KT Bleeds Red Ink, SKT Stays Afloat
By Kim Tong-hyung
Staff Reporter
KT, the country's biggest telephone and Internet operator, is witnessing its profits crash more frequently than an incompetent NASCAR driver. Some might reckon the company is actually happy about it.
KT reported a 26.6 billion won (about $19 million) net loss in the fourth quarter, the first time it dipped into the red since the third quarter of 2003, due to declining voice sales and heavy currency-related losses.
The company, which controls about 90 percent of the country's fixed-line telephony customers and nearly 45 percent of broadband subscribers, said its annual net profit dropped more than 54 percent year-on-year at 449.4 billion won in 2008, its lowest since the 79.7 billion won of 1997.
KT's worse-than-expected drive exposed a weaker chin than that of SK Telecom, the top mobile telephony carrier, which managed to post 263.1 billion won in net profit in the October-December period, although its operating profit of 2.59 trillion won last year was the lowest since 2000.
However, SK Telecom can't laugh at the struggles of its industry archrival when KT is sure to use its dismal performance as a reference case to regulators as it seeks approval for a merger with its mobile unit, KTF.
KT, which still relies on a decaying business model in public switched telephone networks (PSTN), claims that absorbing KTF, the No. 2 wireless carrier with a market share of nearly 32 percent, offers its only real chance for sustaining growth.
However, SK Telecom and other rivals fear the possibility of KT leveraging its fixed-line dominance to the wireless sector and claim that the consolidation would deprive them of a fighting chance.
KT filed for approval on the merger with the Korea Communications Commission on Wednesday.
The KCC has 60 days to decide whether to approve or nix the deal, although the deadline could be extended by 30 days, and KT hopes to complete the process as early as late April.
There is speculation that a deal for KTF would spark a merger frenzy within the telecommunications sector, with companies looking to match sizes with the industry giant.
A flurry to the finish would be SK Telecom's swallowing of SK Broadband, its fixed-line and broadband unit, which industry watchers believe could happen as early as during the first-half of next year.
KT posted 11.78 trillion won in revenue for 2008, slightly above SK Telecom's 11.67 trillion won. However, SK Telecom's fourth-quarter sales of 3 trillion won edged KT's 2.87 trillion won, the first time ever the wireless carrier edged its archrival's quarterly revenue.
KT's fourth-quarter loss compares to net profit of 107.6 billion won during the same period of 2007 and 161.4 billion won during the third quarter. The company's operating profit of 1.1 trillion won in 2008 represented about a 22.3 percent drop from the previous year.
KT continues to rely on fixed-line telephony for its bread and butter but has been reeling from losing customers to cheaper Internet telephony services provided by rival carriers.
The company is also closely chased by SK Broadband in the Internet market, while new projects such as the ``WiBro'' wireless Internet and ``Mega TV'' Internet protocol television (IPTV) aren't coming close to making up for the decline in voice. KT's sales from its telephone services dropped about 8 percent in 2008 from the previous year, company officials said, due to losing customers to voice over Internet protocol (VoIP) services and cheaper mobile rates.
SK Telecom reported 1.27 trillion won in annual profit, a 22 percent drop from 1.64 trillion won in 2007. The company 's operating profit represented a 5.1 percent drop from 2007, mostly due to lavish marketing expenses during the first half of last year, when it engaged in a heated competition with KTF over the third-generation (3G) market.
SK Telecom had about 23 million customers at the end of December, about a 5 percent rise from the previous year, with average revenue per user (ARPU) dropping 3 percent year-on-year at 43,016 won.