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SK Telecom, South Korea’s largest wireless operator, reported a stronger-than-expected 25 per cent jump in 2005 profit, driven by higher sales of wireless data services and lower marketing costs.

The company made an optimistic forecast about this year’s earnings but analysts said the business outlook was clouded by a government move to allow renewed subsidies on mobile phones, which could reignite a fierce marketing war.

SKT announced plans to increase shareholder returns over the next two years. The company will raise the dividend pay-out ratio to 40 per cent of its net income in 2006, from 35 per cent last year, and buy back shares worth Won200bn ($205m).

Kim Shin-bae, SKT’s chief executive, forecast 2006 sales would to increase to $10.5bn, after reaching a record $10.2bn last year. Earnings before interest, taxes, depreciation and amortisation are forecast to rise to $4.4bn from $4.3bn. The company reported $1.88bn in 2005 net profit.

“In the first half of this year, we will focus on expanding the wireless internet market by commercialising the HSDPA technology, which has strength in data services. And we will try to maintain steady growth momentum by strengthening our global business,” Mr Kim said.

Wireless internet services emerged as a main driver of SKT’s revenue growth, accounting for 26.6 per cent of total sales.

SKT controls more than half of the country’s mobile market with 19.5m subscribers, but the market is nearing saturation, with almost four out of five people carrying mobile phones. As a result, the company is turning its attention to overseas markets such as India.

SKT plans to keep marketing costs within 17.5 per cent of revenue, compared with 17.2 per cent last year. But analysts expressed concerns that a renewed marketing war might adversely affect telecom companies’ earnings this year. The government is seeking to renew handset purchase subsidies for long-term subscribers and for new technology phone buyers.

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