SK Telecom Has Biggest Profit Decline as Costs Rise
SK Telecom Co., South Koreas
biggest mobile-phone operator, reported its largest profit
decline after increasing marketing expenses to keep customers
from defecting to KT Freetel Co. and LG Telecom Ltd.
Fourth-quarter net income fell 76 percent to 66 billion
won ($70 million), the Seoul-based carrier said today. That
missed the 259 billion won median estimate of nine analysts
surveyed by Bloomberg.
SK Telecom joins KT Freetel and LG Telecom in posting
lower profit after spending more to subsidize users handset
payments and increasing promotions for faster downloads of
music and video. SK Telecom seeks to expand in China and plans
to buy a stake in fixed-line broadband company Hanarotelecom
Inc. to counter slowing growth in Koreas mobile-phone market.
“I dont think anybody expected earnings to be this
bad, said Angela Hong, an analyst at Samsung Securities Co.,
who had the lowest profit estimate of 178 billion won in the
survey. “Stiffer competition led to higher marketing expenses
as the company tried to shift more users to high-speed
services.
SK Telecom fell 3 percent, the most since Jan. 21, to
210,000 won as of 11:27 a.m. on the Korea exchange. The
benchmark Kospi index rose 1.3 percent.
Marketing costs, which include expenses for subsidizing
handsets, rose 34 percent to 854 billion won. Analysts in the
survey projected the costs at 787.1 billion won.
Operating profit, or sales minus the cost of goods sold
and administrative expenses, fell 42 percent to 310.7 billion
won, missing the 477 billion won median estimate in the survey.
Largest Since 2000
SK Telecoms net income drop was the biggest since Korean
companies began reporting quarterly results in 2000. Sales
climbed 5.7 percent to 2.92 trillion won.
“The business environment is somewhat difficult to
predict, SK Telecom Chief Executive Officer Kim Shin Bae
said in a statement today. “SK Telecom plans to promote
growth by creating alternatives to overcome the limits of the
domestic market.
Last month, SK Telecom signed an agreement to buy 39
percent of Hanaro, South Koreas second-largest high-speed
Internet access provider, for 1.09 trillion won.
The stake gives SK Telecom access to a quarter of Koreas
high-speed Internet users and allows the company to expand
into markets such as online television broadcasting and offer
products that combine fixed-line and wireless services.
Intensifying competition in the domestic market, where
about nine out of 10 people already own handsets, has prompted
SK Telecom to seek expansion abroad, including gaining a stake
in China Unicom Ltd. SK Telecom in September converted $1
billion of bonds in Unicom, Chinas second-largest mobile-
phone operator, to a 6.6 percent stake.
Rival Earnings
KT Freetel, Koreas second-biggest mobile-phone operator,
last week reported net income fell 51 percent in the quarter
ended Dec. 31, the eighth straight decline, after boosting
marketing expenses 41 percent. LG Telecom, the smallest, said
yesterday fourth-quarter profit dropped 49 percent as spending
on marketing rose 47 percent.
SK Telecoms share of the Korean mobile-phone market was
little changed at 50.5 percent at the end of 2007, compared
with 50.4 percent a year earlier, according to government data.
KT Freetel had 31.5 percent, and LG Telecom controlled 18
percent.
Combined marketing expenses at South Koreas three mobile
phone operators probably accounted for 28 percent of fourth-
quarter revenue from phone bills, rising from 23 percent a
year earlier, according to Yang Jong In, an analyst at Korea
Investment %26amp; Securities Co. in Seoul.
SK Telecom said today capital spending will fall to 1.75
trillion won this year from 1.85 trillion won in 2007. Capital
expenditure in 2009 may decline to 1.4 trillion won, CEO Kim
said on a conference call with investors.
The company plans to pay a cash dividend of 9,400 won per
common share to stockholders as of the end of 2007 and expects
a similar amount for this year.
