SK Telecom Earnings Call NUGGETS: Annual Guidance Granularity, The mVoIP Issue

On Thursday, SK Telecom Co., Ltd. ADR (NYSE:SKM) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Annual Guidance Granularity

Kim Hue Jae – Daishin Securities: I have the following two questions. First of all, could you elaborate further on the annual guidance for the rest of the year in more detail? My second question has to do with your LTE subsidy suspension that you have implemented recently. How much marketing intensity do you anticipate into the third quarter? So, could you elaborate on your strategy for the marketing side for the rest of the year?

Ahn Seung-Yun – CFO: To address your first question regarding our annual guidance, to summarize basically, we have no plans to change our annual guidance for the revenue and Op as well as CapEx figures. We will do outmost until the yearend to achieve the annual guidance as much as we can. Regarding the revenue guidance, we believe that we will be able to fully meet this target and also if you look at the LTE subscriber number increased recently, it has been quite healthy and also we are seeing turnaround signs for the ARPU side as well. So as a whole, we believe that we will be able to sufficiently meet the revenue target. On the expense side of course, during the first half there has been quite a bit of an increase in terms of the expenses. However, we still have quite some time left until the rest of the year, which is the second half and I believe that the market will stabilize going forward as the telcos in the market make their full efforts to meet the annual guidance and their annual targets respectively. To answer your second question, if you look at the third quarter relative prospects of course, in the month of July because of the launching of some of the new handset models there has been a temporary intensifying competition among the players in the market in terms of the marketing. However, if you look at the entire third quarter, as I mentioned earlier, because we anticipate the telcos in the market to make more efforts to meet their annual profitability targets, I believe that we will begin to see stabilization in the market competition. Already, as you look at the latter half of the July figures, we are already seeing the actual results in this regard. As you are well aware, SK Telecom has decided to suspend the existing T installment payment subsidy program for the LTE subscribers and we plan to maintain this policy in the meantime for quite some time in the future. So as you can see, we are targeting both the profitability enhancement at the same time we are trying to grow the overall subscriber base for the LTE as well as the smartphone subscribers.

The mVoIP Issue

Kim Hong Sik – NH Investment & Securities: I also have two questions. Recently KCC has announced their guidelines regarding various policies including their position on mVoIP and the possibility of each telco to conduct any possible decisions on the mVoIP side at their discretion. Also, I believe KCC has set aside their dedicated team to review the data tariff plan system. So I was wondering what your view is regarding the future tariff plan system changes going forward. For instance, do you believe that mVoIP-related option type plan will be introduced and do you anticipate voice tariff to go down while the data tariff going up in the future? So what is your view about tariff plans in the future? The second question has to do with your ARPU. Your ARPU results were quite healthy for the second quarter, so I’m quite wondering about your future prospects about ARPU forward. So what is your anticipation for the ARPU growth rate for the rest of the year as well as next year as a whole?

Ahn Seung-Yun – CFO: Let me address your first question regarding mVoIP issue. Recently KCC with regards to the allowance of the mVoIP-related services, their basic stance is that we should follow the existing rules and regulations with regards to the relevant network systems. I believe that all the stakeholders in the market are pouring over different options regarding the mVoIP issue. SKT also believes that the change of policies regarding mVoIP in the market requires comprehensive consideration and review process. So, we will make further comments on this issue when things become more finalized. To elaborate slightly when it comes to the recent controversy around mVoIP issue, there seems to be certain trend of discussions which is leaning towards the populism type of an attitude in which people are demanding that this mVoIP services should be allowed for everybody to use anytime, anywhere free of charge. But if you look at the perspectives of the telcos who have invested quite a bit into the network system already and it will be required to invest further in the future network investment, I believe that such a request will not stand valid in our views I believe. Let me now address your second question regarding our outlook for ARPU as we are (remising) the growing number of LTE subscribers. To answer this question, I believe that basically you should keep in mind the bigger denominator effect of SK Telecom because we tend to have bigger subscriber base to begin with compared to other competitors. As of the end of the first half, the share of LTE subscribers out of the total subscriber base stands at 12.5% and we believe that this proportion will only grow into the future. By the year end, we anticipate that proportion to increase up to 25% and into next year and the following year the growth will persist. Therefore, as the number of LTE subscribers grow out of the total subscriber base, it is only natural for us to expect ARPU increase as well. But when it comes to just how much ARPU increase can we anticipate in the year 2013, I believe that we should take a closer look as to the actual speed of LTE subscriber growth as well as the tariff changes that could take place in the future in a more statistical manner. So we will be able to answer that question only after that review is conducted.