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South Korea's KT Corp's Profit Falls on Marketing Costs

KT Corp., South Korea's dominant fixed-line and broadband operator, posted a worse-than-expected 35.5% drop in second-quarter profit on Friday as it increased investment and marketing spending on new technologies.

KT, which has more than 90% of South Korea's landline market and 45% of the country's broadband market, posted April-June net profit of 222.4 billion won (US$242.3 million), below a profit forecast of 295.6 billion won by Reuters Estimates. Net income a year earlier was 342.6 billion won.

The quarterly profit was also hit by an accounting change to spread the cost of performance bonuses over all four quarters this year.

Second-quarter marketing expenses rose by 60% from a year ago, fueled by "increased sales commissions due to heated competition," KT said.

KT's main hopes for growth lie in Internet Protocol television (IP-TV), which will allow it to deliver broadcast content through its Internet network. But prospects have been set back by the slow pace of regulatory approval.

Developing new technologies such as high-speed mobile Internet and IP-TV is important for KT, whose market share is continuously dented by cheaper broadband and landline rivals.

Sales came in at 3.00 trillion won, in line with a Reuters Estimates forecast for 2.95 trillion won and above 2.96 trillion won a year earlier. Operating profit also fell 34% to 377.6 billion won from last year's 570.2 billion won.

With the roll-out of full IP-TV stalled in regulatory limbo, KT is poised to launch a scaled-down Internet-based video service. Initially set for 2007, live Internet broadcasts are now expected for mid-2008.

Further ahead, KT faces the threat of Voice over Internet Protocol (VoIP) phone calls, which will significantly erode its mainstay business.

For the short term, KT should gain from a deregulation plan that eases rules on bundled products and service rates. The new plan also postpones the introduction of Internet calls to 2008.