Bloomberg News

SK Telecom Profit Falls on Tariff Cut, Costs for New Unit

October 27, 2011

(Updates share price in fifth paragraph.)

Oct. 27 (Bloomberg) -- SK Telecom Co., South Korea’s largest mobile-phone operator, reported an 18 percent drop in third-quarter profit after cutting phone rates in an agreement with the government and booking costs to set up a new unit.

Net income fell to 383.9 billion won ($341 million) from a revised 470.7 billion won a year earlier, Seoul-based SK said in a statement today. That lagged behind the 420.7 billion won average of 11 analysts’ estimates compiled by Bloomberg.

SK cut phone fees from September to help the government curb inflation and paid 30 billion won to set up a software unit this month. The company is counting on demand for faster fourth- generation services based on the so-called long-term evolution, or LTE, technology to boost earnings at its main telecommunication business.

“The impact of the tariff cut is pretty big,” Park Jong Soo, a Seoul-based analyst at Hanwha Securities Co., said before today’s announcement. “Carriers have no other option than to push the LTE service to offset the fall in revenue caused by the rate cut.”

SK shares fell 1.55 percent to 159,500 won as of 1:11 p.m. in Seoul, while the benchmark Kospi index rose 1.4 percent.

Operating profit declined 17 percent to 531.4 billion won on sales of 4.1 trillion won, according to the statement.

The year-ago figures released today were revised because the company began using International Financial Reporting Standards this year.

Tariff Cut

SK in September began to lower monthly basic rates for its mobile-phone subscribers by 1,000 won (89 cents) and offer 50 free text messages each month. The carrier was the first to agree with the government to lower phone bills as the country tries to curb inflation.

The company’s average revenue per user fell 4 percent in the third quarter, while the number of subscribers increased by 3.9 percent, SK said.

The company is trying to boost revenue with a fourth- generation service that is more expensive for consumers and not subject to the tariff reduction, Hanwha’s Park said.

SK, which began commercial LTE service in Seoul in July, aims to have 500,000 subscribers to the service this year and increase the number to 15 million by 2014. It plans to offer seven smartphones running on its LTE network this year.

Airwaves Auction

More than 10,000 people signed up for the service on Oct. 17, SK said at the time.

SK won the rights to use 20 megahertz of airwaves in the 1.8-gigahertz frequency band, a key spectrum for fourth- generation service, for 995 billion won in an auction in August.

The carrier is also stepping up efforts to expand business into non-telecommunication areas.

The company on Oct. 1 created SK Planet, a wholly owned unit with a 30 billion won capital. The new affiliate develops software and services for mobile devices, such as online commerce, location searches and advertising.

SK was left in September as the only suitor to bid for a 20 stake in Hynix Semiconductor Inc., after STX Group scrapped plans to compete for control of the world’s second-largest computer memory chip maker. The carrier submitted a preliminary bid on July 8.

The disposal of the stake would also be the largest share sale of a South Korean technology company since July 1999, when Hynix bought a majority holding in Hyundai Microelectronics Co. for 2.56 trillion won, according to data compiled by Bloomberg.

--Editors: Garry Smith, Frank Longid

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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