Calls grow for KT to go back to basics following network outage - The Korea Times
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Calls grow for KT to go back to basics following network outage

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KT's headquarters in central Seoul / Yonhap
KT's headquarters in central Seoul / Yonhap

By Baek Byung-yeul

KT's network outage incident that disrupted wired and wireless network connectivity nationwide for an hour on Monday sparked controversy over whether the telecommunications company was indeed focusing on providing quality network services.

The network disruptions impacted operations at various workplaces, including eateries, where card payments were disabled. Orders via food delivery platforms also failed to be registered. Every network using KT's services, such as hospitals and IPTV broadcasting networks, was temporarily paralyzed.

The incident also reminded many users of the service disruption in November 2018, when KT saw a similar network blackout due to a fire at its underground network center in Seoul.

Claiming that it will no longer operate as a telecommunications firm, KT has been actively seeking new business opportunities in media content, internet data centers (IDC) and cloud computing services. Industry officials said Wednesday that these network problems could be a sign that the telecommunications service operator may be losing its competitiveness in its main service.

A cafe customer pays in cash instead of by credit card due to KT's nationwide network disruption, Monday. Yonhap
A cafe customer pays in cash instead of by credit card due to KT's nationwide network disruption, Monday. Yonhap

KT is one of the leading telecom companies here, providing wired and wireless networks, high-speed internet, internet phone and IPTV services. But the company has been reducing its capital expenditures for installing and managing network lines nationwide.

The capital expenditures for the company's infrastructure have steadily declined from 3.31 trillion won ($2.83 billion) in 2013 to 1.97 trillion won in 2018. The expenditures increased to 3.25 trillion won in 2019, but have been decreasing since then. Its capital expenditures on network infrastructure in the first half of 2021 were 864 billion won, down from 967.3 billion won during the same period of 2020.

Industry views are that the strategy of the firm's CEO Ku Hyeon-mo to diversify its business portfolio is on the right track, but it is time to seek ways to expand without sacrificing competence in telecommunication services. As a solution, it is estimated that the company will spin off its new growth businesses, such as cloud computing and IDC businesses, to improve management efficiency.

A bus information display sign at a bus stop in Gwangju is out of order due to KT's network disruption, Monday. Yonhap
A bus information display sign at a bus stop in Gwangju is out of order due to KT's network disruption, Monday. Yonhap

In terms of the fundamentals, analysts presume that the compensation issue caused by the network outage won't undermine KT's corporate value.

A KT official said, "Details of the compensation plan will be decided after a close examination of the cause of the network disruption." According to the terms and conditions of its network contracts, KT is required to provide compensation when subscribers are denied access to network services for at least three consecutive hours. The network errors disabled both wired and wireless services from around 11:20 a.m. to noon. Though most services were back by noon, some disruptions lasted longer.

"Considering that it didn't take more than an hour to resume the service, it is presumed that KT doesn't need to offer legal compensation, Kim Joon-sup, an analyst at KB Securities, said. "But, users that could not access services for more than three hours, for which KT is required to compensate for damages, about 7.3 billion won ($6.2 million) in payouts is expected to be incurred."

KB Securities estimated that KT's monthly average revenue per user (ARPU) of its wireless service is 32,168 won, with 22.77 million subscribers, as of the end of September. The ARPU of its high-speed internet service is at 18,539 won with 9.16 million subscribers. The 7.3 billion won estimated to be required for the compensation is around 2.5 percent of KT's estimated operating profit of 291 billion won ($248.6 million) for the October-December period of this year.


Baek Byung-yeul baekby@koreatimes.co.kr


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