Bloomberg News

SK Telecom Net Misses Estimates on Higher Marketing Spend

November 05, 2012

SK Telecom Co. (017670), South Korea’s largest mobile-phone operator, reported third-quarter profit that lagged behind analysts’ estimates after expenditure to upgrade networks and marketing costs increased.

Net income fell 54 percent to 175.6 billion won ($161 million) from 383.9 billion won a year earlier, the Seoul-based company said in a statement today. That missed the 236.2 billion-won average of 18 analysts’ estimates compiled by Bloomberg.

Competition among South Korea’s three mobile-phone carriers is intensifying as they try to sign up more customers to fourth- generation services using the so-called Long Term Evolution, or LTE technology. Mobile-phone makers led by Samsung Electronics Co. and Apple Inc. (AAPL:US) are introducing LTE devices, escalating the fight among the operators.

“The third-quarter earnings are almost the worst they can be,” Park Jong Soo, a Seoul-based analyst at Hanwha Investment & Securities, said by telephone before today’s announcement. “Marketing got so heated through the third quarter.”

SK shares fell 0.3 percent to 155,000 won as of noon on the Korea Exchange, after rising as much as 2.9 percent earlier. The benchmark Kospi index added 0.4 percent.

Operating profit fell 46 percent to 300.7 billion won on sales of 4.13 trillion won.

Intense Competition

Marketing costs increased to 1.04 trillion won during the July-September period from 781 billion won a year earlier, the company said. Investments for upgrading networks including the nationwide rollout of LTE rose to 788 billion won from 552 billion won, it said.

SK began commercial LTE service in July last year. The number of LTE subscribers exceeded 6 million, the company said on Oct. 26. The carrier expects to have more than 7 million 4G customers by the end of the year, SK said then.

In September, Apple began selling the iPhone 5 capable of running on LTE networks, following rivals including Samsung in adopting the 4G technology. The latest Apple smartphone hasn’t gone on sale in South Korea.

The new devices will keep the competition among South Korean carriers intense in the fourth quarter, Park wrote in a Sept. 27 report.

The companies are counting on LTE subscribers also because they need to boost sales of more profitable plans after they agreed with the government to reduce phone tariffs to help curb inflation.

SK in September last year began to lower monthly basic rates for its mobile-phone subscribers by 1,000 won and offer 50 free text messages each month.

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net Saeromi Shin in Seoul at sshin15@bloomberg.net

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


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