KT's Q3 Profit Soars

South Korea’s largest fixed-line carrier, KT Corp. (KTC - Analyst Report), announced third quarter results with reported net income increasing 80% year over year to KRW351.4 billion (US$285 million) or KRW1,497 per share (70 cents per ADS). The annualized growth was driven by gains from wireless and a stronger Korean won versus the US dollar, which helped reduce the cost for foreign currency debt.
 
Revenues for the quarter increased 3.9% year over year to KRW4.82 triillion (US$1.97 billion), driven by growth in wireless data and subscriber base. However, operating profit declined 11.7% year over year to KRW413.1 billion (US$335 million) due to increase in depreciation and amortisation costs and higher marketing expenses resulting from intense competiion.
 
KT is battling with its Korean peers SK Telecom (SKM - Analyst Report) and LG Dacom to win new customers in a highly matured domestic wireless market, represented by approximately 96% mobile penetration. 
 
EBITDA for the quarter was KRW1.16 trillion (US$0.9 billion), reflecting a 12.6% year over year decrease. EBITDA margin decreased to 24.1% from 28.7% registered in the year-ago quarter.
 
Wireless
 
Revenues for the wireless segment increased 13.7% year over year to KRW2.5 trillion (US$2 billion), driven by increase in subscriber count and the company’s merger with its wireless unit KT Freetel. Wireless data revenues increased 11.3% year over year to KRW303 billion (US$246 million) fuelled by growth in flat rate customer base. At the end of the quarter, wireless subscriber count reached 14.9 million, reflecting a 4.5% annualized growth.
 
Internet
 
Internet access revenues declined 3.8% year over year to KRW513 billion (US$416 million) due to lower broadband revenues which declined 6.2% year over year to KRW 478 billion (US$387 million). Revenues from WiBro service increased 88.3% from the year-ago quarter to KRW29 billion (US$24 million).
 
At the end of the quarter, KT’s broadband subscriber base was approximately 6.8 million, up 0.9% year over year. The company’s WiBRO customer base increased 48.3% year over year to 255,000 customers. IPTV (video over broadband connectivity) subscriber base grew 12.2% year over year to 907,000.
 
Fixed-line Telephony
 
Fixed-line telephony revenues decreased 4.4% year over year to KRW1.23 trillion (US$1 billion). Local, domestic long-distance and LM interconnection revenues declined 8.4%, 19.1% and 16.3%, respectively, due to decrease in subscriber base and call traffic.
 
The company exited the quarter with 19.8 million fixed-line telephony subscribers, down 5% year over year. Internet phone (VoIP) customer base reached 1.27 million, compared to last year’s 261,000 subscribers.    
  
Following its merger with KT Freetel in June 2009, KT became a full-service provider controlling approximately 90% and 31% of the South Korean fixed-line and wireless market.
 
The merged company is aggressively rolling out converged services (bundling landline, broadband, video and mobile) at affordable rate plans in an effort to offset the declines in its legacy landline business amid an intensely competitive Korean telecom market. KT has also launched a single rate plan for both local and long-distance calls to boost subscriber retention.
 
KT remain confident in achieving its target of KRW1.8 trillion (US$1.5 billion) in operating profit and KRW19 trillion (US$15 billion) in revenues for 2009, driven by the healthy performance of its wireless unit and ongoing cost cutting initiatives. However, recent wireless tariff reduction by Korean government may impact revenues in the coming quarters.