SK Telecom Net Falls 20% on Rise In Marketing Cost [WSJ]
By KYONG-AE CHOI
August 2, 2006
SEOUL, South Korea -- SK Telecom Co., South Korea's largest wireless-service operator by revenue, said second-quarter net profit dropped 20%, and the company cut its full-year forecast, citing higher marketing costs.
Net profit for the three months ended June 30 fell to 373.34 billion won ($390.9 million) from 467.11 billion won a year earlier. Revenue rose 4.4% to 2.638 trillion won from 2.527 trillion won.
In June, the company was fined 42.6 billion won for offering illegal subsidies as well as official subsidies to handset buyers.
It spent 600 billion won on marketing activities in the just-ended quarter -- accounting for 23% of its total revenue -- compared with 442 billion won a year earlier.
In a conference call, SK Telecom said sustained high marketing expenses will continue to take a toll, and it revised downward its forecast for operating earnings this year. The company plans to spend 20.5% of this year's revenue on marketing compared with 17.5% projected previously. It revised its forecast for earnings before interest, taxes, depreciation and amortization for 2006 to four trillion won from a previously forecast 4.4 trillion won.
"SK Telecom decided to spend more on marketing to keep its current subscribers from moving to other carriers," said Ko Yeoun Joung, an analyst at Daehan Investment & Securities, who doesn't expect stiff competition among wireless operators to die down in the third quarter.
Chief Executive Kim Shin Bae said, "We will try to retain our market-leading position [domestically] while strengthening our foothold in overseas markets such as the U.S., China and Vietnam."
SK Telecom plans to continue pouring a significant amount of its annual marketing budget into the launch, begun in May, of its high-speed downlink packet access, or HSDPA, an enhancement to the third-generation wireless technology WCDMA. At the end of July, SK Telecom had 2,300 HSDPA subscribers. The service makes data downloads faster and global roaming possible in more countries.
The company said average revenue per user for the April-to-June period -- a key industry gauge to determine long-term growth -- rose to 44,352 won from 44,105 won.
A likely reduction in connection fees is expected to boost earnings. Twice a year, South Korea's telecom regulator reviews the fees mobile operators pay to connect calls to rivals' networks. Currently, SK Telecom pays higher fees than most other companies because of its dominant market position. |
