SKT uncertain about financial impact of data breach

An SK Telecom outlet in Seoul, Monday / Yonhap

SK Telecom is expected to face fallout from a major consumer data breach in the coming quarter, with the company saying it remains uncertain about the incident's total financial impact.

During its earnings call, Monday, the telecom operator said it is “difficult to quantify the financial impact of the data breach at this point,” adding that it is establishing financial plans based on the hypothesis that up to 24 million of its customers may need to replace their universal subscriber identity module (USIM) cards.

SK Telecom announced on April 22 that it detected a malware attack on April 18 and found signs of a large-scale leak of customers’ USIM data. Since then the telecom has been engaging in damage control, offering free USIM replacements for all 25 million customers since April 28 and suspending all new subscriptions from May 5, following a government guidance.

“There could be negative impacts in terms of sales due to the suspension of new subscriptions and customers’ switching of mobile carriers, but the extent will remain highly variable depending on future subscriber trends and the timing of service resumption,” the company said. “Potential costs such as regulatory fines will also depend on the outcome of ongoing investigations by authorities.”

SK Telecom also said that it is yet to determine when it will resume new subscriptions, but added that it will discuss the issue with the government after the USIM supply shortage stabilizes later this month, “given that the purpose of the guidance is to address the USIM supply shortage.”

Though not addressed during the earnings call, the mounting consumer demand to waive early termination fees and provide compensation for emotional distress could incur extra costs.

SK Telecom CEO Ryu Young-sang said last week that the company could lose up to 5 million users per month if it foregoes early termination fees, which could lead to losses of up to 7 trillion won ($4.93 billion) over the next three years.

“The average early termination fee per subscriber is estimated at a minimum of 100,000 won, meaning SK Telecom could face up to 250 billion won in total compensation if all affected users are exempted,” he said.

Whether this will materialize as a cost is likely to be determined by mid-June. The Ministry of Science and ICT said it is reviewing whether SK Telecom violated its own service terms, which stipulate a waiver of early termination fees in cases attributable to the company.

Concerns over the financial impact of the data breach have overshadowed the solid growth of the company’s operating profit in the first quarter of this year.

During the earnings call, SK Telecom said its operating profit for the January-March period stood at 567.4 billion won ($404 million), growing 13.82 percent from a year earlier to outperform brokerages’ consensus of 535.2 billion won. However, revenue during the same period edged down by 0.47 percent to 4.45 trillion won.

The company attributed the profit improvements to its artificial intelligence (AI) businesses.

Its AI data center business posted 102 billion won in revenue in the first quarter, up 11.1 percent year-on-year. “The data center business has now established itself as a growth engine generating over 100 billion won in quarterly revenue,” SK Telecom said, adding that it plans to accelerate efforts to build “hyperscale AI data centers” over the medium to long term.

The company also noted that its AI service business, A. (A dot), has surpassed 9 million accumulated users. Its global AI agent service Aster also began beta testing in the United States at the end of March, with plans for an official launch in the second half of the year.

“In the wake of the data breach, SK Telecom will scrutinize its overall operations and management,” SK Telecom Chief Financial Officer Kim Yang-seob said.