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SK Telecom Quarter Profit Misses Forecast on Marketing Costs

SK Telecom, South Korea's top mobile operator, reported on Wednesday a worse-than-expected 38% drop in its quarterly profit as marketing costs outpaced a growing customer base and rising mobile Internet sales.

South Korean mobile carriers are likely to see better earnings in 2007, as a fierce handset subsidy war eases, but analysts are concerned growing spending on super-fast "3.5G" networks could weigh on SK Telecom and No. 2 KTF.

The companies hope mobile Internet and multimedia content offered through the upgraded 3G service called HSDPA (high speed download packet access) will revive revenue growth.

SK, which controlled 50.4% of its home market as of end-2006, posted a 279.3 billion won ($296.9 million) net profit for the October-December quarter, well below a 423 billion won profit forecast by 28 analysts surveyed by Reuters Estimates.

The result compares with 448 billion won earned a year earlier and a 456.8 billion won profit in the third quarter.

Sales came at 2.76 trillion won, compared with a 2.71 trillion won forecast and 2.63 trillion won a year earlier. The subscriber base at SK was 3.8% higher at 20.27 million by end-2006 from a year earlier.

The margin on EBITDA (earnings before interest, taxes, depreciation and amortization) fell to 37.3% from 43.3% in the previous quarter, SK said. For all of 2007, SK is forecast to earn 1.82 trillion won, Reuters Estimates showed, up from 1.45 trillion won last year.

Operators are looking for ways to boost more lucrative music and video downloads as growth stalls in South Korea's saturated mobile market, where four out of five people have a mobile phone.

Also darkening SK's outlook for the current quarter in addition to the cost of HSDPA networks is a 30 percent cut in charges for some mobile Internet services, introduced in January after the government sought to curb rising mobile service fees.