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SK Telecom Profit Falls on Marketing, Outlook Weak

SK Telecom, South Korea's top mobile carrier, posted a worse-than-expected 26 percent drop in quarterly profit, hit by higher marketing costs and stalling growth in data revenue.

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South Korea is seeing an intensifying war over "third-generation" mobile services, with second-ranked KTF pushing aggressively for growth and smaller rival LG Telecom entering the market last quarter.

The outlook remains weak, with no sign of easing competition in the already saturated market, analysts said. Costs could rise further in the coming quarters as operators rush to offer products combining mobile services with landline and Internet.

"The marketing war will continue throughout the second half as companies introduce bundled products," said Yang Jong-in, an analyst at Korea Investment & Securities. "Competition will only ease in 2009, then we can see some recovery in profitability."

SK , which controls 50.6 percent of the country's mobile market, on Thursday reported a net profit of 298.0 billion won ($295.3 million) in April-June, missing by far an average forecast for 376.3 billion won from Reuters Estimates.

Year-earlier profit was 403.3 billion won while SK earned 382.9 billion won in January-March.

April-June revenue rose 3 percent to 2.93 trillion won, compared with a 2.91 trillion won forecast.

New high-end handsets for 3G services such as video calls and wireless Internet carry higher subsidies, which have dented mobile operators' earnings.

SK said marketing costs were equivalent to 30 percent of its revenue in the second quarter, reaching a record 876 billion won and up from 703 billion won a year earlier.

Growth in its customer base lifted overall revenue but sales from more lucrative wireless Internet data fell 15 percent from a year ago, due to a cut in charges for message services earlier this year. SK's customer base grew 6.5 percent to 22.74 million at end-June.

Bundled Products

The company, which took control of broadband operator hanarotelecom, will offer bundled products for mobile, fixed-line telephony, Internet and broadband TV starting this quarter.

The new campaign could push up marketing costs further, however, as KTF and its parent KT Corp offer similar services. More than 90 percent of South Koreans have a mobile phone and access to broadband.

Chief Financial Officer Lee Kyou-bin said in a statement: "We still expect uncertainties in the second half as well, but SK Telecom will raise efficiency in marketing expense management".

SK is seeking growth abroad but has yet succeed in main markets. It agreed late last month to sell its loss-making U.S. mobile unit, Helio, for $39 million in stock to Virgin Mobile USA and invest $25 million in Virgin Mobile.

It is also in cooperation talks with Sprint Nextel , according to sources, although SK has said it was not planning to buy a major U.S. mobile carrier. SK Telecom shares rose 2.1 percent in the second quarter, while the KOSPI fell 1.7 percent.