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Outlook Gloomy for SK Telecom
Korea Times
January 24, 2003

SK Telecom, the nation's top mobile carrier, is suffering a major plunge in its share price after it reported disappointing fourth-quarter results two days ago.

On Thursday, foreign and domestic brokerage firms downgraded SK Telecom's short-term target prices and investment ratings.

In midday trading, shares of SK Telecom, the nation's second largest issue with a market value of some 20 trillion won, slid 14.45 percent or 31,500 won to 186,500 won on the Seoul bourse.

Aside from being plagued by the company's tumbled share price, the lowest in 16 months, analysts warned SK Telecom could face more hard times ahead of the government's planned approval on phone number portability. ''Investors became cautious following the government's move to introduce phone number portability and other regulations against SK Telecom and decided to take a wait-and-see stance instead,'' said Yang Jong-in, an analyst at Dongwon Securities.

He added the company's planned heavy spending on third-generation (3G) launch could further drag down its share price.

''The costs on 3G roll-out could pose a problem for SK Telecom,'' Yang said, lowering the company's short-term target price to 285,000 won from 330,000 won.

The Ministry of Information and Communication, a Korean telecom regulator, recently announced it would adopt number portability that enables cell phone users to switch their carriers without changing phone numbers from early 2004.

The introductions of number portability is expected to deal a severe blow to SK Telecom, which controls some 16.15 million subscribers with 53 percent market share.

Cell phone users are reluctant to change their mobile carriers because that means a switch in phone numbers. If number portability is upheld, latecomers such as KTF and LG Telecom will be better able to compete with SK Telecom, cutting their mobile rates and offering other promotions.

Currently, SK Telecom has been under the control of government regulation in deciding its mobile phone rates because it has a dominant position in the market. But, KTF and LG Telecom can cut their rates without the prior government approval.

On the same day, Samsung Securities slashed SK Telecom's target price to 190,000 won from 280,000 won, citing its disappointing earnings results plus heavier spending in its 3G launch.

LG Investment and Securities also cut the mobile carrier's six-month target price to 270,000 won, while Hanyang Securities downgraded its investment rating on SK Telecom to ''selling'' from ''short-term buying.''Goldman Sachs, an international investment bank, lowered SK Telecom's short-term target price to 195,000 won, citing its higher facility investment plan in 2003.

UBS Warburg is also rethinking an investment recommendation and target price on SK Telecom, citing the company's bigger-than-expected spending plan.

In a conference call on Wednesday, SK Telecom said it would earmark a total of 2.49 trillion won in capital expenditures this year, compared with 1.96 trillion won a year ago.

Of the expenditure, 780 billion won will be used to upgrade its CDMA2000 1X EV-DO (evolution data optimized) network, widely known as 2.5-generation technology. Another 520 billion won is set for rolling out 3G mobile telephone services based on wideband CDMA technology, the company said.

The company said its commercial 3G service would begin in the Seoul metropolitan area in October.

Late in 2003, the government awarded 3G licenses to two companies _ SK Telecom and KT _ which promised to launch commercial 3G services using the WCDMA system, widely adopted by European companies.

But the outlook for the planned 3G launch is also uncertain. Currently, SK Telecom's focus is leveraged on the take off of the EV-DO network, considered as a migration path toward a full-fledged 3G network.

Amid rampant uncertainties over the 3G's business future, SK Telecom is expected to weigh its priority on the EV-DO service, because it requires a simple and cheap upgrade on its existing network.