GSMA, Mirae Asset Daewoo Research 5| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research I. Short-term 5G strategy Data usage to increase • 5G technology is expected to be more widely deployed than 3G. steadily • While the major application of 2G was voice telephony, 4G’s key application is data. • While usage time for voice services has limited upside, data consumption has plenty of room to run. Mobile data usage trend Data usage per user (TB) (MB) 450,000 4G 9,000 4G smartphone Total 3G smartphone 8,000 Overall avg. 7,000 300,000 6,000 5,000 4,000 150,000 3,000 2,000 1,000 0 0 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 1/15 7/15 1/16 7/16 1/17 7/17 1/18 7/18 1/19 Source: MSIT, Mirae Asset Daewoo Research Source: MSIT, Mirae Asset Daewoo Research 6| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research I. Short-term 5G strategy Telcos need to develop • 3G era: Although plans were designed to lower base/voice call rates and increase data usage, telcos’ earnings plans that fit consumer deteriorated due to subscribers’ limited data usage. • The failure of 3G services was mainly because much-anticipated videotelephony services failed to resonate with needs consumers. • 4G era: Telco earnings increased, backed by subscribers’ strong shift toward 4G plans. Comparison of 3G and 4G plans Shift 2G 3G 3G 4G Monthly fixed-rate W12,000 W12,000 W55,000 W62,000 scheme - Voice rate per 10 - Free voice calls: - Unlimited data seconds: W18 - Free data: 3-4GB Five minutes plans Details - Video call rate - Free voice calls: - Voice rate per 10 - Free voice calls: per 10 seconds: 350 minutes seconds: W20 300 minutes W36 Note: Details may vary by provider. Source: Mirae Asset Daewoo Research 7| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research I. Short-term 5G strategy Telcos’ recent 5G data • The 5G data plans unveiled by the three major telcos will ultimately encourage the use of multiple devices (vs. plans confirm their focus smartphone only), which should drive ARPU higher. • Accordingly, the success of 5G will hinge on telcos’ ability to boost data usage and ARPU through device on boosting content expansion. consumption • In the short to medium term, increased consumption of media content on mobile networks and the introduction of cloud games should be key factors, in our view. 5G data plans Telcos SK Telecom KT LG Uplus Plan name Platinum Prime Standard Slim Premium Special Basic Slim Premium Special Standard Light Monthly fixedrate (W) 125,000 95,000 75,000 55,000 130,000 100,000 80,000 55,000 95,000 85,000 75,000 55,000 9GB + 250GB + 200GB + 150GB + 150GB + 8GB + 8GB + (max 300GB + 200GB + (max speed (max speed (max speed Data (max speed of (max speed of Unlimited (max speed of speed of (throttling) (throttling) of 10Mbps) of 10Mpbs) of 5Mpbs) 5Mbps) 1Mbps) 1Mbps) 1Mpbs) Unlimited calls to fixed-line/mobile users Unlimited calls to fixed-line/mobile users Unlimited calls to fixed-line/mobile users Voice (+ 300 minutes of video calling) (+ 300 minutes of video calling) (+ 300 minutes of video calling) Pooq Pooq U+ Mobile TV Flo Content Flo 5GX Game Pack 5GX Game Pack - U+ Mobile TV Genie 5GX Game 5GX Game Pack Music Pack Extras Two free One free Two free Multiple device device - - One free device connection - device - devices connections connection connections Unlimited Extra Free VR Free VR 50% discount Unlimited data roaming Extra 50GB Extra 10GB Other - data roaming - 100GB - headset headset on VR headset (100kbps ) sharing sharing (3<bps ) sharing Source: SK Telecom, KT, LG Uplus, Mirae Asset Daewoo Research 8| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research I. Short-term 5G strategy High-quality (HD) • Smartphones and tablet PCs typically have 5-12” displays supporting viewing distances ranging from 40cm to content growth to drive 60cm. • At these distances, most mobile users should be able to see the benefits of full/quad HD; in our view, mobile data data usage growth usage has the potential to increase more than fourfold once currently available video content advances beyond 720p. • Proliferation of OTTs should help boost content consumption on mobile networks, while high-definition content offerings should drive up data usage. Optimal viewing distances to see benefits of high-resolution displays Viewing distance (cm) 160 1920 x 1080p (full HD) 2560 x 1440p (quad HD) 3840 x 2160p (4K UHD) 7680 x 4320p (8K UHD) 120 80 40 Screen size (inches) 0 5 10 15 20 25 30 Source: Starico, Mirae Asset Daewoo Research 9| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research II. Medium/long-term opportunities in the 5G era: OTT Shift in media content • In Korea, OTT services have not yet become dominant; an extremely high proportion of content is still viewed via distribution channels: conventional platforms/channels, such as cable TV, IPTV, and satellite TV. • The percentage of content watched via mobile platforms has increased significantly, but small-sized mobile IPTV OTT screens still pose limitations. • Increasing utilization of mobile network connections by users of larger-screen tablets/laptops should further drive up OTT demand going forward. • In addition, content offerings dedicated to mobile OTT could also drive up mobile content consumption. Contribution of OTT to global pay-TV revenue Rankings of domestic OTT players (in terms of MAU) (%) ('000) 10 OTT contribution to pay TV revenue 30,000 MAU 20,000 5 10,000 0 0 12 13 14 15 16 17 Source: KISDI, Mirae Asset Daewoo Research Source: Nielsen KoreanClick, Mirae Asset Daewoo Research 10| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research II. Medium/long-term opportunities in the 5G era: OTT Content providers to play • Following the world’s first commercial movie screening in 1895, specialized storefront motion picture theaters a key role in the film popped up around the world. • The rapid growth of the film market based on these theaters gave rise to the establishment of major production market firms (studios). • Against this background, 26 first-run theater chains attempted to join forces to gain pricing power over studios. • In response, film studios acquired major theaters in large cities on the back of their strong capital power. While theaters operated by studios represented just 17% of all movie theaters in number, they accounted for the lion’s share (70%) of total box office revenue. Proliferation of Content makers emerge as First-ever motion picture Rise of major film studios nickelodeon theaters dominant platform players 1895 1905 1910s-1920s 1930s-1940s Source: Press materials, Mirae Asset Daewoo Research 11| 2H19 Outlook [Telecom Services] Mirae Asset Daewoo Research II. Medium/long-term opportunities in the 5G era: OTT Broadcasters dominated • With the introduction of TVs, broadcasters began to produce TV content leveraging the power of their platforms platforms in the TV era (established through radio and capital power).