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Announcement:

Moody's: Korea's plan to raise mobile tariff discount rate is credit negative for carriers

 The document has been translated in other languages

23 Aug 2017

Hong Kong, August 23, 2017 -- Moody's Investors Service says that the Korean government's (Aa2 stable) plan to raise the discount rate for mobile subscribers is credit negative for SK Telecom Co., Ltd. (SKT, A3 stable) and KT Corporation (A3 stable), but will not have an immediate impact on their ratings and stable rating outlooks.

"In our view, there will be a negative impact from the increased discount rate on SKT's and KT's credit profiles, but the impact is manageable because the higher discounts will be applicable only to new subscribers," says Gloria Tsuen, a Moody's Vice President and Senior Analyst.

On 18 August 2017, Korea's Ministry of Science and ICT (MSIT) announced that the government would require mobile operators to increase the monthly discount rate to 25% from 20% for new mobile service subscribers, effective from 15 September 2017.

Because the measure will apply only to new subscribers and contract periods can span up to two years, the operators will have time to adjust to the new discounts, such as by selling subscribers larger data plans and bundled services, and also by controlling their marketing costs.

According to MSIT, there were 56 million mobile subscribers in Korea as of June 2017. The ministry expects that about 19 million mobile users per annum will select the newly mandated discount scheme compared with the 14 million currently benefitting from the 20% monthly discount rate.

Given the incremental discount and additional users likely to choose the discount rates, Moody's estimates that there will be a 3%-4% negative impact on overall industry mobile revenue over time.

Moody's expects that SKT and KT will maintain their leverage at around 2.0x and 1.7x respectively in 2017; results which will be similar to those seen during the 12 months to 30 June 2017.

That said, there is a degree of uncertainty over whether the government will push for additional measures to lower mobile tariffs, which could heighten pressure on the telecom operators' revenue and credit profile.

SK Telecom Co., Ltd. is the largest mobile telecommunications provider in Korea by subscribers, with an estimated 49% market share at the end of March 2017. Its core business is to provide voice and wireless Internet services for mobile phones. Mobile contributed to around 63% of its total sales during the six months to 30 June 2017.

KT Corporation is the largest provider of integrated telecommunications services in Korea by revenue. It focuses on fixed-line telephony, broadband Internet access, data communications, mobile telecommunications, IPTV, leased-line and satellite, as well as system and network integration services. Mobile contributed to around 31% of its total sales in for the six months to 30 June 2017.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Gloria Tsuen, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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