Falling Profits, Corruption Scandal Put KT on Ropes
By Kim Tong-hyung
Staff Reporter
KT, the country's aging telecommunications giant, entered 2008 with one major goal in mind ― securing a foundation for growth beyond the saturated fixed-line market.
However, 10 months later, shaken by a struggling business and a corruption scandal involving upper management, the company finds itself breathing heavily on the ropes and longing for a do-over.
KT, which controls over 90 percent of the country's fixed-line telephony customers and nearly 45 percent of the broadband Internet market, reported Friday that its third-quarter net profit fell 37 percent year-on-year to 161.4 billion won (about $126 million), hurt by declining phone sales and losses from a weaker won. Revenue fell 1.5 percent during the same period to 2.91 trillion won.
The humbling performance report comes at a time when prosecutors are considering arresting the company's president and chief executive, Nam Joong-soo, on charges of taking bribes from equipment makers.
Investigators have already arrested Cho Young-ju, the former chief executive of KTF, KT's mobile services unit, who was also found to have taken dirty money from subcontractors.
The Seoul Central District Prosecutors Office summoned Nam for questioning Thursday and plans to apply for an arrest warrant soon. Nam has denied the charges.
Although the issue has been ignored at large on the stock market, there are worries that the scandal could further disrupt KT's business plans, including its planned merger with KTF, which was originally scheduled to be completed early next year.
``KTF is already going through a difficult transition period with a new leadership, and should Nam lose his job over the scandal too, there is a possibility that the country's biggest telecommunications group could drift and face confusion in its reorganization plans,'' said an official from a rival company.
``KT was expecting to make personnel announcements last year and set business objectives for the next year, so the timing of the investigation couldn't be worse,'' he said.
Nam's precarious status and the potential void in leadership may also compromise the company's aggressiveness in new markets such as wireless broadband and Internet protocol television (IPTV).
The earnings report is the seventh straight quarter that KT reported a drop in profit. The company's operating profit dropped 2.5 percent from a year earlier at 329.4 billion won, while marketing expenses rose 12 percent to 256.6 billion won.
The company is continuing to be hurt by declining fixed-line sales, which dropped 4.5 percent from the pervious quarter to 970 billion won.
Mobile-phone operators providing discounted rates for calls between subscribers contributed to the loss in revenue and KT is also losing customers to the growing market of voice over Internet protocol (VoIP), which provides significantly cheaper rate on long-distance calls.
Number portability for Internet telephony, which was implemented Friday, is expected to further erode KT's customer base.
The weakening won, which has slightly rebounded over the past few days after plumbing to new depths, has also contributed to the company's losses.
KT said its losses related to foreign currency reached about 290 billion won, compared to 1.6 billion won a year earlier, with the falling local currency pushing up non-operating losses.
According to investigators, Nam is facing charges of taking around 700 million won from company executives and suppliers, including 93 million won from a former KTF Networks chief executive Roh Tae-beom.
The bribery connections came to light last month when investigators raided the headquarters of KT and KTF as well as other company locations, confiscating many documents and arresting three senior executives.