Bloomberg News

SK Telecom First-Quarter Profit Falls on Call-Rate Cut

May 02, 2012

SK Telecom cut its phone rates amid a government initiative to control inflation. Photographer: Denis Doyle/Bloomberg

SK Telecom cut its phone rates amid a government initiative to control inflation. Photographer: Denis Doyle/Bloomberg

SK Telecom Co. (017670), South Korea’s largest mobile-phone operator, reported first-quarter profit that missed analyst estimates amid rising costs and a cut in call prices that crimped revenue.

Net income fell 40 percent to 323.3 billion won ($287 million) from 537 billion won a year earlier, the Seoul-based company said in a statement today. That lagged behind the 358.4 billion-won average of 13 analyst estimates compiled by Bloomberg.

SK Telecom’s mobile-call revenue fell 2 percent as it cut phone rates amid a government initiative to control inflation. Operational spending rose 7 percent as the company upgraded networks to accommodate surging data traffic and revive earnings with faster fourth-generation services that use so-called long- term evolution, or LTE, technology.

“The numbers are a bit short of expectations,” Yang Jong In, a Seoul-based analyst at Korea Investment & Securities Co., said by phone. “The same trend will likely continue in the second quarter, with marketing costs and competition increasing.”

SK shares fell 0.7 percent to 134,000 won at the close of trading in Seoul, while South Korea’s benchmark Kospi index gained 0.9 percent.

LTE Subscribers

Operating profit fell 26 percent to 452 billion won on sales of 3.99 trillion won.

SK began in September to lower monthly basic rates for its mobile-phone subscribers by 1,000 won 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 parent-based average revenue per user fell 3 percent in the first quarter while the number of subscribers increased 2 percent, SK said.

SK’s consolidated operational spending increased 7 percent from a year earlier, with depreciation costs rising 2.6 percent on capital expenditure to expand LTE coverage, the company said. Spending on promotions and advertisements rose 27 percent.

SK began commercial LTE service in July, starting in Seoul. The company signed up 2.4 million LTE users as of the end of April, SK said today. The company expects the number to exceed its target of 6 million by the end of this year, SK said.

“SK Telecom expects its LTE market leadership and robust subscriber growth to result in improving its earnings in the mid- to long term,” the carrier said.

Competition among local carriers is set to intensify from the second quarter as they promote their LTE services, Kim Jang Won, a Seoul-based analyst at IBK Securities Co., said in an April 12 report.

SK bought 21 percent of SK Hynix Inc. (000660) for 3.4 trillion won. Hynix is reviewing plans to buy assets of Elpida Memory Inc., the bankrupt Japanese semiconductor manufacturer.

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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