Profits are down 23% for SK Telecom

SK Telecom, South Korea’s largest mobile carrier, on Wednesday reported a 23 per cent drop in 2006 net profit, after being hit by the rising costs needed to maintain its leading market share.

The company said the business environment would remain challenging this year as it prepares for an intensive marketing campaign to attract new subscribers for its 3G services. The South Korean market is approaching saturation, where four out of five people carry a mobile phone.

SK Telecom posted a Won1,447bn ($1.5bn) net profit in 2006, compared with Won1,871bn a year ago. Its fourth-quarter profit dropped 38 per cent to Won279bn. The company targets Won11,000bn in 2007 sales, slightly up from Won10,651bn last year.

Marketing costs at SK Telecom jumped 25 per cent to Won2,188bn last year as the company tried to defend its 50 per cent market share after the government lifted a three-year ban on providing handset subsidies in March. This allowed mobile operators to provide long-term subscribers and those buying high-technology phones with financial incentives to use their networks.

Wireless internet sales increased 11.2 per cent to Won2,734bn last year, accounting for nearly 30 per cent of SK Telecom’s total revenue. Amid stalled growth in voice traffic, operators are investing heavily in upgrading their networks to offer new wireless internet services that allow faster downloads of music and videos.

Ha Sung-min, SK Telecom’s chief financial officer, said the company would have Won1,550bn in capital expenditure this year, including Won610bn earmarked for HSDPA (high-speed download packet access), the next-generation, or 3.5G, service that it plans to offer nationwide in the first half.

Analysts remained downbeat about the industry’s outlook, saying that the marketing war was expected to continue and that the HSDPA service was not likely to add new growth momentum, in spite of heavy investments.

“Marketing expenses will show a steady increase, as [rivals] KT Freetel and LG Telecom want to increase their subscriber bases, while SKT doesn’t want to lose [its] customers,” said Chang Sung-min, an analystat Samsung Securities.

“HSDPA is not likely to drive revenue growth much in the saturated market.”

KT Freetel on Wednesday reported a 2.7 per cent fall in fourth-quarter profit and a 25 per cent drop in 2006 profit. LG Telecom is scheduled to unveil results on Tuesday.

SK Telecom shares closed down 1.92 per cent. Shares in KT Freetel and LG Telecom rose 0.98 per cent and 2.84 per cent respectively.

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