Competition eats into KTF’s mobile profits

KTF, or Korea Telecom Freetel Co., Korea’s second-largest mobile phone operator, reported a sixth straight decline in quarterly profit after it increased spending on handset subsidies and marketing to win customers from rivals.
Second-quarter net income fell 37 percent to 51.1 billion won ($56 million), missing analysts’ estimates for a 13-percent drop, according to the company’s filing yesterday. Sales rose 10 percent to 1.8 trillion won.
KTF, the first among Korea’s three wireless operators to report results for the latest quarter, boosted spending on promotions to lure customers to new services that allow faster downloads of video and music. Operators are spending more to win subscribers in a market where more than eight out of 10 people already own a mobile phone.
The company was expected to report net income of 70.1 billion won and revenue of 1.83 trillion won, according to the median estimate of eight analysts surveyed by Bloomberg News. Operating profit, or sales minus the cost of goods sold and administrative expenses, fell 40 percent to 91.3 billion won, missing the 108.6 billion-won median analyst estimate. Shares of KTF dropped 0.8 percent to 29,400 won yesterday in Seoul.
KTF’s marketing costs, which include expenses for subsidizing handsets, increased 35 percent to 434.5 billion won, the company said.
Combined marketing expenses at Korea’s three mobile phone operators probably accounted for 27 percent of their second-quarter revenue from phone bills, according to Yang Jong-in, an analyst at Korea Investment & Securities Co. Bloomberg