Moody's praises SKT and KT's spectrum auctions
SK Telecom CEO Jang Dong-hyun(left) and KT Chairman Hwang Chang-gyu
By Kim Yoo-chul
SK Telecom and KT, the country’s two leading mobile telecommunications carriers, are expected to benefit from the latest results of the spectrum auctions as their spending to purchase new bandwidth was in line with market expectations.
“The prices were modest and there was no excessive competition. The companies’ spectrum block wins are credit positive,” Gloria Tsuen, vice president of the corporate finance group a Moody’s Investors Service, said in a statement, Thursday.
The executive said that although adjusted leverage will slightly increase for SK Telecom and KT, they could accommodate the increase within their existing ratings and outlook.
Moody’s has maintained its A3 ― stable ― rating for SK Telecom, and its Baa1 ― stable ― position for KT unchanged.
In an auction by the Ministry of Science, ICT and Future Planning (MSIP), the government agency which handles telecommunications policies, SK Telecom won the auction for two bandwidth blocks in the 2.6-gigahertz band for 1.28 trillion won.
The runner-up KT won the auction for the 1.8- gigahertz band for 451 billion won. The actual cash expenditures, therefore, will be “fairly limited,” according to Moody’s.
“Even the bandwidth that most interested the operators, the 2.1-gigahertz block was sold at the minimum price. This could be due to the fact that the renewal of the three operators’ existing 2.1-gigahertz blocks later this year will be based on the result of the April auction, making the operators conservative in their bids to avoid paying excessively high fees at renewal,” said the executive.
Moody’s expects that SK Telecom and KT will fund the 25 percent upfront payments from their existing cash holdings.
“For the remaining 75 percent, we expect the companies to fund the annual payments from their operating cash flows, which total around 4 trillion won each year for each company, since the payout will be over the 10-year life of the spectrum licenses,” according to the statement.
“With the new spectrum allocation, there are also capital expenditure commitments that the operators have made with the government. However, these commitments are spread over the life of the spectrum licenses, and can for the most part be absorbed within the operators’ annual capital expenditure budgets,” it added.
SK Telecom’s sales for the first three months of this year were down 0.3 percent year-on-year at 4.2 trillion won. KT’s sales were up 2.2 percent over the same period at 5.5 trillion won.