SK Telecom first-half profit up 70%

SEOUL, Korea -- South Korea's SK Telecom posted record mid-year earnings on Friday as an end to subsidies for phone buyers allowed big savings in operating costs.

SK Telecom's mid-year net rose 70 percent to $494 million from $290 million a year earlier, putting its full year target of $906.2 million within reach.

But analysts expect lower earnings in the second half as Korea's top mobile carrier boosts expenses for marketing, and also due to a possible cut in mobile phone charges.

Second half to fall short

SK Telecom shares were trading 0.7 percent higher at 219,000 won near midday Monday.

Its shares had ended 2.5 percent lower at 217,500 won Friday, under-performing the wider market as investors took profits after a rise of 20 percent in the last three weeks, and as the outlook for second-half earnings was not expected to match the first.

"I expect second-half earnings to fall short of mid-year results as it is poised to increase expenses to attract more subscribers," said Suh Yong-won, telecom analyst at Hyundai Securities as SK said it would strengthen its marketing efforts.

"We plan to increase second-half marketing costs, which includes advertising, by 250 billion ($195.3 million) as severe competition is expected," SK said in a statement.

SK vice president Song Hyo-sup told a teleconference with analysts depreciation costs were expected to rise by $101.6 million in the second half as it earmarked more capital expenditure later this year.

"We plan to spend 900 billion won ($793.1 million) in capital expenditure in the second half, and that would cost us 610 billion won ($476.6 million) in depreciation charges," song said.

Analysts also said a possible cut in mobile phone charges would hurt the top mobile carrier's net profit in the second half. Finance Minister Jin Nyum has hinted the government might reduce mobile rates in a move to curb rising inflation.

War over

Key to the year-on-year improvement was a $347.7 million drop in operating costs, down 19 percent form the same period a year earlier.

SK, along with rivals KT Freetel and LG Telecom, piled up hefty operating costs in the first half of last year as they threw subsidies at phone buyers in a war over market share.

The government stepped in to ban the practice last June.

At the end of July, SK Telecom holds a 38.99 percent market share, or about 11 million subscribers, according to the Korea Herald.

Reuters contributed to this report.