Industry Trend Analysis - KT/LG Uplus Alliance To Challenge SK Telecom In IoT - MAY 2017

BMI View : KT and LG Plus are strengthening their alliance in content, IoT and AI as competition increases with market leader SK Telecom. Joining forces will enable them to gain market share in 2017.

KT and LG Uplus, South Korea's second and third largest operators, have announced a music content platform partnership in order to improve their Internet of Things (IoT) and Artificial Intelligence (AI) offerings. LG Uplus has acquired a 15% stake in music streaming service KT Music (the second-largest music content provider after Kakao) for USD23mn, making it the second-largest shareholder after KT. We see this move as being positive as it mitigates the need to duplicate investment in assets.

The partnership comes as competition with market leader SK Telecom intensifies as OTT service offerings become more sophisticated. It signals that cooperation between players is becoming more important in the telecoms sector as they seek to refine their services. KT is focusing on AI products, starting with its GiGa Genie speaker launched in January 2017, in competition with SK Telecom's NUGU. Uplus is developing its smart home IoT services, integrating content into their platforms. Music and video are key content offerings within the Home IoT and AI service markets, and partnerships between operators and with OTT providers are becoming increasingly necessary to expand in this market.

Competition Intensifies As Operators Invest In IoT
Market Share By IoT Category, % (Q316)
Source: BMI, MSIP

The two operators will collaborate on the supply and marketing of music content with South Korea's entertainment agencies, and we expect the operators to expand their collaboration beyond music content. Competition on IoT from SK Telecom, which launched a suite of LoRa-based IoT services in 2016, also pushed KT and LG Uplus to strengthen their alliance on NB-IoT, with plans to jointly launch services in the first half of 2017. Jointly sourcing key IoT components such as chipsets and other devices will give the two operators more weight in the IoT market, as the price of such devices is expected to be fall as they gain scale.

While South Korea's mobile market nears saturation, IoT connections are still growing strongly at a sustained pace, and operators are will continue to invest in IoT solutions to ensure long-term survival in this growth market. SK Telecom leads the wearables market (by 77% in Q216) due to its dominant mobile subscriber market share, and its move to absorb its SK Broadband subsidiary was motivated by its aim to assert a similar market dominance in wireline broadband for the development of other consumer IoT applications such as smart home. In the larger enterprise segment however, SK Telecom leads by a smaller margin (32.6% in Q216). The partnership between LG Uplus and KT will enable them to gain market share in 2017.