Korea Telecom Improves with KTF

Highlights include KT Corporation (KT), SK Telecom Co., Ltd. (SKM - Analyst Report) and NTT DoCoMo Inc. (DCM - Analyst Report).

Korea Telecom Prospects with KT Freetel Integration

KT Corporation’s (KT) fixed-line revenue and customer base continue to decline as wireless substitution and VoIP alternatives affect the market. However, new opportunities with full-scale IPTV and mobile Internet (WiBRO) services foster encouraging prospects over the long-term.

The complete integration with KT Freetel (KTF) may further improve competitiveness in the wireless and IPTV markets. Expansion initiatives are also underway in overseas markets through strategic alliances. Downside risk remains limited, in our opinion, due to a higher dividend yield and a modest valuation metric.

When finalized, KT's merger proposition with its mobile service unit KTF is expected to improve competitiveness against SK Broadband (formerly Hanaro Telecom) in which SK Telecom (SKM - Analyst Report) holds a significant investment stake.

Driven by the integration of KTF, the company expects to achieve operating income of KRW 2 trillion (US$1.5 billion) in 2009, reflecting nearly 30% growth from KRW 1.55 trillion (US$1.1 billion) combined operating income achieved in 2008.

Additionally, the combined entity is expected to achieve significant cost saving synergies with KRW 500 billion (US$333 million) estimated to be saved within five years through labor cost reduction alone.

Furthermore, incidental to the company’s merger with KTF, an opportunity to expand into lucrative foreign markets (such as China) was also unveiled through business collaboration with Japan-based NTT DoCoMo Inc. (DCM - Analyst Report), which currently holds an approximate 11% stake in KTF.