SK Telecom Co. Ltd. ADR Earnings Call Nuggets: Current Competitive Landscape and Potential Share Buybacks

SK Telecom Co., Ltd. ADR (NYSE:SKM) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Current Competitive Landscape

Jong-in Yang – Korea Investment & Securities: I have the following two questions, first of all, despite the suspension of new subscriber acquisition that is imposed for Q1, if you look at the recent Q1 numbers, I guess the number of MMP subscribers seems to be higher than anticipated. So how does the company’s management assess the current competitive landscape for the first quarter and how do you foresee the outlook for the second quarter? My second question has to do with your ARPU outlook. During the fourth quarter you have achieved quite a standard ARPU number increase, so going into the 2013 period, how much of an ARPU growth are you anticipating? For your information, your competitors have answered about 8% to 10% growth to the same question.

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Ahn Seung-Yun – CFO: Let me first address your first question regarding LTE competition in the first quarter. As you are well aware, right before the actual implementation of the suspension of the new subscriber acquisition ban in the beginning of the January, there has been a temporary pickup in terms of heating competition. But as you are well aware, starting from LG U+, the three operators are consecutively implementing their implementation of the suspension of the new subscriber acquisition. So in actuality, if you look at company by company, we are given between 20 to 24 days of new acquisition suspension period. So during those particular periods, we anticipate the overall expense to come down and therefore, for the first quarter as a whole, we believe that the competitiveness in the market will weaken. Typically speaking, usually every first quarter of the year has been showing a moderately higher competition compared to the rest of the quarter because each company seeks to set a good first step in terms of expanding the revenue for the entire year. Therefore, typically very first quarter has seen an increased competition in subscriber acquisition, and also we believe that there will be some competition, nevertheless, regarding the acquisition of the new LTE subscribers in order to secure upper hand for the long-term growth. However, seeing how the LTE penetration in the entire market has already exceeded 30%, I believe that there is much lower incentive for heated competition in the market as I see it. Also, the competition to secure the second position in this competitive dynamics in the LTE arena will be pretty much finished off during the second quarter I anticipate. In addition to the points that I have made, I believe that the government’s ongoing market monitoring and also move by the government to somehow embed into the regulation regarding clauses about subsidies and also introducing penalties for the cancelation of our price plans that has been fixed, I believe that these are all going to lead to the more efficient and healthy self-imposed efforts on the part of operators. So I believe that as we move into the second half of the year, the market will be stabilizing even further. Let me answer your second question regarding ARPU. For your information, during the fourth quarter of last year, thanks to the robust growth of the LTE subscriber numbers, our ARPU has grown by about 1.9% quarter-on-quarter and 3.6% year-on-year marking the KRW33,761. Leveraging our LTE related migration efforts as well as the differentiated competitiveness and services offered by the Company, we have been making efforts to secure high ARPU subscribers to-date and we will continue to do so. The fact that we will be focusing more on the retention-based acquisition of our existing customers, we believe that our ARPU going forward will be showing additional upward trend. According to our estimation, we believe that the Q4 ARPU for year 2013 will be going up by 8% compared to Q4 of 2012. Of course, as we look ahead into 2014, we believe that the ARPU upward trajectory will persist going forward as well.

Potential Share Buybacks

Seyon Park – Barclays: Thank you for the opportunity I have two questions. First on CapEx can you give a little bit more breakdown as to how that is consisted of and in particular does that include potential investments in spectrum? My second question would be regarding your shareholder returns, given where the foreign ownership limit is management considering potentially any share buyback and cancellation?

Ahn Seung-Yun – CFO: To address your questions regarding the CapEx related breakdown, as I told you before, the anticipated annual guidance for CapEx for the entire year amounts to about KRW2.1 trillion, of which the network related allocation would be around KRW1.6 trillion, while the non-network related CapEx will be around KRW500 billion. You also asked whether this particular amount contains the spectrum related expenses possibly. If we are to incur extra expenses for the spectrum allocation, we will actually foot up the bill within the overall CapEx guidance of KRW2.1 trillion by reallocating different breakdowns among the overall CapEx amount. Regarding the shareholder buyback issue, I believe that this is something that we have to review more comprehensively looking at the total picture of the financial status.