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KT's Quarter Profit Is Steady on Stable Spending

KT Corp., South Korea's dominant fixed-line and broadband operator, posted a better-than-expected 2 percent dip in third-quarter profit on Friday, as it reined in marketing and capital
expenses.

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. While prospects for live Internet broadcasts have been delayed by the slow pace of regulatory approval, KT hopes to establish itself as an IP-TV player by improving its video-on-demand services.

Developing new growth drivers such as high-speed mobile Internet and IP-TV is crucial for KT, whose market share is under attack from cheaper broadband and landline rivals.

KT's prospects for the fourth quarter are marred by what promise to be tough labor negotiations over salaries. The company's union is unlikely to agree to another pay freeze this year after passing on a wage increase last year, analysts say.

KT, which has 91 percent of South Korea's landline market and 45 percent of the country's broadband market, posted July-September net profit of 310.1 billion won ($338.4 million), above a forecast of 199 billion won by Reuters Estimates.

Net income a year earlier was 317.6 billion won.

Third-quarter capital investment fell 32 percent from a year ago, while repair and maintenance expenses also fell 43 percent, KT said.

Marketing expenses dipped by 7 percent, but the company said the decline was due to lower sales commissions from a decrease in subscribers.

On the other hand, third-quarter results were hit by a 36 percent rise in cost of service and an accounting change which spreads the cost of performance bonuses over all four quarters.

Sales came in at 2.95 trillion won, in line with Reuters Estimates forecasts and year-earlier sales of 3 trillion won. Operating profit fell 7 percent to 400.4 billion won from last year's 432 billion.

KT's stock rose 6.4 percent in the July-September quarter, lagging the KOSPI's 11.6 percent gain.

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 is currently limited in scale but could eventually 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.