KT cuts revenue reinvestments

Newly privatized KT Corp. has vowed to heed foreign-investor demands to cut back on reinvesting earnings this year and concentrate on boosting profits. KT, Korea's largest fixed-line provider, said yesterday it intended to drop practices it had adopted as a state-run firm, including promoting the market and supporting small and medium-sized firms. The company said it was determined to transform itself into an efficient private organization. Foreign investors, who hold 49.9 percent of KT, have been demanding the company reduce its reinvestment outlays to focus on profit-based management strategies. "Our reinvestment this year has been capped at 2.6 trillion won [$2.2 billion], which is 500 billion won less than last year's 3.1 trillion won," a KT official said. It is the second year KT has scaled down its reinvestment allocation, cutting it from 3.5 trillion won in 2001. "Until 2001, we had stepped up our reinvestments to follow the government's economic stimulation policies and to expand the penetration of high-speed Internet services," the official said. "But after our privatization last year, many foreign investors asked us to reduce our reinvestment costs." Since the 1997-98 Asian financial crisis, KT has reinvested about 30 percent of its revenue in facilities and systems. Following government guidelines, 40 percent of that figure has gone into expanding broadband Internet services. But after privatization last year, the ratio of reinvestment-to-revenue fell to as low as 22 percent. "Investors, especially foreign shareholders, asked us to keep our reinvestment costs down to 15 percent to 20 percent of revenue," said Lee Young-kyung, KT's chief executive. "We plan to meet their demands. We will strictly curtail reinvestment that goes against the interests of our shareholders." KT's small and medium-sized suppliers to KT are expected to lose out to the company's stringent budget plans. KT has already announced it will reduce its roughly 3,000 suppliers to around 1,500 to 2,000 before the end of the year. "We will continue to drop the wasteful practices of a state-run firm, such as guaranteeing certain amounts of contracts for suppliers every year," another KT official said. by Kim Jong-yoon