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SK Telecom growth losing steam as market saturates further

4Q operating profit falls 10%; affiliate reveals secure bottom-line growth

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  © Reuters

SEOUL -- SK Telecom's growth is losing steam as South Korea's telecom market is becoming saturated, with both the number of users and their average revenue barely increasing, the company and analysts said Friday.

The nation's largest telecom operator said that its operating profit dropped 10.1% to 302 billion won ($263 million) in the quarter ended in December, on a year-on-year basis. It was a 28.8% fall compared with the previous quarter. Revenue slipped 0.3% to 4.4 trillion won compared with a year ago, while it increased 2.6% from the previous quarter.

However, net profit came in at 475 billion won in the fourth quarter, a gain of 9.5% year-on-year and of 47.4% compared with the previous quarter, mainly owing to the increased value of shares in SK Hynix, the semiconductor company in which it holds a 20.1% stake. SK Telecom also earned 440 billion won in October from unloading its 1.42% stake in local steel group Posco.

Analysts said that the telecoms company may have another tough year ahead, due to the market's saturation. "We estimate Korean telecom operators' average revenue per user (ARPU) growth to be stagnant in 2017, while market competition is likely to be stable," said Angela Hong, an analyst at Nomura. SK Telecom's ARPU dropped 2.4% to 35,355 won in the fourth quarter from a year ago. Its number of users for mobile and other services reached 29.6 million in December, only incrementally increasing by 0.5% from three months ago.

The company's stagnant growth is mirrored by its local rival KT which posted 226.3 billion won in the fourth quarter, down 43.6% from three months ago. Its revenue increased 8.9% during the same period, but most of this gain came from selling handsets, while its service revenue dropped 0.3%.

SK Telecom said that it will create new revenue streams by investing 11 trillion won for the next three years in infrastructure and other areas such as artificial intelligence. "We will focus on artificial intelligence and big data technology with principles of sharing, openness and cooperation," said Yoo Young-sang, chief financial officer of the company.

Shares of SK Telecom rose 0.69% to 219,500 won on Friday, but they have been in a downward cycle for the last two months since hitting a three-month high of 232,500 won on Dec. 13. The benchmark Kospi climbed 0.1% to 2,073.16.

Meanwhile, SK Innovation, the petrochemical affiliate of SK Telecom, posted 849.4 billion won of operating profit in the three months through December, a jump of 177% on a year-on-year basis. In an announcement on Friday, the company attributed the robust growth to strong refining margins and profits from inventory.

Its fourth quarter revenue fell 7.3% to 10.1 trillion won compared to a year ago, while net profit was 157.7 billion won, compared with a net loss of 189.4 billion won a year ago.

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