SK Telecom Remains Neutral

Operating income and net income improved on the back of lower marketing expenses and increased smartphone activations. Revenue as well remained healthy due to growing mobile services as then as new business and other earnings. We believe strong smartphone offerings, 3G network expansions, the launch of 4G networks and the cloud computing business will fuel the company's future growth.

SK Telecom has joined hands with telecom carriers and rolled out its first commercial 4G Long Term Evolution service, as well known as 4G networks, in Seoul in early July. Additionally, SK Telecom plans to invest in broad outline KRW 2 trillion by 2014 for development and enhancement of 4G LTE networks.

Further, SK Telecom is as well investing heavily in high-speed Wi-Fi and data femtocell to boost network capacity in small areas. These efforts made by the company will likely boost future wireless revenue.

Moreover, SK Telecom's Apple Inc. iPhone 4 and iPad offerings, which ended the exclusive hold that its major rival KT Corp. enjoyed since late 2009, are gaining traction in the Korean market and is driving its revenue upward.

However, SK Telecom continues to spend heavily as the carrier is increasing its promotional efforts to contain customer churn amid stiff competition from its rivals. Competition has increased in the South Korean mobile market and has reached a saturation point. In spite of the surging demand for smartphones, iPhones are struggling with stagnating sales in the saturated domestic market.

We remain cautious on tariff reductions and heavy regulation by the Korean ministry. As part of its plan to counter rising inflation, the Korean government had ordered SK Telecom to cut its monthly mobile service rates. The reduction in monthly rates will pressure future revenue growth.

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