-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UwUCuubaIdbIbTzIPLGvMFH78AEXCBm6rTWDV9crohHXbM+YBRwfz7sPXtsr+rX+ zTs69fN8eeZc1/URkp/z9g== 0000950123-09-018365.txt : 20090629 0000950123-09-018365.hdr.sgml : 20090629 20090629112622 ACCESSION NUMBER: 0000950123-09-018365 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090629 DATE AS OF CHANGE: 20090629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KT CORP CENTRAL INDEX KEY: 0000892450 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-14926 FILM NUMBER: 09914819 BUSINESS ADDRESS: STREET 1: 206 JUNG TA DONG BUNN DONG GU CITY: SUNGNAM CITY KOREA STATE: M5 ZIP: 463711 BUSINESS PHONE: 82317270932 MAIL ADDRESS: STREET 1: 206 JUNG JA DONG BUNN DONG GU CITY: SUNGNAM CITY KOREA STATE: M5 ZIP: 463711 FORMER COMPANY: FORMER CONFORMED NAME: KOREA TELECOM CORP DATE OF NAME CHANGE: 19971006 FORMER COMPANY: FORMER CONFORMED NAME: KOREA TELECOM DATE OF NAME CHANGE: 19950130 20-F 1 h03459e20vf.htm 20-F 20-F
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As filed with the Securities and Exchange Commission on June 29, 2009
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 20-F
 
     
(Mark One)    
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2008
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    Date of event requiring this shell company report          
    For the transition period from          to          
 
Commission file number 1-14926
KT Corporation
(Exact name of Registrant as specified in its charter)
 
     
KT Corporation   The Republic of Korea
(Translation of Registrant’s name into English)   (Jurisdiction of incorporation or organization)
 
206 Jungja-dong
Bundang-ku, Sungnam, Gyunggi-do
463-711 Korea
(Address of principal executive offices)
 
Thomas Bum Joon Kim
206 Jungja-dong
Bundang-ku, Sungnam, Gyunggi-do
463-711 Korea
Telephone: +82-31-727-0850; E-mail: thomaskim@kt.com
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
     
Title of each class
 
Name of each exchange on which registered
American Depositary Shares, each representing
one-half of one share of common stock 		  New York Stock Exchange, Inc.
Common Stock, par value W5,000 per share*   New York Stock Exchange, Inc.*
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 
None
 
As of December 31, 2008, there were 202,035,296 shares of common stock, par value W5,000 per share, outstanding
(not including 71,500,404 shares of common stock held by the company as treasury shares)
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o  No þ
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ  Accelerated filer o  Non-accelerated filer o
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
U.S. GAAP o  IFRS o  Other þ
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 o  Item 18 þ
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No þ
 
*  Not for trading, but only in connection with the registration of the American Depositary Shares.
 

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PRESENTATION
 
All references to “Korea” or the “Republic” contained in this annual report mean the Republic of Korea. All references to the “Government” are to the government of the Republic of Korea. All references to “we,” “us” or the “Company” are to KT Corporation and, as the context may require, its subsidiaries.
 
All references to “Won” or “W” in this annual report are to the currency of the Republic and all references to “Dollars,” “$,” “US$” or “U.S. dollars” are to the currency of the United States of America. Our monetary assets and liabilities denominated in foreign currency are translated into Won at the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, W929.6 to US$1.00, W938.2 to US$1.00 and W1,257.5 to US$1.00 at December 31, 2006, 2007 and 2008, respectively. Our consolidated financial statements are expressed in Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2008 have been translated into United States dollars at the rate of W1,262.0 to US$1.00, the noon buying rate in the City of New York for cable transfers in Won as certified for customs purposes by the Federal Reserve Bank of New York at December 31, 2008.
 
Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.
 
Through December 31, 2008, the Korea Accounting Standards Board has issued Statements of Korea Accounting Standards (“SKAS”) No. 1 through No. 25. Among these statements, SKAS No. 1 through No. 10 and SKAS No. 12 through No. 20 are required to be applied in the prior periods. Although SKAS No. 11 and SKAS No. 21 through No. 25 are required to be applied starting in 2007, the accompanying consolidated financial statements for the year ended December 31, 2006 has been reclassified in accordance with Statements of Korea Accounting Standards No. 16 and No. 21 for comparison purposes.
 
PART I
 
Item 1.   Identity of Directors, Senior Managers and Advisers
 
Item 1.A.   Directors and Senior Management
 
Not applicable.
 
Item 1.B.   Advisers
 
Not applicable.
 
Item 1.C.   Auditors
 
Not applicable.
 
Item 2.   Offer Statistics and Expected Timetable
 
Item 2.A.   Offer Statistics
 
Not applicable.
 
Item 2.B.   Method and Expected Timetable
 
Not applicable.
 
Item 3.   Key Information
 
Item 3.A.   Selected Financial Data
 
You should read the selected consolidated financial data below in conjunction with the Consolidated Financial Statements as of December 31, 2007 and 2008 and for each of the years in the three-year period ended December 31, 2008, and the reports of the independent registered public accounting firms on these statements included herein.


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The selected consolidated financial data for the five years ended December 31, 2008 are derived from our audited consolidated financial statements.
 
Our Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in Korea (“Korean GAAP”), which differ in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). See Note 38 to the Consolidated Financial Statements for a description of the nature and the effect of such differences.
 
Income Statement Data
 
                                                 
    Year Ended December 31,  
    2004     2005     2006     2007     2008     2008  
    (In billions of Won and millions of Dollars, except per share data)  
 
Korean GAAP(1):
                                               
Operating revenues
  W 17,068     W 17,192     W 17,825     W 18,660     W 19,645     U S$15,566  
Operating expenses
    14,588       14,781       15,442       16,915       18,217       14,435  
Operating income
    2,481       2,411       2,383       1,745       1,428       1,131  
Donations and contribution payments(2)
    147       84       86       90       80       63  
Income taxes(3)
    578       399       476       357       168       133  
Income from continuing operations
    1,431       1,365       1,510       1,097       513       407  
Income (loss) from discontinuing operations
    —       (5 )     —       74       —       —  
Net Income
    1,431       1,360       1,510       1,171       513       407  
Attributable to equity holders of the parent
    1,282       1,085       1,292       1,056       450       357  
Attributable to minority interests
    149       275       218       115       63       50  
Basic income per share from continuing operations
    6,084       5,154       6,153       4,754       2,217       1.76  
Basic net income per share(4)
    6,084       5,131       6,155       5,112       2,217       1.76  
Diluted income per share from continuing operations
    5,697       5,148       6,146       4,754       2,217       1.76  
Diluted net income per share(5)
    5,697       5,124       6,148       5,112       2,217       1.76  
Dividends per share(6)
    3,000       3,000       2,000       2,000       1,120       0.89  
U.S. GAAP(7):
                                               
Operating revenues
  W 12,240     W 12,328     W 14,088     W 17,961     W 18,613     U S$14,749  
Operating income
    1,944       1,539       1,868       1,498       1,194       946  
Income taxes
    387       356       357       270       178       141  
Income from continuing operations
    1,405       1,154       1,329       995       518       411  
Income (loss) from discontinuing operations
    —       (5 )     —       74       —       —  
Net income
    1,405       1,149       1,329       1,069       518       411  
Basic income per share from continuing operations
    6,663       5,452       6,331       4,814       2,554       2.02  
Basic income per share(4)
    6,663       5,428       6,333       5,172       2,554       2.02  
Diluted income per share from continuing operations
    6,215       5,447       6,325       4,814       2,554       2.02  
Diluted income per share(5)
    6,215       5,423       6,327       5,172       2,554       2.02  


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Balance Sheet Data
 
                                                 
    Year Ended December 31,  
    2004     2005     2006     2007     2008     2008  
    (In billions of Won and millions of Dollars)  
 
Korean GAAP(1):
                                               
Working capital(8)
  W (1,526 )   W 1,309     W 558     W 564     W 1,833     US$ 1,452  
Net property and equipment
    15,721       15,087       15,167       15,288       15,189       12,035  
Total assets
    26,473       24,678       24,243       24,127       26,139       20,712  
Long term debt, excluding current portion
    6,985       7,360       6,097       5,973       7,947       6,297  
Refundable deposits for telephone installation
    1,087       958       907       841       782       619  
Total stockholders’ equity
    9,026       10,390       10,697       11,138       11,088       8,786  
U.S. GAAP(7):
                                               
Working capital(8)
  W (763 )   W 334     W 333     W 332     W 1,640     US$ 1,299  
Net property and equipment
    10,846       10,677       14,729       14,671       14,460       11,458  
Total assets
    20,384       18,383       24,098       24,023       25,974       20,582  
Total stockholders’ equity
    6,660       7,345       8,038       8,438       8,490       6,728  
 
Other Financial Data
 
                                                 
    Year Ended December 31,  
    2004     2005     2006     2007     2008     2008  
    (In billions of Won and millions of Dollars)  
 
Korean GAAP:
                                               
Net cash provided by operating activities
  W 4,719     W 5,865     W 5,714     W 4,265     W 2,919     US$ 2,313  
Net cash used in investing activities
    (3,618 )     (2,526 )     (3,061 )     (3,449 )     (3,531 )     (2,798 )
Net cash provided by (used in) financing activities
    (106 )     (3,601 )     (2,367 )     (1,368 )     1,051       833  
U.S. GAAP(7):
                                               
Net cash provided by operating activities
  W 3,613     W 3,588     W 4,667     W 4,260     W 2,889     US$ 2,289  
Net cash used in investing activities
    (2,607 )     (735 )     (2,432 )     (3,410 )     (3,502 )     (2,775 )
Net cash provided by (used in) financing activities
    (19 )     (3,362 )     (1,671 )     (1,271 )     1,147       909  
 
Operating Data
 
                                         
    As of December 31,  
    2004     2005     2006     2007     2008  
    (Unaudited)  
 
Lines installed (thousands)(9)
    25,577       26,190       26,838       26,671       26,008  
Lines in service (thousands)(9)
    21,091       20,837       20,331       19,980       18,883  
Lines in service per 100 inhabitants(9)
    43.8       43.1       42.0       41.2       38.8  
Mobile subscribers (thousands)(10)
    11,729       12,302       12,914       13,721       14,365  
Broadband Internet subscribers (thousands)
    6,078       6,242       6,353       6,516       6,712  
 
 
 (1) Through December 31, 2008, the Korea Accounting Standards Board has issued Statements of Korea Accounting Standards (“SKAS”) No. 1 through No. 25. Among these statements, SKAS No. 1 through


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No. 10 and SKAS No. 12 through No. 20 are required to be applied in the prior periods. Although SKAS No. 11 and SKAS No. 21 through No. 25 are required to be applied starting in 2007, the balances of 2005 and 2006 have been reclassified in accordance with SKAS No. 16 and No. 21. The balances of 2004 have not been reclassified in accordance with such statements.
 
 (2) Includes donations and contributions to the Government’s Information and Telecommunication Improvement Fund, the Korea Electronic Telecommunication Research Institute and other institutes supporting science and technology research prior to 2005. In 2007, we reclassified the contributions to the Government’s Information and Telecommunication Improvement Fund to operating expenses and modified related figures for 2007, 2006 and 2005.
 
 (3) With the early adoption in 2006 of the Application of Korea Accounting Standard 06-2 “Deferred Tax Accounting for Investments in Subsidiaries, Affiliated Companies Accounted for Using the Equity Method, and Interest in Joint Ventures,” the amounts for 2005 and prior years were restated in 2006 as required by this standard.
 
 (4) Basic earnings per share under Korean GAAP and U.S. GAAP is calculated by dividing net earnings by the weighted average number of shares outstanding during the period. The weighted average number of shares of common stock outstanding during the period was 210,759 thousand for 2004, 211,565 thousand for 2005, 209,895 thousand for 2006, 206,599 thousand for 2007 and 202,891 thousand for 2008.
 
 (5) Diluted earnings per share are calculated based on the effect of dilutive securities that were outstanding during the period. The denominator of the diluted earnings per share computation is adjusted to include the number of additional common shares that would have been outstanding if the dilutive securities had been converted into common stock. In addition, the numerator is adjusted to include the after-tax amount of interest recognized associated with convertible notes. The weighted average number of common and common equivalent shares outstanding was 233,270 thousand for 2004, 211,822 thousand for 2005, 210,150 thousand for 2006, 206,599 thousand for 2007 and 202,891 thousand for 2008.
 
 (6) The calculation of dividends per share represents the weighted average dividends paid per share.
 
 (7) See Note 38 to the Consolidated Financial Statements for reconciliation to U.S. GAAP.
 
 (8) “Working capital” means current assets minus current liabilities.
 
 (9) Including public telephones.
 
(10) Includes subscribers of KTF and resale subscribers of KT Corporation. As of December 31, 2004, KTF had approximately 9.5 million subscribers and KT Corporation had approximately 2.2 million resale subscribers. As of December 31, 2005, KTF had approximately 9.8 million subscribers and KT Corporation had approximately 2.5 million resale subscribers. As of December 31, 2006, KTF had approximately 10.2 million subscribers and KT Corporation had approximately 2.7 million resale subscribers. As of December 31, 2007, KTF had approximately 10.8 million subscribers and KT Corporation had approximately 2.9 million resale subscribers. As of December 31, 2008, KTF had approximately 11.5 million subscribers and KT Corporation had approximately 2.8 million resale subscribers.


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Exchange Rate Information
 
The following table sets out information concerning the market average exchange rate for the periods and dates indicated.
 
                                 
    At End
 		    Average
 		             
Period
  of Period     Rate(1)     High     Low  
    (Won per US$1.00)  
 
2004
    1,043.8       1,145.3       1,195.5       1,038.3  
2005
    1,013.0       1,024.2       1,060.3       998.2  
2006
    929.6       956.1       1,013.0       918.0  
2007
    938.2       929.2       950.0       902.2  
2008
    1,257.5       1,102.6       1,509.0       934.5  
December
    1,257.5       1,373.8       1,352.4       1,335.0  
2009 (through June 26)
    1,283.6       1,349.5       1,573.6       1,236.1  
January
    1,368.5       1,346.1       1,391.0       1,257.5  
February
    1,516.4       1,429.5       1,516.4       1,376.2  
March
    1,377.1       1,462.0       1,573.6       1,328.9  
April
    1,348.0       1,341.9       1,398.2       1,316.2  
May
    1,272.9       1,258.7       1,307.3       1,236.1  
June (through June 26)
    1,283.6       1,258.9       1,287.7       1,236.7  
 
 
Source:  Seoul Money Brokerage Services, Ltd.
 
(1) The average rate for each full year is calculated as the average of the market average exchange rates on the last business day of each month during the relevant year. The average rate for a full month is calculated as the average of the market average exchange rates on each business day during the relevant month (or portion thereof).
 
Our monetary assets and liabilities denominated in foreign currency are translated into Won at the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, W929.6 to US$1.00, W938.2 to US$1.00 and W1,257.5 to US$1.00 at December 31, 2006, 2007 and 2008, respectively.
 
Our consolidated financial statements are expressed in Won and, solely for the convenience of the reader, the consolidated financial statements as of and for the year ended December 31, 2008 have been translated into United States dollars at the rate of W1,262.0 to US$1.00, the noon buying rate in the City of New York for cable transfers in Won as certified for customs purposes by the Federal Reserve Bank of New York at December 31, 2008.
 
We make no representation that the Won or Dollar amounts contained in this annual report could have been or could be converted into Dollar or Won, as the case may be, at any particular rate or at all.
 
Item 3.B.   Capitalization and Indebtedness
 
Not applicable
 
Item 3.C.   Reasons for the Offer and Use of Proceeds
 
Not applicable.
 
Item 3.D.   Risk Factors
 
You should carefully consider the following factors.


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Risks Relating to Our Business
 
Increased competition in Korea has had and may continue to have an adverse effect on our results of operations and financial condition.
 
The telecommunications sector in Korea is rapidly evolving. We face increasing competition from new entrants to the telecommunications market, and we expect the number of service providers in the market to continue to change. Future business combinations and alliances in the telecommunications industry may also significantly change the competitive landscape of the Korean telecommunications industry. In particular, SK Telecom Co., Ltd. (or SK Telecom) acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband Co., Ltd. (or SK Broadband). The acquisition enables SK Telecom to provide fixed-line telecommunications, broadband Internet access and Internet television (or IP-TV) services together with its mobile telecommunications services. On June 1, 2009, KT Freetel Co., Ltd. (or KTF) merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. In addition, advances in technology as well as changes in the regulatory environment are occurring. Any significant changes in the competitive landscape of the telecommunications sector and our inability to adapt to such changes could have a material adverse effect on our business, financial condition and results of operations.
 
Fixed-line Telephone Services.  Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. Since then, various competitors have entered the local, domestic long-distance and international long-distance telephone service markets in Korea, which have eroded our market shares. LG DACOM Corporation and SK Broadband currently provide local, domestic long-distance and international long-distance telephone services. In addition, Onse Telecom Corporation and SK Telink, Inc. currently provide domestic long-distance and international long-distance telephone services. Starting in 1998, specific service providers, such as Internet phone service providers, voice resellers and call-back service providers, also began offering international long-distance service in Korea. While we offer our own Internet phone service, the entry of these and other potential competitors into the local, domestic long-distance and international long-distance telephone service markets has had and may continue to have a material adverse effect on our revenues and profitability from these businesses. We had a market share in local telephone service of 89.8% as of December 31, 2008 in terms of number of subscribers announced by the Korea Communications Commission and a market share in domestic long-distance service of 85.2% in 2008 in terms of number of subscribers announced by the Korea Communications Commission. Further increase in competition may decrease our market shares in such businesses.
 
Mobile Service.  We provide mobile services based on Code Division Multiple Access or CDMA technology and Wideband Code Division Multiple Access or W-CDMA technology. Prior to the merger of KTF into KT Corporation on June 1, 2009, we provided such services through KTF, which was formerly a consolidated subsidiary. Competitors in the mobile telecommunications service industry are SK Telecom and LG Telecom Co., Ltd. (or LG Telecom). KTF (including resale subscribers of KT Corporation) had a market share of 31.5% as of December 31, 2008 in terms of the number of mobile service subscribers in Korea announced by the Korea Communications Commission, making KTF the second largest mobile telecommunications service provider. SK Telecom had a market share of 50.5% as of December 31, 2008.
 
Mobile subscribers are allowed to switch their service provider while retaining the same mobile phone number. In addition, all new subscribers of mobile services and existing subscribers who elect to receive a new mobile number, as well as those switching to a third-generation mobile service, are given the uniform mobile code of “010” as the first three digits of their mobile numbers without regard to the mobile service provider. In recent years, mobile service providers also began granting subsidies to subscribers who purchase new handsets. We provide usage charge discounts and subsidies to subscribers who purchase new handsets and additional monthly fees and usage charge discounts and subsidies to those who agree to a subscription period of at least 12 months. Mobile number portability and handset subsidies have intensified competition among the mobile service providers and increased their marketing expenses. If the mobile service providers adopt a strategy of expanding market share through price competition, it could lead to a decrease in our net profit margins.


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In recent years, SK Telecom and we also launched third-generation mobile telecommunications services, which we believe have further intensified competition between the two companies and resulted in an increase in their marketing expenses. KTF expanded its coverage area of High Speed Downlink Packet Access (or HSDPA)-based IMT-2000 services nationwide in March 2007 under the brand name “SHOW.” IMT-2000 is a third-generation, high-capacity wireless communications technology, which allows operators to provide to their customers significantly more bandwidth capacity. Although we expect that SK Telecom will face similar challenges to those that we expect to face in implementing this third-generation technology, we cannot assure you that we will continue to be able to successfully compete with SK Telecom. Our inability to compete effectively with SK Telecom could have a material adverse effect on our financial condition and results of operations.
 
Internet Services.  The Korean broadband Internet access service market has experienced significant growth since Korea Thrunet first introduced its Hybrid Fiber Coaxial (or HFC) based service in 1998. SK Broadband (formerly Hanarotelecom) entered the broadband market in 1999 offering both HFC and Asymmetric Digital Subscriber Line (or ADSL) services. We also began offering broadband Internet access service in 1999, followed by Dreamline, Onse and LG DACOM. In recent years, numerous cable television operators have also begun HFC-based services at rates lower than ours. We had a market share of 43.4% as of December 31, 2008 based on the number of subscribers in Korea announced by the Korea Communications Commission. As a result of having to compete with a number of competitors and the maturing of the Internet access service market, we currently encounter, and we expect to encounter, pressure to increase marketing expenses in the future.
 
The market for other Internet-related services in Korea is also very competitive. We anticipate that competition will continue to intensify as the usage and popularity of the Internet grows and as new domestic and international competitors enter the Internet industry in Korea. The substantial growth and potential size of the Internet industry in Korea have attracted many competitors and as a result may lead to increasing price competition to provide Internet-related services. Increased competition in the Internet industry could have a material adverse effect on the number of subscribers of our Internet-related service and on our results of operations.
 
We may fail to realize the anticipated benefits of the merger of KTF into KT Corporation.
 
On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. The success of the merger of KTF with KT Corporation will depend, in part, on our ability to realize the anticipated synergies, growth opportunities and, to a lesser extent, cost savings from combining these two companies. The realization of these anticipated benefits may be blocked, delayed or reduced as a result of numerous factors, some of which are outside our control. These factors include:
 
  •  difficulties in integrating the operations of KTF with those of KT Corporation, including information systems, personnel, policies and procedures, and in reorganizing or reducing overlapping personnel, operations, marketing networks and administrative functions;
 
  •  unforeseen contingent risks or latent liabilities relating to the merger that may become apparent in the future;
 
  •  difficulties in managing a larger business; and
 
  •  loss of key management personnel or customers.
 
Accordingly, we cannot assure you that we will realize the anticipated benefits of the merger or that the merger will not adversely affect our combined business, financial condition and results of operations.
 
The integration of the operations of KTF into KT Corporation may require significant amounts of time, financial resources and management attention. KT Corporation’s management intends to implement a business plan to effectively combine the operations of KTF with the operations of KT Corporation. If this business plan is not effective in integrating these operations, however, we may not realize the anticipated benefits of the merger. The integration process could also result in the disruption of our ongoing business and information technology systems, or inconsistencies in standards, controls, procedures and policies and a reduction in employee morale, each of which may adversely affect our ability to maintain relationships with customers and to retain key personnel.
 
In addition, as conditions to the approval of the merger of KTF into KT Corporation, the Korea Communications Commission is requiring us to (i) allow competing service providers to have greater access to


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our cable tunnels and telephone poles, (ii) improve Public Switched Telephone Network (or PSTN) number portability and voice over Internet protocol (VoIP) number portability, and (iii) allow competing service providers to access our wireless Internet network. Such conditions may intensify competition in the telecommunications industry, which could have a material adverse effect on the number of our subscribers and results of operations.
 
Our WiBro service poses challenges and risks to us.
 
In March 2005, we acquired a license to provide wireless broadband Internet access service for W126 billion. The license is valid for seven years from the grant date and the license amount is amortized over the remaining contractual life commencing from June 2006. Wireless broadband Internet access (or WiBro) service enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 1 Mbps per user. A subscriber is able to access the WiBro service network during transit at speeds of up to 120 kilometers per hour. We positioned WiBro service to provide Internet Protocol (IP)-based triple-play services, which are voice, data and video. We conducted trial service of WiBro service in parts of Seoul and Gyunggi Province starting in April 2006 and commercially launched our service in these areas in June 2006. We expanded the service to all of metropolitan Seoul and select universities in Gyunggi Province in April 2007 and to 19 neighboring cities in October 2008. We believe that substantial additional amounts of capital expenditures and research and development will be required to complete the buildout of our WiBro service network, and we plan to spend approximately W53 billion in capital expenditures in 2009 to expand our WiBro service network, which we may adjust subject to market demand. No assurance can be given that the network will gain broad market acceptance such that we will be able to derive revenues from WiBro service to justify the license fee, capital expenditures and other investments required to provide such service.
 
Disputes with our labor union may disrupt our business operations.
 
In the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base. Although we have not experienced any significant labor disputes or unrests in recent years, there can be no assurance that we will not experience labor disputes or unrests in the future, including expanded protests and strikes, which could disrupt our business operations and have an adverse effect on our financial condition and results of operation.
 
We also negotiate collective bargaining agreements every two years with our labor union and annually negotiate a wage agreement. Our current collective bargaining agreement expires on November 12, 2009. Although we have been able to reach collective bargaining agreements and wage agreements with our labor union in recent years, there can be no assurance that we will not experience labor disputes and unrests resulting from disagreements with the labor union in the future.
 
The Korean telecommunications and Internet protocol broadcasting industries are subject to extensive Government regulations, and changes in Government policy relating to these industries could have a material adverse effect on our operations and financial condition.
 
The Government, primarily through the Korea Communications Commission, has authority to regulate the telecommunications industry. The Korea Communications Commission’s policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. Under current Government regulations, if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the Korea Communications Commission, it must obtain prior approval from the Korea Communications Commission for the rates and the general terms for that service. Each year the Korea Communications Commission designates service providers the rates and the general terms of which must be approved by the Korea Communications Commission. In recent years, the Korea Communications Commission has so designated us for local telephone service and broadband Internet access service and SK Telecom for mobile service, and the Korea Communications Commission, in consultation with the Ministry of Strategy and Finance, currently approves rates charged by us and SK Telecom for such services. The Korea Communications Commission currently does not regulate our domestic long-distance, international long-distance and mobile service rates, but the inability to freely


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set our local telephone service and broadband Internet access rates may hurt profits from those businesses and impede our ability to compete effectively against our competitors. See “Item 4. Information on the Company — Item 4.B. Business Overview — Regulation — Rates.” The form of our standard agreement for providing local network service and each agreement for interconnection with other service providers are also subject to approval by the Korea Communications Commission.
 
Furthermore, the Korea Communications Commission announced in December 2008 its key policy initiatives for 2009. These include (i) promotion of convergence between the telecommunications and the broadcasting industries, (ii) market-friendly regulatory reforms and (iii) consumer protection. Specific measures being reviewed by the Korea Communications Commission include (i) permitting companies with a minimum asset size of W10 trillion to engage in general programming and broadcasting contents activities, (ii) formulating a regulatory basis for auctioning superior frequency bandwidth for more efficient use of public frequencies, (iii) lowering the entry barrier for the telecommunications market by moving from a regulatory permit regime to a reporting regime and (iv) relaxing restrictions on service bundling.
 
We also plan to put more focus on the Internet protocol (or IP) media market, and we began offering IP-TV service on November 17, 2008. IP-TV is a service which combines video-on-demand services with real-time high definition broadcasting via broadband networks. The Korea Communications Commission has the authority to regulate the IP media market, including IP-TV services. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the Korea Communications Commission, and anyone intending to engage in the broadcasting of certain contents must obtain additional approval of the Korea Communications Commission. We obtained our IP-TV license on September 8, 2008, and we plan to expand our real-time broadcasting channel offerings via our IP-TV service. Although we currently believe that we may freely compete in this market, there can be no assurance that Government regulations and policies will permit us to continue to do so.
 
Government policies and regulations relating to the above as well as other regulations involving the Korean telecommunications and IP broadcasting industries (including as a result of the implementation of free trade agreements between Korea and other countries, including the United States and the European Union) may change, which could have a material adverse effect on our operations and financial condition. See “Item 4. Information on the Company — Item 4.B. Business Overview — Regulation.”
 
We are subject to various regulations under the Monopoly Regulation and Fair Trade Act.
 
The Monopoly Regulation and Fair Trade Act provides for various regulations and restrictions on large business groups enforced by the Korea Fair Trade Commission. The Korea Fair Trade Commission initially designated us as a large business group under the Monopoly Regulation and Fair Trade Act on April 1, 2002, which subjects us to regulations prohibiting, among other things, our cross guarantees of debt and cross shareholdings by members of a business group.
 
In July 2004, the Korea Fair Trade Commission began an antitrust investigation into alleged unfair collaborative practices by us, SK Broadband, LG DACOM and Onse in local, domestic long-distance and international long-distance telephone service markets, as well as in broadband Internet access and Internet leased line service markets. On May 25, 2005, the Korea Fair Trade Commission imposed fines of W116 billion on us, W2 billion on SK Broadband and W1 billion on LG DACOM, claiming that we and these other companies engaged in unfair collaborative practices in local telephone and Internet leased line service markets. On September 14, 2005, the Korea Fair Trade Commission imposed an additional fine of W24 billion on us for our alleged unfair collaborative practices in domestic and international long-distance telephone service markets. We were following administrative guidelines from the Ministry of Information and Communication, which had advised that we, as a dominant service provider in these markets, assist late market entrants in order to promote a more competitive local telephone service market in Korea. The legality of such administrative guidelines from the Ministry of Information and Communication has been disputed by the Korea Fair Trade Commission.
 
In response to the initial ruling by the Korea Fair Trade Commission, we have recorded W140 billion as taxes and dues under operating expenses in 2005 and paid such amount in 2006. However, we filed for judicial review of such administrative actions relating to domestic long-distance and local telephone service markets. On


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December 24, 2008, the Supreme Court of Korea affirmed the Korea Fair Trade Commission’s administrative actions relating to the domestic long distance telephone service markets. The Supreme Court’s decision on the administrative actions relating to the local telephone service market is, however, still pending. We cannot provide any assurance that the ultimate outcome of the remaining Supreme Court decision or related future actions will be favorable to us or reduce the amount of fine imposed on us and that any future investigations by the Korea Fair Trade Commission on alleged unfair collaborative price-fixing practices will not have a material adverse effect on our financial condition or results of operations. See “Item 8. Financial Information — Item 8.A. Consolidated Statements and Other Financial Information — Legal Proceedings.”
 
Disruptions in global credit and financial markets and the resulting governmental actions around the world could have a material adverse impact on our business and the ability to meet our funding needs, and could cause the market value of our securities to decline.
 
Global credit markets have been experiencing difficulties and volatility since the second half of 2008. The market uncertainty that started from the U.S. residential market further expanded to other markets such as those for leveraged finance, collateralized debt obligations and other structured products. These developments have resulted in significant contraction, de-leveraging and reduced liquidity in the global credit markets, as well as bankruptcy or acquisition of, and government assistance to, several major U.S. and European financial institutions, beginning with the bankruptcy filing of Lehman Brothers in September 2008. In response to such developments, legislators and financial regulators in the United States and other jurisdictions, including Korea, have implemented a number of policy measures designed to enhance stability to financial markets. However, the overall impact of these legislative and regulatory efforts on the global financial markets is uncertain, and they may not have the intended stabilizing effects. The United States Securities and Exchange Commission, other regulators, self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies, and may effect changes in law or interpretations of existing laws.
 
We are exposed to risks related to changes in the global and Korean economic environments, changes in interest rates and instability in the global financial markets. As liquidity and credit concerns and volatility in the global financial markets increased significantly, the value of the Won relative to the Dollar has depreciated at an accelerated rate. The market average exchange rate, as announced by Seoul Money Brokerage Services, Ltd., depreciated from W934.5 to US$1.00 on January 3, 2008 to W1,573.6 to US$1.00 on March 3, 2009. The market average exchange rate, as announced by Seoul Money Brokerage Services, Ltd., was W1,283.6 to US$1.00 on June 26, 2009. Such depreciation of the value of the Won may adversely affect our business. See “— Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the prices of our securities.” Furthermore, as a result of adverse global and Korean economic conditions, there has been a significant overall decline and continuing volatility in securities prices of Korean companies, including ours, which may result in trading and valuation losses on our trading and investment securities portfolio. The Korea Stock Price Index declined from 1,888.88 on May 16, 2008 to 938.75 on October 24, 2008. The Korea Stock Price Index was 1,394.53 on June 26, 2009. In addition, recent increases in credit spreads, as well as limitations on the availability of credit resulting from heightened concerns about the stability of the markets generally and the strength of counterparties specifically have led many lenders and institutional investors to reduce or cease providing funding to borrowers, which may negatively impact our liquidity and results of operation. Major market disruptions and the current adverse changes in market conditions and regulatory climate may further impair our ability to meet our desired funding needs. We cannot predict how long the current market conditions will last. These recent and developing economic and governmental factors may have a material adverse effect on our business and the ability to meet our funding needs, as well as negatively affect the market prices of our securities.
 
Depreciation of the value of the Won against the Dollar and other major foreign currencies may have a material adverse effect on the results of our operations and on the prices of our securities.
 
Substantially all of our revenues are denominated in Won. Depreciation of the Won may materially affect the results of our operations because, among other things, it causes an increase in the amount of Won required by us to make interest and principal payments on our foreign-currency-denominated debt, the costs of telecommunications


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equipment that we purchase from overseas sources, net settlement payments to foreign carriers and administrations and certain payments related to our derivative instruments entered into for foreign exchange risk hedging purposes. Of the W7,947 billion total long-term debt (excluding current portion) outstanding as of December 31, 2008, W3,088 billion was denominated in foreign currencies with interest rates ranging from 1.45% to 16.5%. See “Item 3. Key Information — Item 3.A. Select Financial Data — Exchange Rate Information” and “Item 5. Operating and Financial Review and Prospects — Item 5.B. Liquidity and Capital Resources.”
 
Fluctuations in the exchange rate between the Won and the Dollar will also affect the Dollar equivalent of the Won price of the shares of our common stock on the KRX KOSPI Market and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the Dollar conversion by the depositary for the ADRs of cash dividends, if any, paid in Won on shares of common stock represented by the ADSs.
 
Risks Relating to Korea
 
Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.
 
We are incorporated in Korea and a significant portion of our operations is based in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs, and future growth of the Korean economy is subject to many factors beyond our control. Events related to terrorist attacks in the United States that took place on September 11, 2001, developments in the Middle East, including the war in Iraq and Afghanistan, fluctuations in oil and commodity prices, and the occurrence of natural disasters or outbreak of disease in Asia and other parts of the world have increased the uncertainty of world economic prospects in general and continue to have an adverse effect on the Korean economy. In addition, recent difficulties affecting the U.S. and global financial sectors, adverse conditions and volatility in the U.S. and worldwide credit and financial markets and the general weakness of the U.S. and global economy have increased the uncertainty of global economic prospects in general and have adversely affected and may continue to adversely affect the Korean economy. Any future deterioration of the Korean and global economy could adversely affect our business, financial condition and results of operations.
 
Developments that could have an adverse impact on Korea’s economy include:
 
  •  continuing difficulties in the housing and financial sectors in the United States and elsewhere and the resulting adverse effect on the global financial markets;
 
  •  a slowdown in consumer spending and the overall economy;
 
  •  adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the Dollar or Japanese Yen exchange rates or revaluation of the Chinese renminbi), interest rates or stock markets;
 
  •  adverse developments in the economies of countries that are important export markets for Korea, such as the United States, Japan and China, or in emerging market economies in Asia or elsewhere;
 
  •  the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China);
 
  •  the economic impact of any pending or future free trade agreements, including those with the United States or the European Union;
 
  •  social and labor unrest;
 
  •  substantial decreases in the market prices of Korean real estate;
 
  •  a decrease in tax revenues and a substantial increase in the Government’s expenditures for unemployment compensation and other social programs that, together, would lead to an increased government budget deficit;


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  •  financial problems or lack of progress in restructuring of Korean conglomerates, other large troubled companies, their suppliers or the financial sector;
 
  •  loss of investor confidence arising from corporate accounting irregularities and corporate governance issues of certain Korean conglomerates;
 
  •  geo-political uncertainty and risk of further attacks by terrorist groups around the world;
 
  •  the recurrence of severe acute respiratory syndrome or an outbreak of avian flu in Asia and other parts of the world;
 
  •  deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy;
 
  •  political uncertainty or increasing strife among or within political parties in Korea;
 
  •  hostilities involving oil producing countries in the Middle East and any material disruption in the supply of oil or increase in the price of oil; and
 
  •  an increase in the level of tension or an outbreak of hostilities between North Korea and Korea or the United States.
 
Escalations in tensions with North Korea could have an adverse effect on us.
 
Relations between Korea and North Korea have been tense throughout Korea’s modern history. The level of tension between the two Koreas has fluctuated and may increase abruptly as a result of current and future events. In recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapon and long-range missile programs and increased uncertainty regarding North Korea’s actions and possible responses from the international community. In December 2002, North Korea removed the seals and surveillance equipment from its Yongbyon nuclear power plant and evicted inspectors from the United Nations International Atomic Energy Agency. In January 2003, North Korea renounced its obligations under the Nuclear Non-Proliferation Treaty. Since the renouncement, Korea, the United States, North Korea, China, Japan and Russia have held numerous rounds of six party multi-lateral talks in an effort to resolve issues relating to North Korea’s nuclear weapons program.
 
In addition to conducting test flights of long-range missiles, North Korea announced in October 2006 that it had successfully conducted a nuclear test, which increased tensions in the region and elicited strong objections worldwide. In response, the United Nations Security Council passed a resolution that prohibits any United Nations member state from conducting transactions with North Korea in connection with any large scale arms and material or technology related to missile development or weapons of mass destruction and from providing luxury goods to North Korea, imposes an asset freeze and travel ban on persons associated with North Korea’s weapons program, and calls upon all United Nations member states to take cooperative action, including through inspection of cargo to or from North Korea. In response, North Korea agreed in February 2007 at the six-party talks to shut down and seal the Yongbyon nuclear facility, including the reprocessing facility, and readmit international inspectors to conduct all necessary monitoring and verifications. In June 2008, North Korea demolished the cooling tower at its main reactor complex in Yongbyon. After reaching an agreement with North Korea on a series of measures to verify North Korea’s efforts in dismantling its nuclear program, the United States provisionally rescinded the designation of the North Korea as a State Sponsor of Terrorism, effective from October 11, 2008. However, on April 5, 2009, North Korea launched a long-range rocket over the Pacific Ocean, claiming that the launch intended to put an orbital satellite into space. The United States Northern Command issued a statement that North Korea’s long-range rocket flew over Japan, with its payload landing in the Pacific Ocean. On April 13, 2009, the United Nations Security Council unanimously passed a resolution that condemned North Korea for the launch and decided to tighten sanctions against North Korea. In response, North Korea announced on April 14, 2009 that it would permanently pull out of nuclear disarmament talks and restart its nuclear program. On May 25, 2009, North Korea announced that it had successfully conducted a second nuclear test and test-fired three short-range, surface-to-air missiles. In response, the United Nations Security Council unanimously passed a resolution on June 12, 2009 that condemned North Korea for the nuclear test and tightened sanctions against North Korea.


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There can be no assurance that the level of tension on the Korean peninsula will not escalate in the future. Any further increase in tension, including a breakdown of high-level contacts between Korea and North Korea or occurrence of military hostilities, could have a material adverse effect on our operations and the market value of the securities.
 
Risks Relating to the Securities
 
If an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs.
 
Korean law currently limits foreign ownership of the ADSs and our shares. In addition, under our deposit agreement, the depositary bank cannot accept deposits of shares and deliver ADSs representing those shares unless (1) we have consented to such deposit or (2) Korean counsel has advised the depositary bank that the consent required under (1) is no longer required under Korean laws and regulations. Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with our consent for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. The depositary bank has informed us that, at a time it considers to be appropriate, the depositary bank plans to start accepting deposits of shares without our consent and to deliver ADSs representing those shares up to the amount allowed under current Korean laws and regulations. Until such time, however, the depositary bank will continue to obtain our consent for such deposits of shares and delivery of ADSs, which we may not provide. Consequently, if an investor surrenders his ADSs to withdraw the underlying shares, he may not be allowed to deposit the shares again to obtain ADSs. See “Item 10. Additional Information — Item 10.D. Exchange Controls.”
 
A foreign investor may not be able to exercise voting rights with respect to common shares exceeding the number of common shares held by our largest domestic shareholder.
 
Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. Under the Telecommunications Business Act, the Korea Communications Commission may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, such foreign shareholder may not be able to exercise voting rights with respect to common shares exceeding such threshold. The Korea Communications Commission may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less.
 
Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying common stock and become our direct shareholders.
 
In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their shares under Korean law. A holder of ADSs will not be able to exercise dissenter’s rights unless he has withdrawn the underlying common stock and become our direct shareholder. See “Item 10. Additional Information — Item 10.B. Memorandum and Articles of Association.”


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An investor may not be able to exercise preemptive rights for additional shares and may suffer dilution of his equity interest in us.
 
The Commercial Code of Korea and our articles of incorporation require us, with some exceptions, to offer shareholders the right to subscribe for new shares in proportion to their existing ownership percentage whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the depositary bank, after consultation with us, may make the rights available to an ADS holder or use reasonable efforts to dispose of the rights on behalf of the ADS holder and make the net proceeds available to the ADS holder. The depositary bank, however, is not required to make available to an ADS holder any rights to purchase any additional shares unless it deems that doing so is lawful and feasible and:
 
  •  a registration statement filed by us under the Securities Act of 1933, as amended, is in effect with respect to those shares; or
 
  •  the offering and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act.
 
We are under no obligation to file any registration statement. If a registration statement is required for an ADS holder to exercise preemptive rights but is not filed by us, the ADS holder will not be able to exercise his preemptive rights for additional shares. As a result, the ADS holder may suffer dilution of his equity interest in us.
 
Forward-looking statements may prove to be inaccurate.
 
This annual report contains “forward-looking statements” that are based on our current expectations, assumptions, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “should,” and similar expressions. Those statements include, among other things, the discussions of our business strategy and expectations concerning our market position, future operations, margins, profitability, liquidity and capital resources. We caution you that reliance on any forward-looking statement involves risks and uncertainties, and that although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and, as a result, the forward-looking statements based on those assumptions could be incorrect. The uncertainties in this regard include, but are not limited to, those identified in the risk factors discussed above. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.
 
Item 4.   Information on the Company
 
Item 4.A.   History and Development of the Company
 
In 1981, the Government established us under the Korea Telecom Act to operate the telecommunications services business that it previously directly operated. Under the Korea Telecom Act and the Government-Invested Enterprises Management Basic Act, the Government had greater control over our business and affairs. Effective October 1, 1997, the Korea Telecom Act was repealed and the Government-Invested Enterprises Management Basic Act became inapplicable to us. As a result, we became a corporation under the Commercial Code, and our corporate organization and shareholders’ rights were governed by the Privatization Law and the Commercial Code. Among other things, we began to exercise greater autonomy in setting our annual budget and making investments in the telecommunications industry, and our directors, who used to be appointed by the Government under the Korea Telecom Act, are now elected by our shareholders.
 
Until 1993, the Government owned all of the issued shares of our common stock. From 1993 through May 2002, the Government disposed of all of its equity interest in us. With the completion of disposition of the Government’s ownership interest in us in May 2002, the Privatization Law ceased to apply to us in August 2002. We amended our legal name from Korea Telecom Corp. to KT Corporation in March 2002.


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Before December 1991, we were the sole provider of local, domestic long-distance and international long-distance telephone services in Korea. The Government began to introduce competition in the telecommunications services market in the early 1990’s. As a result, including ourselves, there are currently three local telephone service providers, five domestic long-distance carriers and numerous international long-distance carriers (including voice resellers) in Korea. In addition, the Government has awarded licenses to several new service providers to enhance the competition in other telecommunications business areas such as mobile telephone services and data network services. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. See “Item 4.B. Business Overview — Competition.”
 
Our legal and commercial name is KT Corporation. Our principal executive offices are located at
206 Jungja-dong, Bundang-ku, Sungnam, Gyunggi-do, Korea, and our telephone number is (8231) 727-0114.
 
Item 4.B.   Business Overview
 
We are the leading telecommunications service provider in Korea and one of the largest and most advanced in Asia. As an integrated telecommunications service provider, our principal services include:
 
  •  telephone services, including local, domestic long-distance and international long-distance fixed-line telephone services and interconnection services to other telecommunications companies;
 
  •  broadband Internet access service and other Internet-related services, including IP-TV services;
 
  •  PCS mobile telecommunications service and third-generation HSDPA-based IMT-2000 wireless Internet and video multimedia communications services; and
 
  •  various other services, including leased line service and other data communication service, satellite service and information technology and network services.
 
We own substantially all of the domestic public exchanges, the nationwide network of local telephone lines, the principal public long-distance telephone transmission facilities and the principal data communications network in Korea, as well as two satellites in operation. In addition, we operate nationwide PCS and HSDPA-based IMT-2000 networks.
 
Historically, we have derived a substantial majority of our revenues from fixed-line telephone services. However, as our traditional businesses have matured and new technologies have become available, we have successfully leveraged our nationwide network, strong brand name and established customer base in Korea to pursue new growth opportunities.
 
We are focusing on building upon our strong position in each of our principal lines of business:
 
  •  We are currently the dominant provider of fixed-line telephone services in Korea with approximately 26.0 million installed lines, of which 18.9 million lines were in service as of December 31, 2008. As of December 31, 2008, our market share of the local market was 89.8% based on the number of local fixed-line subscribers announced by the Korea Communications Commission. Based on number of subscribers in 2008 announced by the Korea Communications Commission, our market share of the domestic long-distance market was 85.2%;
 
  •  We are Korea’s largest broadband Internet access provider in terms of subscribers, with 6.7 million subscribers as of December 31, 2008, representing a market share of 43.4% in Korea based on the number of Internet subscribers announced by the Korea Communications Commission;
 
  •  We are Korea’s second largest mobile telecommunications service provider. We had approximately 14.4 million subscribers (including our resale subscribers) as of December 31, 2008, representing a market share of 31.5% of the total mobile service market in Korea based on the number of mobile subscribers announced by the Korea Communications Commission; and
 
  •  We are also the leading provider of data communication service in Korea.


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For the year ended December 31, 2008, under Korean GAAP, our operating revenues were W19,645 billion, our net income was W513 billion and our basic net income per share was W2,217. As of December 31, 2008, our total stockholders’ equity was W11,088 billion.
 
The Telecommunications Industry in Korea
 
The Korean telecommunications industry is one of the most developed in Asia in terms of broadband Internet and mobile penetration rates. As of December 31, 2008, the broadband Internet penetration rate, which is calculated by dividing the number of broadband Internet access service subscribers by the number of households in Korea, was 92.7%, and the mobile penetration rate, which is calculated by dividing the number of mobile subscribers by the population of Korea, was 93.8%. According to the Korea Communications Commission, the number of broadband Internet access subscribers totaled 15.5 million as of December 31, 2008 and the number of mobile subscribers totaled 45.6 million as of such date.
 
The Korea Communications Commission has the primary responsibility for regulating the telecommunications industry in Korea. See “— Regulation.”
 
Broadband Internet Access Market
 
With the advancement of broadband technology, the Korean broadband Internet access market has experienced significant growth. Broadband Internet connection can be achieved through satellite, terrestrial wireless and fiber optic-based solutions. However, the principal technologies used in the provision of high speed Internet access are xDSL, HFC and fiber optic LAN. xDSL refers to various types of digital subscriber lines, including ADSL and VDSL. xDSL offers an access solution over existing telephone lines using a specialized modem while HFC service involves the use of two-way cable networks. Fiber optic LAN is a technology that combines fiber optic cables and Unshielded Twisted Pair (or UTP) cables. Fiber optic cables are connected to residential and commercial buildings with UTP cable-based LAN capabilities. While xDSL and HFC are more widely used technologies because of their relative reliability, ease of provisioning and cost effectiveness, fiber optic LAN usage has been steadily increasing in recent years. As of December 31, 2008, almost a third of the total subscribers of broadband Internet access service in Korea rely on fiber optic LAN technology.
 
Since the subscribers of two-way cable networks share a limited bandwidth, the downstream speed tends to slow down as the number of subscribers increases, thereby decreasing the quality of HFC-based service. While xDSL technology was commercially introduced after HFC technology, it has surpassed HFC to become the prevalent broadband access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in July 2002. In recent years, certain service providers have been upgrading their broadband network to provide fiber optic LAN-based service to their subscribers, which further enhances data transmission speed up to 100 Mbps as well as improves connection quality, and enables such service providers to offer video-on-demand services with real-time high definition broadcasting.
 
In recent years, Broadband Internet access service providers and mobile telecommunications service providers have focused their attention to provide wireless Internet connection capabilities. They have introduced wireless LAN service with speeds of up to 54 Mbps, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops or PDAs in hot-spot zones and at home. Some service providers have also developed wireless Internet networks to provide WiBro service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 1 Mbps per user. Commercial WiBro service was launched in parts of Seoul and Gyunggi Province in June 2006. We expanded the service to all of metropolitan Seoul and select universities in Gyunggi Province in April 2007 and to 19 neighboring cities in October 2008.
 
Mobile Telecommunications Service Market
 
The Korean cellular market was formally established in 1984 when SK Telecom, formerly Korea Mobile Telecom, became the first mobile telephone operator in Korea. SK Telecom remained the only cellular operator in Korea until Shinsegi Telecomm began service in 1994. In order to encourage further market growth and competition, the Ministry of Information and Communication awarded three PCS licenses in June 1996. KTF


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was awarded a license alongside LG Telecom and Hansol M.com. Commercial PCS service was launched in October 1997.
 
Since the introduction of three new operators in 1997, the Korean mobile market has undergone consolidation and significant growth. Following SK Telecom’s purchase of a controlling stake in Shinsegi, we acquired a 47.9% interest in Hansol M.com in 2000 and renamed the company KT M.com. KT M.com merged into KTF in May 2001 and Shinsegi merged into SK Telecom in January 2002. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger. The table below gives the subscription and penetration information of the mobile telecommunications industry for the periods indicated:
 
                                         
    As of December 31,
    2004   2005   2006   2007   2008
 
Total Korean Population(1)
    48,199       48,294       48,378       48,457       48,607  
Mobile Subscribers(2)
    36,586       38,342       40,197       43,498       45,607  
Mobile Subscriber Growth Rate
    8.9 %     4.8 %     4.8 %     8.2 %     4.9 %
Mobile Penetration(3)
    75.9 %     79.4 %     83.1 %     89.8 %     93.8 %
 
 
(1) In thousands, based on population trend estimates by the National Statistical Office of Korea.
 
(2) In thousands, based on information announced by the Korea Communications Commission.
 
(3) Penetration is determined by dividing mobile subscribers by total Korean population.
 
Korea’s highly developed mobile market also extends into an advanced mobile data market. Mobile Internet service in Korea has grown rapidly since its introduction in 2001. All the mobile operators have developed extensive mobile data and Internet service portals. Korean operators have also invested in networks compatible with Evolution-Data Optimized (or EV-DO) handsets which allow subscribers to enjoy 2.5 generation high speed wireless data services. They also offer third-generation, high-capacity HSDPA-based IMT-2000 wireless Internet and video multimedia communications services which use significantly greater bandwidth capacity.
 
Business Strategy
 
We believe the telecommunications market in Korea will continue to expand due to Korea’s growing economy, consumers’ willingness to adopt new technologies, relatively high income and a relatively large middle class. In order to enhance the management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively respond to the convergence trends in the telecommunications industry, KTF merged into KT Corporation on June 1, 2009, with KT Corporation surviving the merger. We also restructured our organization into three sub-groups, the Home Customer Group, the Personal Customer Group and the Enterprise Customer Group, so that we may more effectively address differing needs of our customer segments. Consistent with our strategic objectives, we aim to pursue growth through the following five core areas:
 
  •  Home Customer Group. We aim to offer a one-stop-shop that satisfies various information technology and telecommunications needs of a household. In March 2009, we launched a new brand “QOOK” to promote our bundled products, which include broadband Internet access service, IP-TV service, Internet phone service and fixed-line telephone service. We aim to differentiate ourselves from our competitors by providing broadband Internet access service using high-speed fiber-to-the-home (or FTTH) connection and offering Internet phone service with value-added features such as video communication, short message service and phone banking. We also began offering real-time broadcasting service on our IP-TV service starting in November 2008.
 
  •  Personal Customer Group. We believe that Internet browsing services using open platform operating systems encourage development of more innovative mobile data communication applications and enhance the Internet browsing experience of mobile subscribers. Our Personal Customer Group plans to focus on upgrading our mobile services to be based on such open platform operating systems, which we believe will lead to greater customer satisfaction and business opportunities. In addition, we aim to further enhance our position in the mobile telecommunications market by leveraging on KT’s strong brand, nationwide marketing network and ability to bundle fixed-line and mobile services.


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  •  Enterprise Customer Group. For our enterprise customers, we plan to upgrade our services from traditional network-related services such as leased lines and private branch exchange services to infrastructure management outsourcing services, in which we offer a wide range of services from designing and implementing data communications and information technology infrastructure to overseeing their day-to-day operations, including network management, help desk operations, data center operations and applications management. We believe that such outsourcing services will enable our enterprise customers to achieve operational efficiencies and cost savings.
 
  •  Convergence. We believe that convergence of fixed-line and mobile communications technologies will provide a competitive advantage to us because we have the technological know-how and experience to design and construct a unified delivery platform for a new generation of value-added services. We plan to make such platform be readily available to others so that they may create additional contents and convenience solutions such as electronic commerce and digital transaction applications that can be utilized anywhere using various media and communications devices.
 
  •  Diversification. We aim to carefully seek out promising new opportunities to diversify our revenue base. Technological developments have enhanced the coverage area of individual telecommunications facilities, which enable us to better utilize our existing land and other real estate holdings through property development. Other revenue diversification strategies include (i) leveraging our extensive customer base and expertise in telemetering technology to enhance our position in the security surveillance market, (ii) selectively entering into alternative energy generation businesses, such as geothermal or solar energy, by utilizing our accumulated knowledge and resources in the power management field, and (iii) selectively pursuing investment opportunities abroad, primarily in emerging economies with high growth potential for telecommunications and data communications services.
 
Our Services
 
Telephone Services
 
Fixed-line Telephone Services.  We utilize our extensive nationwide telephone network to provide fixed-line telephone services, which consist of local, domestic long-distance and international long-distance services. These fixed-line telephone services accounted for 19.2% of our operating revenues in 2008. Our telephone network includes exchanges, long-distance transmission equipment and fiber optic and copper cables. The following table gives some basic measures of the development of our telephone system:
 
                                         
    As of or for the Year Ended December 31,
    2004   2005   2006   2007   2008
 
Total Korean Population(1)
    48,199       48,294       48,378       48,457       48,607  
Lines installed (thousands)(2)
    25,577       26,190       26,838       26,671       26,008  
Lines in service (thousands)(2)
    21,091       20,837       20,331       19,980       18,883  
Lines in service per 100 inhabitants(3)
    43.8       43.1       42.0       41.2       38.8  
Fiber optic cable (kilometers)
    157,707       167,857       212,715       267,421       312,232  
Number of public telephones installed (thousands)
    317       267       218       185       161  
Domestic long-distance call minutes (millions)(4)(5)
    14,826       13,417       14,769       13,375       11,591  
Local call pulses (millions)(4)
    20,585       18,566       16,182       14,676       12,449  
 
 
(1) In thousands, based on population trend estimates by the National Statistical Office of Korea.
 
(2) Including lines used for public telephones but excluding lines dedicated to centralized extension system services for corporate subscribers.
 
(3) Determined based on lines in service and total Korean population.
 
(4) Excluding calls placed from public telephones.
 
(5) Estimated by KT Corporation.


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Our domestic long-distance cable network is entirely made up of fiber optic cable and can carry both voice and data transmissions. Compared to conventional materials such as coaxial cable, fiber optic cable provides significantly greater transmission capacity with less signal fading, thus requiring less frequent amplification. In recent years, we have also increased the proportion of our lines that are connected to exchanges capable of handling digital signal technology. A principal limitation of the older analog technology is that applications other than voice communications, such as the transmission of text and computer data, require either separate networks or conversion equipment. Digital systems permit a range of voice, text and data applications to be transmitted simultaneously on the same network. We completed connection of all installed lines to digital exchanges in June 2003.
 
The following table shows the number of minutes of international long-distance calls recorded by us and specific service providers utilizing our international long-distance network in each specified category for each year in the five-year period ended December 31, 2008:
 
                                         
    Year Ended December 31,
    2004   2005   2006   2007   2008
    (In millions of billed minutes)
 
Incoming international long-distance calls
    569.8       558.9       519.4       627.4       603.7  
Outgoing international long-distance calls
    527.4       467.8       400.9       431.4       398.1  
                                         
Total
    1,097.2       1,026.7       920.3       1,058.8       1,001.8  
                                         
 
United States (20.3%), Japan (14.3%) and China (13.1%) accounted for the greatest percentage of our international long-distance call traffic measured in minutes in 2008. In recent years, the volume of our incoming calls exceeded the volume of our outgoing calls. The agreed settlement rate is applied to the call minutes to determine the applicable net settlement payment.
 
Interconnection.  Under the Telecommunications Business Act, we are required to permit other service providers to interconnect to our fixed-line network. Currently, the principal users of this interconnection capacity include SK Broadband and LG DACOM (offering local, domestic long-distance and international long-distance services), Onse and SK Telink (offering international and domestic long-distance services), and SK Telecom, and LG Telecom (transmitting calls to and from their mobile networks). We expect that interconnection revenues and payments will remain important for our results of operations. In recent years, revenues from a landline user for a call initiated by a landline user to a mobile service subscriber (land-to-mobile interconnection) have become a significant portion of our results of operations, accounting for 7.1% of our operating revenues in 2008. We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as an expense the amount of interconnection charge paid to the mobile service provider.
 
Internet phone services.  The volume of calls made through Internet phone services has significantly increased since Internet phone service was first introduced in Korea in March 1998. We provide Internet phone services that enable VoIP phone devices with broadband connection to make domestic and international calls. In order to differentiate our Internet phone services from our competitors’ services, we provide value-added services such as video communication, short message service, phone banking and a variety of traffic and local news information. In March 2009, we changed our brand name to “QOOK Internet Phone.”
 
Internet Services
 
Broadband Internet Access Service.  Leveraging on our nationwide network of 312,232 kilometers of fiber optic cable network, we have achieved a leading market position in the broadband Internet access market in Korea. We believe we have a competitive advantage over other broadband Internet access service providers because, unlike our competitors, we can utilize our existing networks nationwide to provide broadband Internet access service. Our broadband Internet access service accounted for 10.4% of our operating revenues in 2008. Our principal Internet access services include:
 
  •  xDSL, Ethernet and FTTH services under the “QOOK Internet” (formerly, “Megapass”) brand name;


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  •  wireless LAN service under the “Nespot” brand name, which is designed to integrate fixed-line and wireless services by offering high speed wireless Internet access to laptops and PDAs in hot-spot zones and QOOK Internet service in fixed-line environments; and
 
  •  WiBro Internet access service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 1 Mbps per user.
 
We had 6.7 million fixed-line QOOK Internet subscribers as of December 31, 2008. We also had 0.4 million Nespot service subscribers as of December 31, 2008. We conducted trial service of WiBro service in parts of Seoul and Gyunggi Province starting in April 2006 and commercially launched our service in these areas in June 2006. Due to the limited service coverage, we have approximately 160,000 subscribers of WiBro service as of December 31, 2008. We expanded the service to all of metropolitan Seoul and select universities in Gyunggi Province in April 2007 and to 19 neighboring cities in October 2008. Starting in the second half of 2007, we began bundling our WiBro service with QOOK Internet and Nespot services at a discount in order to attract additional subscribers.
 
xDSL refers to various types of digital subscriber lines, including ADSL and VDSL. ADSL is a technology that converts existing copper twisted-pair telephone lines into access paths for multimedia and high-speed data communications. ADSL transforms the existing public telephone network from one limited to voice, text and low-resolution graphics to a system capable of bringing multimedia to subscriber premises without new cabling. The asymmetric design optimizes the bandwidth by maximizing the downstream speed for downloading information from the Internet. While ADSL technology was commercially introduced after HFC-based technology, it has surpassed HFC to become the prevalent access platform in Korea. VDSL, ADSL-based technology with enhanced downstream speed, became commercialized in July 2002. We are currently upgrading our broadband network to enable FTTH connection, which further enhances downstream speed up to 100 Mbps and connection quality.
 
FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operator’s switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IP-TV service and delivery of other digital media content.
 
The high-speed downstream rates can reach up to 8 Mbps for ADSL and 100 Mbps for VDSL and FTTH. Downstream rates depend on a number of factors. For a constant wire gauge, the data rate decreases as the length of the copper wire increases. Generally, if the separation between the telephone office and the subscriber is greater than four kilometers, line attenuation is so severe that broadband speeds can no longer be achieved. Approximately 95% of the households subscribing to our basic local telephone service are located within a four kilometer radius of our telephone offices, making our QOOK Internet service available to most of the Korean population. Fiber-optic cable used by FTTH, on the other hand, uses laser light to carry signals that travel long distances inside fiber optic cable without degradation.
 
Our Ntopia service connects fiber-optic cables to apartment complexes and buildings with LAN capabilities. This technology allows data transmission speed of up to 100 Mbps. Because the service is UTP cable-based, a subscriber is directly connected to the Internet whenever his or her personal computer is in operation. We began offering our Ntopia service in November 2000.
 
In February 2002, we launched a wireless LAN service called Nespot, which provides laptops and PDAs wireless access to high speed Internet in hot-spot zones and QOOK Internet service in fixed-line environments. Nespot enables subscribers to access the Internet at up to 54 Mbps. We sponsored approximately 11,000 hot-spot zones nationwide for wireless connection as of December 31, 2008.
 
In June 2006, we also launched our WiBro service, which enables two-way wireless broadband Internet access to portable computers, mobile phones and other portable devices at a speed averaging 1 Mbps per user. A subscriber is able to access the WiBro service network during transit at speeds of up to 120 kilometers per hour. We positioned WiBro service to provide IP-based triple play services, which are voice, data and video.


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Other Internet-related Services.  Our Internet-related services focus primarily on providing infrastructure and solutions for business enterprises, as well as IP-TV and network portal services. Our Internet-related services accounted for 3.2% of our operating revenues in 2008.
 
We provide dedicated and secure broadband Internet connection service to institutional customers under the “Kornet” brand name. We provide high-speed connection up to 2.2 Tbps, as well as rent to our customers and install necessary routers to ensure reliable Internet connection and enhanced security. We provide discount rates to qualified customers, including small- and medium-sized enterprises, businesses engaging in Internet access services and government agencies.
 
We operate seven Internet data centers located throughout Korea and provide a wide range of computing services to companies which need servers, storages and leased lines. Internet data centers are facilities used to house, protect and maintain network server computers that store and deliver Internet and other network content, such as web pages, applications and data. Our Internet data centers are designed to meet international standards, and are equipped with temperature control systems, regulated and reliable power supplies, fire detection and suppression equipment, security monitoring and wide-bandwidth connections to the Internet. Internet data centers allow corporations or Internet service providers to outsource their application and server hardware management.
 
Our Internet data centers offer network outsourcing services, server operation services and system support services. Our network outsourcing services include co-location, which is the installation of our customers’ network equipment at our Internet data centers. Co-location is designed to increase customers’ Internet connection speed and reduce connection time and costs by directly connecting the customers’ server to the Internet backbone switch at our Internet data centers. Our server operation services include optimal server management service and technical support service we provide with respect to the leased servers that are linked directly to our Internet backbone switch. We also lease servers and network equipment for a fixed monthly fee. Our system support services include providing system resources for a wide range of Internet computing services, such as application transfer, network storage, video streaming and application download, as well as sending short text messages and messages containing multimedia objects, such as images, audio and video.
 
We also offer a service called Bizmeka to develop and commercialize business-to-business solutions targeting small- and medium-sized business enterprises in Korea. Bizmeka is an applied application service provider which provides industry-specific business solutions, including customer database management and electronic data interchange.
 
In addition, we began providing standard definition video-on-demand services to customers of our broadband Internet access services in June 2004, and high definition video-on-demand services in July 2007. We began promoting video-on-demand services under the brand name “MegaTV” in June 2007, which offers access to an array of digital media contents, including movies, sports, news, educational programs and TV replay, for a fixed monthly fee. Through a digital set-top box that we rent to our customers, our customers are able to browse the catalogue of digital media contents and view selected media streams on their television. A set-top box provides two-way communications on an IP network and decodes video streaming data. We expanded our MegaTV service to include IP-TV service with real-time broadcasting on November 17, 2008. We began providing such services under the new brand name “QOOK TV” in March 2009, and we plan to expand our real-time broadcasting channel offerings.
 
Mobile Service
 
We provide mobile services based on CDMA technology and W-CDMA technology. Prior to the merger of KTF into KT Corporation, we provided such services through KTF, which was formerly a consolidated subsidiary. On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. KTF obtained one of the three licenses to provide nationwide PCS service in June 1996 and began offering PCS service in all major population centers in Korea in October 1997. PCS service is a digital wireless telephone and data transmission system that uses portable handsets with long battery life to communicate via low-power antennae. Our PCS service uses CDMA technology and utilizes 40 MHz of bandwidth in the 1800 MHz frequency. In May 2001, KTF launched


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its 2.5 generation high speed wireless data services. Subscribers who have EV-DO-compatible handsets are able to enjoy high speed multimedia services including voice, data and video transmission. KTF also expanded its coverage area of HSDPA-based IMT-2000 services to 84 cities in December 2006 and nationwide in March 2007. HSDPA-based IMT-2000 is a third-generation, high-capacity wireless Internet and video multimedia communications technology which allows an operator to provide to its subscribers significantly more bandwidth capacity. We currently offer such services under the brand name “SHOW.”
 
Prior to the merger of KTF into KT Corporation on June 1, 2009, we maintained an air-time reselling arrangement with KTF, under the brand name “Let’s 010,” through which we use our extensive marketing network and strong brand name to attract subscribers who can utilize the mobile networks of KTF. We billed directly to our resale subscribers for their usage of KTF’s mobile networks and collected all fees and charges relating to such usage, including initial subscription fees, monthly fees and usage charges for outgoing calls, wireless data communications and value-added monthly services. We had approximately 2.8 million resale subscribers who utilized KTF’s network as of December 31, 2008.
 
Revenues related to mobile service accounted for 31.9% of our operating revenues in 2008. The following table shows selected information concerning the usage of KTF’s network during the periods indicated and the number of KTF’s subscribers as of the end of such periods:
 
                         
    As of or for the Year Ended December 31,
    2006   2007   2008
 
Outgoing Minutes (in thousands)(1)
    19,763,593       20,407,676       22,144,588  
Average Monthly Outgoing Minutes per Subscriber(1)(2)
    164       161       164  
Average Monthly Revenue per Subscriber(1)(3)
  W 38,768     W 39,852     W 40,270  
Number of Subscribers (in thousands)(4)
    12,914       13,721       14,365  
 
 
(1) Not including figures related to resale subscribers of KT Corporation.
 
(2) The average monthly outgoing minutes per subscriber is computed by dividing the total minutes of usage for the period by the weighted average number of subscribers for the period and dividing the quotient by the number of months in the period. The weighted average number of subscribers is the sum of the total number of subscribers at the end of each month divided by the number of months in the period.
 
(3) The average monthly revenue per subscriber is computed by dividing total monthly fees, usage charges, interconnection fees and value-added service fees for the period by the weighted average number of subscribers and dividing the quotient by the number of months in the period.
 
(4) Includes resale subscribers of KT Corporation who utilized KTF’s network. KT Corporation had approximately 2.8 million resale subscribers as of December 31, 2008.
 
We compete with SK Telecom, a mobile service provider that has a longer operating history than us, and LG Telecom, that began its service at around the same time as KTF. As of December 31, 2008, KTF had approximately 14.4 million subscribers (including resale subscribers of KT Corporation), which was second largest among the three mobile service providers. As of December 31, 2008, in terms of number of subscribers announced by the Korea Communications Commission, KTF had a market share of 31.5% of the mobile service market. Among KTF’s 14.4 million subscribers (including resale subscribers of KT Corporation), 8.3 million subscribers signed up for SHOW as of December 31, 2008, representing a market share of 50.1% in terms of number of subscribers using third-generation HSDPA-based IMT-2000 service as estimated by KTF.
 
Starting in January 2004 for SK Telecom subscribers, July 2004 for KTF subscribers and January 2005 for LG Telecom subscribers, mobile subscribers have been allowed to switch their service provider while retaining the same mobile phone number. In addition, all new subscribers of mobile services and existing subscribers who elect to receive a new mobile number, as well as those switching to a third-generation mobile service, are given the uniform mobile code of “010” as the first three digits of their mobile numbers without regard to the mobile service provider.
 
We market our mobile services primarily through independent exclusive dealers located throughout Korea. As of December 31, 2008, there were approximately 2,200 shops managed by independent exclusive dealers of KTF. In


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addition to assisting new subscribers to activate mobile service and purchase handsets, authorized dealers are connected to our database and are able to assist customers with account information. Although most of these dealers sell exclusively our products and services, sub-dealers hired by exclusive dealers may sell products and services offered by other mobile telecommunications service providers. Authorized dealers are entitled to a commission for each new subscriber registered, as well as ongoing commissions for the first five years based primarily on the subscriber’s monthly fee, usage charges and length of subscription. The handsets sold by us to the dealers cannot be returned to us unless they are defective. If a handset is defective, it may be exchanged for a new one within 14 days from the date of purchase.
 
We conduct the screening process for new subscribers with great caution. A potential subscriber must meet all minimum credit criteria before receiving mobile service. The procedure includes checking the history of non-payment and credit information from banks and credit agencies such as the National Information and Credit Evaluation Corporation. Applicants who do not meet the minimum criteria can only subscribe to the mobile service by using a pre-paid card.
 
Data Communication Service
 
Our data communication service involves offering exclusive lines that allow point-to-point connection for voice and data traffic between two or more geographically separate points. As of December 31, 2006, 2007 and 2008, we leased 400,287 lines, 391,383 lines and 386,917 lines to domestic and international businesses. The data communication service accounted for 6.8% of our operating revenues in 2008.
 
We currently have two satellites in operation, Koreasat 3 and Koreasat 5. We launched Koreasat 3 in September 1999. Koreasat 3 carries transponders that are used for direct-to-home satellite broadcasting, telecommunications, video distribution and high-speed data communications services for sparsely populated areas. Most of the direct-to-home satellite broadcasting transponders are utilized by Korea Digital Satellite Broadcasting Inc.
 
We launched Koreasat 5 in August 2006, which replaced Koreasat 2. Koreasat 5 is the first commercial satellite in Korea to provide satellite services to neighboring countries, and the service zone of the twelve beam repeaters include Japan, China, Taiwan and the Philippines. The design life of Koreasat 5 is fifteen years. The design life of Koreasat 3 is twelve years, and we plan to launch Koreasat 6 in August 2010 to replace Koreasat 3.
 
Miscellaneous Services
 
We also engage in various business activities that extend beyond telephone services and data communications services, including information technology and network services and real estate. Our miscellaneous services accounted for 6.7% of our operating revenues for 2008.
 
We offer a broad array of integrated information technology and network services to our business customers. Our range of services include consulting, designing, building and maintaining systems and communication networks that satisfy the individual needs of our customers in the public and private sectors.
 
We own land and real estate in various locations nationwide. Technological developments have enhanced the coverage area of individual telecommunications facilities, which enable us to better utilize our existing land and other real estate holdings. In recent years, we have engaged in the planning and development of commercial and office buildings and condominiums on our unused sites, as well as in the leasing of buildings we own.


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Revenues and Rates
 
The table below shows the percentage of our revenues derived from each category of services for each of the years from 2006 through 2008:
 
                         
    Year Ended December 31,
    2006   2007   2008
 
Telephone services:
                       
Local service
    16.3 %     15.3 %     14.0 %
Non-refundable service initiation fees
    0.3       0.2       0.1  
Domestic long-distance service
    4.0       3.6       3.0  
International long-distance service
    2.2       2.3       2.2  
Land-to-mobile interconnection
    10.0       8.5       7.1  
                         
Sub-total
    32.8       29.9       26.4  
                         
Internet services:
                       
Broadband Internet access service
    12.1       11.1       10.4  
Other Internet-related services(1)
    1.8       2.3       3.2  
                         
Sub-total
    13.9       13.4       13.6  
                         
Mobile service
    30.9       31.5       31.9  
Sales of goods(2)
    10.6       12.5       14.6  
Data communications service
    7.2       6.8       6.8  
Miscellaneous services(3)
    4.6       5.9       6.7  
                         
Operating revenues
    100.0 %     100.0 %     100.0 %
                         
 
 
(1) Includes revenues from Kornet Internet connection service and services provided by our Internet data centers, Bizmeka and QOOK TV.
 
(2) Includes mobile handset sales.
 
(3) Includes revenues from information technology and network services and real estate development.
 
Telephone Services
 
Local Telephone Service.  Our revenues from local telephone service consist primarily of:
 
  •  Service initiation fees for new lines;
 
  •  Monthly basic charges; and
 
  •  Monthly usage charges based on the number of call pulses.
 
All calls are currently measured by call pulses. Each pulse is determined by the duration of the call and the time of the day at which the call is made. For instance, during regular service hours, a call pulse is triggered at the beginning of each local telephone call and every three minutes thereafter.


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The rates we charge for local calls are currently subject to approval by the Korea Communications Commission after consultation with the Ministry of Strategy and Finance. The rates are identical for residential and commercial customers. The following table summarizes our local usage rates as of each date on which rates were revised:
 
                                 
    Dec 1,
 		  Sept 1,
 		  April 15,
 		  May 1,
    1996   1997   2001   2002
 
Local Usage Charges (per pulse)(1)
                               
Regular service
  W 41.6     W 45     W 39     W 39  
Public telephone
    40       50       50       70  
 
 
(1) Since January 1, 1990, usage charges for local service in those metropolitan areas subject to measured service have been based on the number of pulses, which are a function of the duration and number of calls, and per pulse rates. Before January 1, 1993, in areas not subject to measured service, a pulse was triggered once for each local telephone call, regardless of the length of the call. Commencing January 1, 1993, measured service applies to all lines in service. A pulse is triggered at the beginning of each local call and every three minutes thereafter from 8:00 a.m. to 9:00 p.m. on weekdays and every 258 seconds thereafter on holidays and from 9:00 p.m. to 8:00 a.m. on weekdays.
 
Before September 1998, in addition to a non-refundable service initiation fee of W8,000 and a monthly basic charge, a customer was required to pay at the time of a telephone service initiation a non-interest-bearing refundable deposit. The deposit ranged from W122,000 to W242,000 depending on the size of the local calling area in which the phone was installed. In September 1998, we implemented an alternative telephone service initiation charge system that allowed our customers to choose between the original service plan and a second service plan. The charges under each plan were as follows:
 
         
Rates from September 1998 to April 14, 2001
 
Original Plan
 
Second Plan
 
Service Initiation Deposit (refunded upon termination of service)
  Between W122,000 to W242,000, depending on location   None
Non-refundable Service Initiation Fee
  W8,000   W100,000
Monthly Basic Charge
  Between W1,500 to W2,500, depending on location   Between W2,000 to W4,000, depending on location
 
Through April 14, 2001, approximately 7.1 million customers switched to or enrolled under the second plan. To each of our customers switching plans, we refunded between W30,000 and W150,000 of their telephone service initiation deposits while keeping W92,000, reflecting the W100,000 non-refundable telephone service initiation fee under the second plan minus the W8,000 non-refundable service initiation fee paid under the original plan.
 
Starting on April 15, 2001, we implemented a new telephone service initiation charge system. The changes are as follows:
 
     
Rates Starting April 15, 2001
 
New Plan
 
Service initiation Deposit (refunded upon termination of service)
  None
Non-refundable Service Initiation Fee
  W60,000 (including value added tax)
Monthly Basic Charge
  Between W3,000 to W5,200, depending on location
 
All new customers subscribing to our local service on or after April 15, 2001 are enrolled under the new plan. Our existing customers who are enrolled in the original plan may switch to the new plan and receive their service initiation deposit back (less W52,000, reflecting the W60,000 non-refundable service initiation fee paid under the new plan minus the W8,000 non-refundable service initiation fee paid under the original plan). Our existing customers who switched to or enrolled under the second plan cannot switch to the new plan.


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Starting in November 2007, we began waiving the W60,000 non-refundable service initiation fee for new subscribers who subscribe to our local service through our online application process.
 
As of December 31, 2008, we had W782 billion of refundable service initiation deposits outstanding and 3,560 thousand subscribers who are enrolled under the mandatory deposit plan and eligible to switch to the no deposit plan and receive their service initiation deposit back (less W52,000 as described above).
 
Domestic Long-distance Telephone Service.  Our revenues from domestic long-distance service consist of charges for calls placed, charged for the duration, time of day and day of the week a call is placed, and the distance covered by the call. We are able to set our own rates for domestic long-distance service without approval from the Korea Communications Commission.
 
The following table summarizes our domestic long-distance rates as of each date on which rates were revised. These charges do not reflect discounts applicable to calls made during off-peak hours or holidays.
 
                                         
    Date of Rate Change(1)
    Dec. 1,
 		  Sept. 1,
 		  Dec. 1,
 		  April 15,
 		  Nov. 1,
    1996   1997   2000   2001   2001
 
Domestic Long-Distance Charges (per three minutes)(1)(2)
                                       
Up to 30 km
  W 41.6     W 45     W 45     W 39     W 39  
Up to 100 km
    182       172       192       192       261  
100 km or longer
    277       245       252       252       261  
 
 
(1) Domestic long-distance calls of up to 30 kilometers are billed on the same basis as local calls. Before April 15, 2001, for domestic long-distance calls in excess of 30 kilometers, a pulse was triggered at the beginning of each call and every 47 seconds for calls up to 100 kilometers or every 33 seconds for calls in excess of 100 kilometers. Commencing April 15, 2001, a pulse was triggered at the beginning of each call and every 30 seconds thereafter. Commencing November 1, 2001, a pulse is triggered at the beginning of each call and every 10 seconds thereafter.
 
(2) Rates for domestic long-distance calls in excess of 30 kilometers are currently discounted (by an adjustment in the period between pulses) by 10% on holidays and from 6:00 a.m. to 8:00 a.m. on weekdays, and by 30% from midnight to 6:00 a.m. every day.
 
In recent years, we have begun to offer optional flat rate plans and discount plans in order to mitigate the impact from lower usage of local and domestic long-distance calls and stabilize our revenues from fixed-line telephone services. Some of our new plans introduced in recent years include the following:
 
  •  starting in September 2006, a subscriber who elects to pay the monthly average of the past six months of local and domestic long-distance usage amounts plus an extra monthly change of W500 is able to make free local and domestic long-distance calls up to twice the historical minutes. A subscriber who elects to pay an extra monthly charge of W1,000 is able to make free calls up to three times the historical minutes. Usage minutes exceeding these free amounts are charged at a 50.0% discount;
 
  •  starting in November 2007, a subscriber who elects to pay an additional monthly flat rate of W3,000 is able to make local and domestic long-distance calls at a flat rate of W39 per call without regard to length of the call;
 
  •  starting in November 2007, a subscriber who elects to pay an additional monthly flat rate of W2,000 is able to make domestic long-distance calls at a rate of W39 per three minutes; and
 
  •  starting in June 2008, a subscriber who elects to pay a monthly flat rate of W12,500 is able to make free local and domestic long-distance calls after 9 p.m. on weekdays or at any time on weekends. Each month, the subscriber also receives a free movie ticket and free 60 minutes of land-to-mobile calls. The subscriber is also eligible to receive a discount of up to 20%, subject to the length of the mandatory subscription period.


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International Long-distance Service.  Our revenues from international long-distance service consist of:
 
  •  amounts we bill to customers for outgoing calls made to foreign countries (including customers who make calls to Korea from foreign countries under our home country direct-dial service);
 
  •  amounts we bill to foreign telecommunications carriers and administrations for connection to the Korean telephone network in respect of incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service); and
 
  •  other revenues, including revenues from international calls placed from public telephones.
 
We bill outgoing calls made by customers in Korea (and calls made to Korea from foreign countries under our home country direct-dial service) in accordance with our international long-distance rate schedule for the country called. These rates vary depending on the time of day at which a call is placed. We bill outgoing international calls on the basis of one-second increments. We are able to set our own rates for international long-distance service without approval from the Korea Communications Commission.
 
For incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service), we receive settlement payments from the relevant foreign carrier or administration at the applicable settlement rate specified under the agreement with the foreign entity. We have entered into numerous bilateral agreements with foreign carriers and administrations. We negotiate the settlement rates under these agreements with each foreign carrier, subject to Korea Communications Commission approval. It is the practice among international carriers for the carrier in the country in which the call is billed to collect payments due in respect of the use of overseas networks. Although we record the gross amounts due to and from us in our financial statements, we make settlements with most carriers quarterly on a net basis.
 
Interconnection.  We provide other telecommunications service providers, including mobile operators and other fixed-line operators, interconnection to our fixed-line network.
 
Land-to-mobile Interconnection.  For a call initiated by a landline user to a mobile service subscriber, we collect from the landline user the land-to-mobile usage charge and remit to the mobile service provider a land-to-mobile interconnection charge. The Korea Communications Commission periodically issues orders setting the interconnection charge calculation method applicable to interconnections with mobile service providers. The Korea Communications Commission determines the land to mobile interconnection charge by calculating the long run incremental cost of mobile service providers, taking into consideration technology development and future expected costs.
 
The following table shows the interconnection charges we paid per minute (exclusive of value-added taxes) to mobile operators for landline to mobile calls.
 
                                 
    Effective Starting
    January 1,
 		  January 1,
 		  January 1,
 		  January 1,
    2006   2007   2008   2009
 
SK Telecom
  W 33.1     W 32.8     W 33.4     W 33.4  
KTF
    40.1       39.6       38.7       38.7  
LG Telecom
    47.0       45.1       39.1       39.1  
 
The following table shows the usage charge per minute collected from a landline user for a call initiated by a landline user to a mobile service subscriber.
 
                         
    Effective Starting
    May 1,
 		  July 1,
 		  September 1,
    2002   2003   2004
 
Weekday
  W 93.8     W 89.0     W 87.0  
Weekend
    88.9       84.0       82.0  
Evening(1)
    83.9       79.2       77.2  
 
 
(1) Evening rates are applicable from 12:00 a.m. to 6:00 a.m. everyday.


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We recognize as land-to-mobile interconnection revenue the entire amount of the usage charge collected from the landline user and recognize as expense the amount of interconnection charge paid to the mobile service provider.
 
Land-to-land and Mobile-to-land Interconnection.  For a call initiated by a landline subscriber of our competitor to our fixed-line user, the landline service provider collects from its subscriber its normal rate and remits to us a land-to-land interconnection charge. In addition, for a call initiated by a mobile service subscriber to our landline user, the mobile service provider collects from its subscriber its normal rate and remits to us a mobile-to-land interconnection charge.
 
The following table shows such interconnection charge per minute collected for a call depending on the type of call, as determined by the Korea Communications Commission.
 
                                 
    Effective Starting
    January 1,
  January 1,
 		  January 1,
 		  January 1,
    2006   2007   2008   2009
 
Local access(1)
  W 16.6     W 17.3     W 18.3     W 18.1  
Single toll access(2)
    18.2       19.0       19.5       19.3  
Double toll access(3)
    19.9       20.7       20.6       20.4  
 
Source: The Korea Communications Commission.
 
(1) Interconnection between local switching center and local access line.
 
(2) Interconnection involving access to single long-distance switching center.
 
(3) Interconnection involving access to two long-distance switching centers.
 
Internet Services
 
Broadband Internet Access Service.  We offer broadband Internet access service that primarily uses existing telephone lines to provide both voice and data transmission. We charge monthly fixed fees to customers of broadband Internet service. In addition, we charge customers a one time installation fee per site of W30,000 and modem rental fee ranging from W3,000 to W8,000 on a monthly fixed basis. The rates we charge for broadband Internet access service are subject to approval by the Korea Communications Commission.
 
The following table summarizes our charges for various broadband Internet services as of December 31, 2008:
 
                 
    Maximum Speed   Monthly Fee(1)
 
QOOK Internet Special
    100 Mbps   W 36,000  
QOOK Internet Lite
    50       30,000  
WiBro Slim(2)(6)
    3       10,000  
WiBro Basic(3)(6)
    3       20,000  
WiBro Special(4)(6)
    3       30,000  
WiBro Premium(5)(6)
    3       40,000  
 
 
(1) We provide discounts of up to 15.0% for mandatory subscription periods ranging from one to three years.
 
(2) We charge a monthly fee of W10,000 for up to 500 megabytes of data transmission and W50 per megabyte for any additional data transmission in excess of 500 megabytes per month.
 
(3) We charge a monthly fee of W20,000 for up to 2,000 megabytes of data transmission and W25 per megabyte for any additional data transmission in excess of 2,000 megabytes per month.
 
(4) We charge a monthly fee of W30,000 for up to 4,000 megabytes of data transmission and W10 per megabyte for any additional data transmission in excess of 4,000 megabytes per month.
 
(5) We charge a monthly fee of W40,000 for up to 6,000 megabytes of data transmission and W7 per megabyte for any additional data transmission in excess of 6,000 megabytes per month.
 
(6) In order to promote our WiBro service, we are currently offering promotional rates to all new customers subscribing before June 30, 2009. New subscribers may elect either flat rate plans in which the subscriber pays


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either a monthly fee of W19,800 for up to 30,000 megabytes of data transmission or a monthly fee of W27,000 for up to 50,000 megabytes of data transmission, or a discount plan in which the subscriber pays a monthly fee of W10,000 for up to 1,000 megabytes of monthly data transmission and W25 per megabyte for data transmission in excess of such amount, with the maximum monthly fee capped at W150,000. Both promotional plans are subject to mandatory subscription periods.
 
Mobile Service and Mobile Handset Sales
 
Our mobile handset sales are included in our consolidated operating revenues as sales of goods. In addition, we derive revenues from mobile service principally from:
 
  •  initial subscription fees;
 
  •  monthly fees;
 
  •  usage charges for outgoing calls;
 
  •  usage charges for wireless data transmission;
 
  •  contents download fees; and
 
  •  value-added monthly service fees.
 
Prior to the merger of KTF into KT Corporation on June 1, 2009, we also generated operating revenues from mobile resale service through our air-time reselling arrangement with KTF. We may set mobile service fees and charges, including any promotional rates, without approval from the Korea Communications Commission. Like all Korean mobile service providers, we do not charge our customers for incoming calls. Instead, we receive interconnection charges from other mobile and fixed-line service operators for calls initiated by their subscribers.
 
We offer various rate plans, including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. We charge an initial subscription fee of W30,000 to new subscribers. Under the standard rate plan for PCS service, we charge a monthly fee of W13,000 and usage charges of W18 per ten seconds, and the subscriber is provided with 10 free minutes. Under the standard rate plan for HSDPA-based SHOW service, we charge a monthly fee of W12,000 and usage charges of W18 per ten seconds, but no free minutes are offered.
 
In order to promote our mobile services, we acquire mobile handsets in bulk for resale to our subscribers. We provide usage charge discounts and subsidies to subscribers who purchase new handsets and additional monthly fees and usage charge discounts and subsidies to those who agree to a subscription period of at least 12 months.
 
Data Communication Service
 
We charge customers of domestic leased-lines on a monthly fixed-cost basis based on the distance of the leased line, the capacity of the line measured in bits per second (“bps”), the type of line provided and whether the service site is local or long-distance. In addition, we charge customers a one-time installation fee per site ranging from W56,000 to W1,940,000 depending on the capacity of the line.
 
Bundled Products
 
We utilize our extensive customer relationships and market knowledge to expand our revenue base by cross-selling our telecommunications products and services. We launched a new brand “QOOK” in March 2009 to promote our bundled products, and we plan to gradually unify brand names for our various service offerings as QOOK and SHOW. In order to attract additional subscribers to our new services, we bundle our services, such as our broadband Internet access service with WiBro, IP-TV, Internet phone, fixed-line telephone service and mobile services, at a discount.


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The following table summarizes our various bundled packages that we will launch on July 1, 2009. The packages require subscribers to agree to a subscription period of three years.
 
                             
            Usage Charge Discounts
    Monthly Rates   Between
 		  Calls to
    Off-Line
 		  Mobile
 		  Family
 		  Designated
    Flat Rate(1)   Monthly Fee   Members   Numbers(2)
 
Internet / Internet Phone / Mobile
  W 25,000     Discounts of between     50%       20%  
Internet / Fixed-Line Phone / Mobile
    27,000     10% to 50%, subject to     50%       20%  
Internet / IP-TV / Mobile
    29,000     the number of subscribers     50%       20%  
Internet / Internet Phone / IP-TV / Mobile
    30,000     who participate (up to     50%       50%  
Internet / Fixed-Line Phone / IP-TV / Mobile
    32,000     5 mobile numbers)     50%       50%  
 
 
(1) Assuming QOOK Internet Lite service. If QOOK Internet Special is selected, additional monthly charge of W5,000.
 
(2) Limited to one designated mobile number and one designated fixed-line number.
 
We have also entered into partnerships with a leading online shopping mall, an operator of cinema complexes and a manufacturer of health drinks, and our subscribers may elect to receive monthly gift certificates or movie tickets with value of up to W50,000 per month in lieu of monthly rate discounts.
 
We believe that subscribers who sign up for bundled products are less likely to cancel our services than subscribers who subscribe to individual services. Subscription fees paid for our bundled products are allocated to each service in proportion to their fair value and the allocated amount is recognized as revenue according to the revenue recognition policy for each service.
 
Competition
 
The telecommunications sector in Korea is rapidly evolving. We face increasing competition from new entrants to the telecommunications market, and we expect the number of service providers in the market to continue to change. Future business combinations and alliances in the telecommunications industry may also significantly change the competitive landscape of the Korean telecommunications industry. In particular, SK Telecom acquired a controlling stake in Hanarotelecom Incorporated in 2008, which was renamed SK Broadband. The acquisition enables SK Telecom to provide fixed-line telecommunications, broadband Internet access and IP-TV services together with its mobile telecommunications services.
 
Under the Telecommunications Basic Law and the Telecommunications Business Law, telecommunications service providers in Korea are currently classified into network service providers, value-added service providers and specific service providers. See “— Regulation.”
 
Network Service Providers
 
All network service providers in Korea are permitted to set the rates for international or domestic long-distance services on their own without Korea Communications Commission approval. Many of our competitors have set their rates lower than ours. Currently, we can compete freely with other providers on the basis of rates in all services except for rates we charge for local calls and broadband Internet access service, which require advance approval from the Korea Communications Commission. In all service areas, we compete by endeavoring to provide superior customer service and superior technical quality, taking advantage of our broad customer base and our ability to provide various telecommunication services.
 
We and SK Telecom have been designated as market-dominating business entities in the respective markets under the Telecommunications Business Act. Under this Act, a market-dominating business entity may not engage in any act of abuse, such as unreasonably interfering with business activities of other business entities, hindering unfairly the entry of newcomers or substantially restricting competition to the detriment of the interests of consumers. The Korea Communications Commission has also issued guidelines on fair competition of the telecommunications companies. If any telecommunications service provider breaches the guidelines, the Korea


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Communications Commission may take necessary corrective measures against it after a hearing at which the service provider may defend its action.
 
Local Telephone Service.  We compete with SK Broadband and LG DACOM in the local telephone service business. SK Broadband began providing local telephone service in 1999, followed by LG DACOM in 2004. In addition, the services provided by mobile service providers have had a material adverse effect on KT Corporation in terms of our revenues from fixed-line telephone services. We expect this trend to continue.
 
The following table shows the market share in the local telephone service market in terms of number of subscribers announced by the Korea Communications Commission as of the dates indicated:
 
                         
    Market Share (%)
    KT
 		  SK
 		  LG
    Corporation   Broadband   DACOM
 
December 31, 2006
    92.1       7.5       0.4  
December 31, 2007
    90.4       8.8       0.8  
December 31, 2008
    89.8       8.7       1.5  
 
Source: Korea Communications Commission.
 
Although the local usage charge of our competitors and us is the same at W39 per pulse (generally three minutes), our competitors’ non-refundable telephone service initiation charge and basic monthly charge are lower than ours. Our customers pay a non-refundable telephone service initiation charge of W60,000 and a basic monthly charge of up to W5,200 depending on location. On the other hand, customers of our competitors pay a non-refundable telephone service initiation charge of W30,000 and a basic monthly charge of up to W5,200 depending on location.
 
Domestic Long-distance Telephone Service.  We compete with SK Broadband, LG DACOM, Onse and SK Telink in the domestic long-distance market. LG DACOM began offering domestic long-distance service in 1996, followed by Onse in 1999 and SK Broadband and SK Telink in 2004. The following table shows the market shares in the domestic long-distance market in terms of number of subscribers announced by the Korea Communications Commission for the years indicated:
 
                                         
    Market Share (%)
    KT
 		  LG
 		  SK
 		       
    Corporation   DACOM   Broadband   Onse   SK Telink
 
2006
    85.6       6.1       4.8       2.1       1.4  
2007
    85.4       7.4       3.9       1.8       1.5  
2008
    85.2       7.8       3.7       1.7       1.6  
 
Source: Korea Communications Commission.
 
Our competitors and we charge W39 per three minutes for domestic long-distance calls up to 30 kilometers. For domestic long-distance calls greater than 30 kilometers, our competitors typically charge between 3% to 5% less than us. The following table is a comparison of our standard long-distance usage charges per three minutes with the standard rates of our competitors as of December 31, 2008:
 
                                         
    KT
 		  SK
 		  LG
 		       
    Corporation   Broadband   DACOM   Onse   SK Telink
 
30 kilometers or longer
  W 261     W 250     W 253     W 248     W 248  
 
Source: Korea Communications Commission.
 
International Long-Distance Telephone Service.  Four companies, SK Broadband, LG DACOM, Onse and SK Telink, directly compete with us in the international long-distance market. LG DACOM began offering international long-distance service in 1991, followed by Onse in 1997 and SK Broadband in 2004. SK Telink, which only provides Internet phone service, entered the international long-distance market in 2003 and offers its services at rates lower than those of network-based international long-distance telephone services. The entry of Internet phone service providers and other telecommunications service providers, such as voice resellers, that can offer


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telecommunications services at rates lower than ours has increased competition in the international long-distance market and adversely affected our revenues and profitability from international long-distance services. See “— Specific Service Providers.”
 
Our competitors generally charge less than us for international long-distance calls. The following table is a comparison of our standard long-distance usage charges per one minute with the standard rates of our competitors as of December 31, 2008:
 
                                         
    KT
  SK
  LG
 		      SK
    Corporation   Broadband   DACOM   Onse   Telink
 
United States
  W 282     W 276     W 288     W 276     W 156  
Japan
    696       672       678       672       384  
China
    990       984       996       984       780  
Australia
    1,086       1,044       1,086       1,044       528  
Great Britain
    1,008       966       996       966       498  
Germany
    948       912       942       912       402  
 
Source: KT Corporation.
 
Broadband Internet Access Service.  The Korean broadband Internet access market has experienced significant growth since Korea Thrunet first introduced its HFC-based service in 1998. SK Broadband entered the broadband market in 1999 offering both HFC and ADSL services, and we entered the market with our ADSL services in 1999, followed by Dreamline, Onse, LG Powercom and LG DACOM. In addition, the entry of cable television providers that offer HFC-based broadband Internet access services at rates lower than ours has increased competition in the broadband Internet access market. We expect industry consolidation among our competitors in the near future, and smaller competitors in the broadband market today may become larger competitors.
 
The following table shows the market share in the broadband Internet access market in terms of number of subscribers announced by the Korea Communications Commission as of the dates indicated:
 
                                 
    Market Share (%)
    KT
  SK
  LG
   
    Corporation   Broadband   Powercomm   Others
 
December 31, 2006
    45.2       25.7       8.6       20.5  
December 31, 2007
    44.3       24.9       11.7       19.1  
December 31, 2008
    43.4       22.9       14.1       19.6  
 
Source: Korea Communications Commission.
 
Our competitors generally charge less than us for broadband Internet access service. The following table is a comparison of fees for our QOOK Internet Lite service with three year mandatory subscription period with fees of our competitors for comparable services as of December 31, 2008:
 
                                 
    KT
  SK
  LG
  Cable
    Corporation   Broadband   Powercomm   Providers(1)
 
Monthly subscription fee
  W 25,500     W 25,200     W 25,000     W 19,600  
Monthly modem rental fee
    3,000       3,000       —       3,000  
Additional installation fee upon moving
    10,000       10,000       20,000       varies  
 
Source: KT Corporation.
 
(1) These are fees typically charged by cable providers.
 
Mobile Service.  Competition in the mobile telecommunications industry in Korea is intense among SK Telecom, LG Telecom and us. Such competition intensified in recent years due to the implementation of mobile number portability, which enables mobile subscribers to switch their service provider while retaining the same mobile phone number, as well as payments of handset subsidies to purchasers of new handsets.


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The following table shows the market share in the mobile telecommunications market in terms of number of subscribers announced by the Korea Communications Commission as of the dates indicated:
 
                         
    Market Share (%)
    KTF   SK Telecom   LG Telecom
 
December 31, 2006
    32.1       50.4       17.4  
December 31, 2007
    31.5       50.5       18.0  
December 31, 2008
    31.5       50.5       18.0  
 
Source: Korea Communications Commission.
 
The following table shows the market share of third-generation HSDPA-based IMT-2000 service in terms of number of subscribers as estimated by us as of the dates indicated:
 
                 
    Market Share (%)
    KTF   SK Telecom
 
December 31, 2007
    56.2       43.8  
December 31, 2008
    50.1       49.9  
 
Source: KT Corporation.
 
We offer various rate plans, including those that offer a specified number of free airtime minutes per month in return for a higher monthly fee and those that are geared toward business customers. Our competitors also offer similar plans at competitive rates.
 
Data Communication Service.  We had a monopoly in domestic data communication service until 1994, when LG DACOM was authorized to provide the leased-line service. The data communications service market has become more competitive with limited growth during the past decade, and we primarily compete with SK Broadband and LG DACOM.
 
Value-Added Service Providers
 
Value-added service providers may commence operations following filing of a report to the Korea Communications Commission. The scope of business of a value-added service provider includes specific value-added telecommunications activities (other than services reserved for network service providers), such as data communications utilizing telecommunications facilities leased from network service providers.
 
Specific Service Providers
 
Specific service providers, such as Internet phone service providers and voice resellers, started operations in Korea in 1998. We began providing Internet phone service for international long-distance calls in May 1998. Our Internet phone service also competes with international long-distance services provided by voice resellers who have also seen sharp increases in demand for their services.
 
Foreign Competition
 
Under the multilateral agreement on basic telecommunications services among the members of the WTO, effective November 27, 1997, the Government of Korea agreed to gradually reduce the restrictions on foreign and individual shareholdings in KT Corporation and other network service providers in Korea. Currently, the Telecommunications Business Law limits aggregate ownership of shares with voting rights (including equivalent securities with voting rights, such as depository certificates and certain other equity interests, and all references to “shares with voting rights” include such equivalent securities) in network service providers (including us) by foreign shareholders to 49.0% of issued shares with voting rights. In addition, the Telecommunications Business Law and the Foreign Investment Promotion Act prohibit a foreign shareholder from being our largest shareholder if such shareholder holds 5.0% or more of our shares. See “— Regulation — Foreign Investment.” While the WTO Agreement enables us to seek foreign investors and strategic partners and to more easily take advantage of


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opportunities for investments in overseas telecommunications projects, it may also benefit our competitors and further intensify competition in the domestic market.
 
Regulation
 
Under the Telecommunications Basic Law and the Telecommunications Business Law, telecommunications service providers are currently classified into three categories:
 
  •  network service providers, such as us, which typically provide telecommunications services with their own telecommunications networks and related facilities. Their services may include local, domestic long-distance and international long-distance telephone services, mobile communications service, paging service and trunked radio system service;
 
  •  value-added service providers, which provide telecommunications services other than those services specified for network service providers, such as data communications using telecommunications facilities leased from network service providers; and
 
  •  specific service providers, which may occupy a middle ground between network service providers and value-added service providers and are broadly defined by law as telecommunications service providers that provide network services using the telecommunications network facilities or services of network service providers.
 
Under the Telecommunications Basic Law and the Telecommunications Business Law, the Korea Communications Commission has comprehensive regulatory authority over the telecommunications industry and all network service providers. The Korea Communications Commission is established under the direct jurisdiction of the President and is comprised of five standing commissioners. Commissioners of the Korea Communications Commission are appointed by the President, and the appointment of the Chairperson must be approved at a confirmation hearing at the National Assembly. The Korea Communications Commission’s policy is to promote competition in the Korean telecommunications markets through measures designed to prevent the dominant service provider in any such market from exercising its market power in such a way as to prevent the emergence and development of viable competitors. A network service provider must be licensed by the Korea Communications Commission. Our license as a network service provider permits us to engage in a wide range of telecommunications services.
 
Under the Use and Protection of Credit Information Act, telecommunications service providers are also required to disclose personal credit information of their customers only for the purpose of validating and maintaining telecommunications service agreements. Korean telecommunications service providers may use their customers’ credit information only to the extent allowed by the Use and Protection of Credit Information Act, which has gained greater importance in recent years due to the occurrence of personal information leakage incidents.
 
The Korea Communications Commission announced in December 2008 its key policy initiatives for 2009. These include (i) promotion of convergence between the telecommunications and the broadcasting industries, (ii) market-friendly regulatory reforms and (iii) consumer protection. Specific measures being reviewed by the Korea Communications Commission include (i) permitting companies with a minimum asset size of W10 trillion to engage in general programming and broadcasting contents activities, (ii) formulating a regulatory basis for auctioning superior frequency bandwidth for more efficient use of public frequencies, (iii) lowering the entry barrier for the telecommunications market by moving from a regulatory permit regime to a reporting regime and (iv) relaxing restrictions on service bundling.
 
The Korea Communications Commission also has the authority to regulate the IP media market, including IP-TV services. We began offering IP-TV services with real-time high definition broadcasting on November 17, 2008. Under the Internet Multimedia Broadcasting Business Act, anyone intending to engage in the IP media broadcasting business must obtain a license from the Korea Communications Commission. The ownership of the shares of an IP media broadcasting company by a newspaper, a news agency or a foreigner is limited, and broadcasting of certain contents must obtain additional approval of the Korea Communications Commission.


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Rates
 
Under current regulations implementing the Telecommunications Business Act, a network service provider may set its rates at its discretion, although it must report to the Korea Communications Commission the rates and the general terms and conditions for each type of network service provided by it. There is, however, one exception to this general rule: if a network service provider has the largest market share for a specified type of service and its revenue from that service for the previous year exceeds a specific revenue amount set by the Korea Communications Commission, it must obtain prior approval from the Korea Communications Commission for the rates and the general terms for that service. Each year the Korea Communications Commission designates the service providers and the types of services for which the rates and the general terms must be approved by the Korea Communications Commission. In 2008, the Korea Communications Commission designated us for local telephone service and broadband Internet access service and SK Telecom for cellular service. The Korea Communications Commission, in consultation with the Ministry of Strategy and Finance, is required to approve the rates proposed by a network service provider if (1) the proposed rates are appropriate, fair and reasonable and (2) the calculation method for the rates are appropriate and transparent.
 
Other Activities
 
A network service provider, such as us, must obtain the permission of the Korea Communications Commission in order to:
 
  •  engage in certain businesses specified in the Presidential Decree under the Telecommunications Business Act, such as the telecommunications equipment manufacturing business and the telecommunications network construction business;
 
  •  change the conditions for its licenses;
 
  •  transfer, terminate, suspend or spin off all or a part of the business for which it is licensed;
 
  •  acquire all or a part of the business of another network service provider; or
 
  •  enter into a merger with another network service provider.
 
A telephone service provider may provide some network services using the equipment it currently has by submitting a report to the Korea Communications Commission. The Korea Communications Commission can revoke our licenses or order the suspension of any of our businesses if we do not comply with the regulations of the Korea Communications Commission under the Telecommunications Business Law.
 
The responsibilities of the Korea Communications Commission also include:
 
  •  formulating the basic plan for the telecommunications industry; and
 
  •  preparing periodic reports to the National Assembly of Korea regarding developments in the telecommunications industry.
 
  •  The responsibilities of the Ministry of Knowledge Economy include:
 
  •  drafting and implementing plans for developing telecommunications technology;
 
  •  fostering and providing guidance to institutions and entities that conduct research relating to telecommunications; and
 
  •  recommending to network service providers that they invest in research and development or that they contribute to telecommunications research institutes in Korea.
 
In addition, since January 2000, all network service providers (other than regional paging service providers) are obligated to contribute toward the supply of “universal” telecommunications services in Korea. Telecommunications service providers designated as “universal service providers” by the Korea Communications Commission are required to provide universal telecommunications services such as local services, local public telephone services, discount services for persons with disabilities and for certain low-income persons, telecommunications services for remote islands and wireless communication services for ships. We have been designated as


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a universal service provider. The costs and losses recognized by universal service providers in connection with providing these universal telecommunications services will be shared on an annual basis by all network service providers (other than regional paging service providers), including us, on a pro rata basis based on their respective net annual revenue calculated pursuant to a formula set by the Korea Communications Commission.
 
Due to the amendment of the Telecommunications Business Law, effective April 9, 2001, a network service provider must permit other network service providers to co-use wirelines connecting the switching equipment to end-users, upon the request of such other network service providers. In addition, a network service provider may permit other network service providers to co-use its wireless communication systems upon the request of any of such other network service providers. The compensation method for the co-use must be determined by the Korea Communications Commission and be settled, by fair and proper methods.
 
In addition, starting April 2002, we are required to lease to other companies our fixed-lines that connect subscribers to our network. This system, which is called local loop unbundling, is intended to prevent excessive investment in local loops. This system requires us to lease the portion of our copper lines that represent our excess capacity to other companies upon their request at rates that are determined by the Korea Communications Commission based on our cost, and taking into consideration an appropriate rate of return, to enable them to provide voice and broadband services. Revenues from local loop unbundling are recognized as revenues from miscellaneous services.
 
Foreign Investment
 
The Telecommunications Business Act restricts the ownership and control of network service providers by foreign shareholders. Foreigners, foreign governments and “foreign invested companies” may not own more than 49.0% of the issued shares with voting rights of a network service provider, including us, and a foreign shareholder may not become our largest shareholder if such shareholder holds 5.0% or more of our shares. For purposes of the Telecommunications Business Act, the term “foreign invested company” means a company in which foreigners and foreign governments hold 15.0% or more shares with voting rights in the aggregate and a foreigner or a foreign government is the largest shareholder, provided, however, that such company will not be counted as a foreign shareholder for the purposes of the above-referenced 49.0% limit if it holds less than 1.0% of our total issued and outstanding shares with voting rights. As of December 31, 2008, 41.0% of our common shares were owned by foreign investors. In the event that a network service provider violates the shareholding restrictions, its foreign shareholders cannot exercise voting rights for their shares in excess of such limitation, and the Korea Communications Commission may require corrective measures be taken to comply with the ownership restrictions. There is no restriction on foreign ownership for specific service providers and value-added service providers.
 
Individual Shareholding Limit
 
The Privatization Law ceased to apply to us in August 2002, and the ceiling on individual shareholding specified in the articles of incorporation has been eliminated. Under the Telecommunications Business Act, a foreign shareholder who holds 5.0% or more of our total shares is prohibited from becoming our largest shareholder. However, any foreign shareholder who held 5.0% or more of our total shares and was our largest shareholder on or prior to May 9, 2004 is exempt from the regulations, provided that such foreign shareholder may not acquire any more of our shares. In addition, under the Telecommunications Business Act, the Korea Communications Commission may, if it deems it necessary to preserve substantial public interests, prohibit a foreign shareholder from being our largest shareholder. In addition, the Foreign Investment Promotion Act prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our shares with voting rights. In the event that any foreigner or foreign government acquires our shares in violation of the above provisions, the Telecommunications Business Act restricts such foreign shareholder from exercising his or her voting rights with respect to common shares exceeding such threshold. The Korea Communications Commission may also order us or the foreign shareholder to take corrective measures in respect of the excess shares within a specified period of six months or less.


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Customers and Customer Billing
 
We typically charge residential subscribers and business subscribers similar rates for services provided. On a case-by-case basis, we also provide discount rates for some of our high-volume business subscribers. We bill all of our customers on a monthly basis. Our customers may make payment at either payment points such as local post offices, banks or our service offices, through a direct-debit service that automatically deducts the monthly payment from a subscriber’s designated bank account, or through a direct-charge service that automatically charges the monthly payment to a subscriber’s designated credit card account. Approximately 73% of our subscribers as of December 31, 2008 pay through the direct-debit service. Accounts of subscribers who fail to pay our invoice are transferred to a collection agency, which sends out a notice of payment. If such charges are not paid after notice, we cease to provide outgoing service to such subscribers after a period of time determined by the type of subscribed service. If charges are still not paid two to three months after outgoing service is cut off, we cease all services to such subscribers. After service is ceased, the overdue charges that are not collected by the collection agency are written off.
 
Insurance
 
We carry insurance against loss or damage to all significant buildings and automobiles. Except for our insurance coverage of our satellites and Internet data centers, we do not carry insurance covering losses to outside plant or to equipment because we believe the cost of such insurance is excessive and the risk of material loss or damage is insignificant. We do not have any provisions or reserves against such loss or damage. We do not carry any business interruption insurance.
 
We provide co-location and a variety of value-added services including server-hosting services to a number of corporations whose business largely depends on critical data operated on our servers or on their servers located at our data centers. Any disruptions, interruptions, physical or electronic data loss, delays or slow down in communication connections could expose us to potential liabilities for losses relating to the disrupted businesses of our customers relying on our services.
 
Item 4.C.   Organizational Structure
 
These matters are discussed under Item 4.B. where relevant.
 
Item 4.D.   Property, Plants and Equipment
 
Our principal fixed asset is our integrated telecommunications network that consists of exchanges and transmission equipment, access lines, backbone network, and mobile network. In addition, we own buildings and real estate throughout Korea.
 
Our fixed-line equipment vendors and mobile equipment suppliers include well-known international and local suppliers such as Samsung Electronics, LG Electronics, Cisco Systems and Alcatel-Lucent.
 
Exchanges
 
Exchanges include local exchanges and “toll” exchanges that connect local exchanges to long-distance transmission facilities. We had 26.0 million lines connected to local exchanges and 1.6 million lines connected to toll exchanges as of December 31, 2008.
 
All of our exchanges are fully automatic. We completed replacement of all electromechanical analog exchanges with digital exchanges in June 2003 in order to provide higher speed and larger volume services. Starting in 2006, we also began conversion of our exchanges to be compatible to Internet protocol platform in preparation for building our next generation broadband convergence network by 2015. As of December 31, 2008, approximately 51% of our lines connected to toll exchanges are compatible to Internet protocol platform.


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Internet Backbone
 
Our Internet backbone network, called KORNET, has the capacity to handle an aggregate traffic of our broadband Internet access subscribers, Internet data centers and Internet exchange system at any given moment of up to 3.2 Tbps as of December 31, 2008. We have set up contingent plans to prepare against various incidents that could affect reliable Internet access service. Starting in 2005, we have also begun deploying our Internet protocol premium network that enables us to more reliably support QOOK TV, WiBro, QOOK Internet Phone, upgraded VoIP services and other Internet protocol services. As of December 31, 2008, our Internet protocol premium network had 270,000 lines installed to provide voice over Internet protocol services and a total capacity to handle up to 340 Gbps of video-on-demand services. We plan to continue to expand our Internet protocol premium network in 2009.
 
Access Lines
 
As of December 31, 2008, we had 11.3 million access lines installed, which allow us to reach virtually all homes and businesses in Korea. As part of our broadband deployment strategy, we have upgraded many of our access lines by equipping them with broadband capability using xDSL and FTTH technology. As of December 31, 2008, we had approximately 7.9 million broadband lines with speeds of at least 50 Mbps that enable us to deliver broadband Internet access and multimedia content to our customers.
 
Transmission Network
 
Our domestic fiber optic cable network consisted of 312,232 kilometers of fiber optic cables as of December 31, 2008, of which 82,127 kilometers of fiber optic cables are used to connect our backbone network and 230,196 kilometers are used to connect the backbone network to our subscribers. Our backbone network utilizes dense wavelength division multiplexing technology for connecting major cities as well as optical add-drop multiplexer technology for connecting neighboring cities. Dense wavelength division multiplexing technology improves bandwidth efficiency by enabling transmission of data from multiple signals across one fiber strand in a cable by carrying each signal on a separate wavelength. We enhanced our backbone network connecting six major cities in Korea by implementing an optical cross-connector (OXC) architecture in 2008 and are in the process of building our next generation broadband convergence network through installation of network equipment utilizing optical reconfigurable add-drop multiplexer technology and multi-service provisioning platform.
 
Our extensive domestic long-distance network is supplemented by our fully digital domestic microwave network, which consists of 56 relay sites.
 
International Network
 
Our international network infrastructure consists of both submarine cables and satellite transmission systems, including two submarine cable-landing stations in Busan and Keoje and two satellite teleports in Kumsan and Boeun. Data services such as international private lease circuits, Internet protocol and very small aperture terminals are provided through submarine cables and satellite transmission. In order to guarantee high quality services to our end customers, our submarine cables and satellite transmission systems are linked to various points-of-presence in the United States, Asia and Europe. In addition, our international telecommunications networks are directly linked to 247 telecommunications service providers in various international destinations and are routed through our three international switching centers in Seoul, Daejeon and Busan.
 
Our international Internet backbone with capacity of 130 Gbps is connected to approximately 190 Internet service providers through our two Internet gateways in Heawha and Guro. In addition, we operate a video backbone with capacity of 665 Mbps to transmit video signals from Korea to the United States, Japan and Singapore.
 
Satellites
 
In order to provide broadcasting, video distribution and broadband data services in select areas, we operate two satellites, Koreasat 3 and 5, launched in 1999 and 2006, respectively. These two satellites are expected to reach the


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end of their normal operational lives in 2011 and 2021, respectively. See “Item 4.B. Business Overview — Our Services — Satellite Services.”
 
Mobile Networks
 
Our mobile network architecture includes the following components:
 
  •  cell sites, which are physical locations equipped with base transceiver stations consisting of transmitters, receivers and other equipment used to communicate through radio channels with subscribers’ mobile telephone handsets within the range of a cell;
 
  •  base station controllers, which connect to and control, the base transceiver stations;
 
  •  mobile switching centers, which in turn control the base station controllers and the routing of telephone calls; and
 
  •  transmission lines, which connect the mobile switching centers, base station controllers, base transceiver stations and the public switched telephone network.
 
The following table lists selected information regarding mobile networks of KTF as of December 31, 2008:
 
                 
    CDMA   W-CDMA
 
Mobile switching centers
    42       22  
Base station controllers
    397       219  
Base transceiver stations
    10,750       6,997  
Indoor and outdoor repeaters
    47,450       196,587  
 
We have 40 MHz of bandwidth in the 1,800 MHz spectrum to provide PCS services based on CDMA wireless network standards and another 40 MHz of bandwidth in the 2,000 MHz spectrum to provide IMT-2000 services based on W-CDMA wireless network standards. We have also installed an intelligent network on our mobile network infrastructure to provide a wide range of advanced call features and value-added services.
 
International Submarine Cable Networks
 
International traffic is handled by telecommunications satellites and submarine cables. Because of the high cost of laying a submarine cable, the usual practice is for multiple carriers to jointly commission a new cable and share the costs and the capacity. We own interests in several international fiber optic submarine cable networks, including:
 
  •  a 2.3% interest in the 12,083-kilometer Asia Pacific Cable Network connecting Korea, Japan and Hong Kong with six Southeast Asian countries and Australia, activated since January 1997;
 
  •  a 1.4% interest in the 29,000-kilometer FLAG Europe-Asia network connecting Korea, Southeast Asia, the Middle East and Europe, activated since April 1997;
 
  •  a 1.9% interest in the 39,000-kilometer Southeast Asia-Middle East-Western Europe 3 Cable Network linking 34 countries, activated since December 1999;
 
  •  a 6.7% interest in the 30,444-kilometer China-U.S. Cable Network linking Korea, China, Japan, Taiwan and the United States, activated since January 2000;
 
  •  a 2.5% interest in the 19,000-kilometer Asia Pacific Cable Network 2 connecting Korea, China, Japan, Taiwan, Hong Kong, Philippines, Singapore and Malaysia, activated since December 2001;
 
  •  a 20.0% interest in the 500-kilometer Korea-Japan Cable Network linking Korea and Japan, activated since March 2002.; and
 
  •  a 13.1% interest in the 16,500-kilometer Trans Pacific Express Cable Network linking Korea, China, Taiwan and the United States, activated since September 2008.
 
We have also invested in 15 other international fiber optic submarine cables around the world.


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Item 4A.   Unresolved Staff Comments
 
We do not have any unresolved comments from the Securities and Exchange Commission staff regarding our periodic reports under the Exchange Act of 1934.
 
Item 5.   Operating and Financial Review and Prospects
 
Item 5.A.   Operating Results
 
Overview
 
We are an integrated provider of telecommunications services. Our principal services include fixed-line telephone services, Internet services including broadband Internet access service, mobile service and data communication service. The principal factors affecting our revenues from these services have been our rates for, and the volume of usage of, these services, as well as the number of subscribers. For information on rates we charge for our services, see “Item 4. Information on the Company — Item 4.B. Business Overview — Revenues and Rates.”
 
Historically, our revenues were derived principally from telephone services which consist of local, domestic long-distance and international long-distance services and land-to-mobile interconnection service. In recent years, we have been deriving an increasing portion of our operating revenues from Internet services and mobile service.
 
The following table shows, for each of the years in the three-year period ended December 31, 2008, our operating revenues, expenses and operating income determined in accordance with Korean GAAP, and each amount as a percentage of consolidated operating revenues.
 
                                                 
    Year Ended December 31,  
    2006     2007     2008  
          (Percentage
          (Percentage
          (Percentage
 
          of
 		          of
 		          of
 		 
    (In
    consolidated
 		    (In
    consolidated
 		    (In
    consolidated
 		 
    billions of
    operating
    billions of
    operating
    billions of
    operating
 
    Won)     revenues)     Won)     revenues)     Won)     revenues)  
 
Operating revenues:
                                               
Telephone services:
                                               
Local service
  W 2,909       16.3 %   W 2,856       15.3 %   W 2,752       14.0 %
Non-refundable service installation fees
    46       0.3       43       0.2       28       0.1  
Domestic long-distance service
    711       4.0       673       3.6       587       3.0  
International long-distance service
    386       2.2       432       2.3       442       2.2  
Land-to-mobile interconnection
    1,765       10.0       1,588       8.5       1,391       7.1  
                                                 
Sub-total
    5,817       32.8       5,592       29.9       5,200       26.4  
                                                 
Internet services:
                                               
Broadband Internet access service
    2,149       12.1       2,074       11.1       2,050       10.4  
Other Internet-related services(1)
    322       1.8       424       2.3       629       3.2  
                                                 
Sub-total
    2,471       13.9       2,498       13.4       2,679       13.6  
                                                 
Mobile service
    5,510       30.9       5,875       31.5       6,261       31.9  
Sale of goods(2)
    1,889       10.6       2,324       12.5       2,867       14.6  
Data communication service(3)
    1,284       7.2       1,271       6.8       1,336       6.8  
Miscellaneous services(4)
    854       4.6       1,100       5.9       1,302       6.7  
                                                 
Total operating revenues
    17,825       100.0       18,660       100.0 %     19,645       100.0 %
                                                 
Operating expenses:
                                               
Salaries and related costs
    2,993       16.8       3,133       16.8       3,214       16.4  
Depreciation and amortization
    3,557       20.0       3,602       19.3       3,630       18.5  
Other operating and maintenance(5)
    8,892       49.9       10,180       54.6       11,373       57.9  
                                                 
Total operating expenses
    15,442       86.7       16,915       90.6 %     18,217       92.7 %
                                                 
Operating income
  W 2,383       13.3 %   W 1,745       9.4 %   W 1,428       7.3 %


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(1) Includes revenues from Kornet Internet connection service and services provided by our Internet data centers, Bizmeka and QOOK TV.
 
(2) Includes mobile handset sales.
 
(3) Includes revenues from satellite service.
 
(4) Includes revenues from information technology and network services and real estate development.
 
(5) For a breakdown of other operating and maintenance expenses, see “— Item 5.A. Operating Results — Other Operating and Maintenance Expenses.”
 
We have two reportable operating segments — a wireline communications segment and a mobile services segment. All financial information included in the wireline communications segment discussion is based on non-consolidated financial statements of KT Corporation prior to elimination of intercompany transactions. Wireline communications include all services provided to fixed-line customers, including Internet access services, data communication services, leased line services and telephone services. All financial information included in the mobile service segment discussion is based on non-consolidated financial statements of KTF prior to elimination of intercompany transactions. Mobile services include both PCS service and IMT-2000 service. The operations of all other entities are included in the “Other” segment.
 
One of the major factors contributing to our historical performance was the growth of the Korean economy, and our future performance will depend at least in part on Korea’s general economic growth and prospects. For a description of recent developments that have had and may continue to have an adverse effect on our results of operations and financial condition, see “Item 3. Key Information — Item 3.D. Risk Factors — Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.” A number of other developments have had or are expected to have a material impact on our results of operations, financial condition and capital expenditures. These developments include:
 
  •  merger of KTF into KT Corporation on June 1, 2009;
 
  •  IMT-2000 service license payments;
 
  •  changes in the rate structure for our services;
 
  •  developing and launching WiBro service; and
 
  •  deployment of FTTH.
 
As a result of these factors, our financial results in the past may not be indicative of future results or trends in those results.
 
Merger of KTF into KT Corporation
 
On June 1, 2009, KTF merged into KT Corporation, with KT Corporation surviving the merger, with the objective of maximizing management efficiencies of our fixed-line and mobile telecommunications operations as well as more effectively responding to the convergence trends in the telecommunications industry. The merger was consummated pursuant to a “comprehensive stock transfer” under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock they owned. We delivered 700,108 shares of our newly issued common stock (par value W5,000) and 45,629,480 shares of our treasury shares (par value W5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger.
 
Under Korean law, holders of shares of KT Corporation or KTF common stock who opposed the merger were entitled to exercise their appraisal rights to purchase their shares, which were set at W38,535 for each share of KT Corporation common stock properly submitted to KT Corporation for appraisal and W29,284 for each share of KTF common stock properly submitted to KTF for appraisal. KT Corporation and KTF spent an aggregate of W298 billion to purchase such shares properly submitted for appraisal, which are now held as treasury shares.


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IMT-2000 Service License Payments
 
We acquired the right to purchase one of three licenses to provide IMT-2000 services on December 15, 2000, as a member of a consortium of companies including KT Corporation and KTF. In March 2001, KT ICOM, a company created by the consortium, paid half of the W1.3 trillion license fee payable to the Korea Communications Commission. KTF, which subsequently merged with KT ICOM, paid W90 billion in 2007 and W110 billion in 2008, and we are obligated to pay the remaining W450 billion as follows: W130 billion in 2009, W150 billion in 2010 and W170 billion in 2011. This payable accrues interest at the applicable three-year Government bond interest rate minus 0.75%. The accrued interest is paid on an annual basis to the Korea Communications Commission. KTF expanded its coverage area of HSDPA-based IMT-2000 services to 84 cities in December 2006 and began offering nationwide services in March 2007 under the brandname “SHOW.”
 
Changes in the Rate Structure for Our Services
 
Periodically, we change our rate structure for our services. In order to mitigate the impact from lower usage charges of local and domestic long-distance calls, we have increased our basic monthly charges and began offering optional flat rate plans for our fixed-line subscribers. Such adjustments in the rate structure have had a positive effect on our financial condition by increasing the portion of fixed income and stabilizing our cash flow. In addition, because the growing use of mobile telecommunications services has decreased the usage of our fixed-line telephone services, we believe we are able to maximize our revenues from fixed-line telephone services by adjusting the rate structure so as to increase our basic monthly charges. Starting in the second half of 2007, we also began bundling our services at a discount in order to attract additional subscribers to our new services. We launched a new brand “QOOK” in March 2009 to promote our bundled products, and we currently bundle our broadband Internet access service with WiBro, IP-TV, Internet phone, fixed-line telephone service and mobile services at a discount. For a discussion of adjustments in our rate structure, see “Item 4. Information on the Company — Item 4.B. Business Overview — Revenues and Rates.”
 
Developing and Launching WiBro Service
 
In March 2005, we acquired a license to provide wireless broadband Internet access service for W126 billion. The license is valid for seven years from the grant date and the license amount is amortized over the remaining contractual life commencing from June 2006. We conducted trial service of WiBro service in parts of Seoul and Gyunggi Province starting in April 2006 and commercially launched our service in these areas in June 2006. We expanded the service to all of metropolitan Seoul and select universities in Gyunggi Province in April 2007 and to 19 neighboring cities in October 2008. We believe that additional amounts of capital expenditures and research and development will be required to complete the buildout of our WiBro service network, and we plan to spend approximately W53 billion in capital expenditures in 2009 to expand our WiBro service network, which we may adjust subject to market demand.
 
Upgrading of Broadband Network to FTTH
 
FTTH is a telecommunication architecture in which a communication path is provided over optical fiber cables extending from the telecommunications operator’s switching equipment to the boundary of home or office. FTTH uses fiber optic cable, which is able to carry a high-bandwidth signal for longer distances without degradation. FTTH enables us to deliver enhanced products and services that require high bandwidth, such as IP-TV service and delivery of other digital media content. We are currently upgrading our broadband network to enable FTTH connection, which enhances downstream speed up to 100 Mbps and connection quality. We are planning to spend approximately W297 billion in capital expenditures in 2009 to upgrade our broadband network to FTTH, which we may adjust after periodic assessments.
 
Critical Accounting Policies
 
The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with Korean GAAP. Korean GAAP varies in certain significant respects from accounting principles generally accepted in the United States of America. We have summarized these differences and their


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effect on our stockholders’ equity as of December 31, 2007 and 2008 and the results of our operations for each of the years in the three-year period ended December 31, 2008, in Note 38 to the Consolidated Financial Statements.
 
The preparation of financial statements in conformity with Korean GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the years reported. We based our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates under different assumptions and conditions.
 
The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend our business activities. To aid in that understanding, our management has identified “critical accounting estimates.” These estimates have the potential to have a more significant impact on our financial statements, either because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.
 
These critical accounting estimates include:
 
  •  allowances for doubtful accounts;
 
  •  useful lives of property, plant and equipment;
 
  •  impairment of long-lived assets, including the IMT-2000 frequency usage right;
 
  •  impairment of investment securities;
 
  •  income taxes; and
 
  •  valuation of derivatives.
 
Allowances for doubtful accounts
 
Allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing notes and accounts receivable. We determine the allowance for doubtful notes and accounts receivable based on an analysis of portfolio quality and historical write-off experience. Account balances are charged off against the allowance when all means of collection have been exhausted and the potential for recovery is considered remote. Our past experience shows that the possibility of collection is remote after three years of collection effort.
 
Changes in the allowances for doubtful accounts for each of the years in the three-year period ended December 31, 2008 are summarized as follows:
 
                         
    Year Ended December 31,  
    2006     2007     2008  
    (In millions of Won)  
 
Balance at beginning of year
  W 613,873     W 563,164     W 487,729  
Provision
    111,285       71,502       150,583  
Write-offs
    (161,994 )     (146,937 )     (149,573 )
                         
Balance at end of year
  W 563,164     W 487,729     W 488,739  
                         
 
If economic or specific industry trends change, we would adjust our allowances for doubtful accounts by recording additional expense or benefit. Our study shows that a 5.0% decrease or increase in the historical write-off experience would increase or decrease the provision for doubtful accounts by approximately W2.8 billion as of December 31, 2008.


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Useful lives of property, plant and equipment
 
Property, plant and equipment are depreciated based on the useful lives disclosed in Note 2(h) to the Consolidated Financial Statements. Generally, the useful lives are estimated at the time the asset is acquired and are based on historical experience with similar assets as well as taking into account anticipated technological or other changes. In certain cases and as permitted under Korean GAAP, those useful lives used for accounting purposes are different from the estimated economic lives of the related asset. In addition, the estimated lives of certain other assets, including underground access to cable tunnels, and concrete and steel telephone poles are based on rates established by a ruling by the Korean National Tax Service (which is also applicable under Korean GAAP). If technological changes were to occur more rapidly than anticipated or in a different form than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of increased depreciation expense in future periods. A decrease of remaining estimated useful life by one year of our property, plant and equipment would result in an increase of depreciation expense of approximately W246 billion in 2008.
 
Impairment of long-lived assets including the IMT-2000 frequency usage right
 
Long-lived assets generally consist of property, plant and equipment and intangible assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, we evaluate our long-lived assets for impairment each year as part of our annual forecasting process. An impairment loss would be considered when estimated undiscounted future net cash flow expected to result from the use of the asset and its eventual disposition are less than its carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
 
Our intangible assets include the IMT-2000 frequency usage right, which has a contractual life of 13 years and is amortized from the date commercial service is initiated through the end of its contractual life, which is November 2016. We started to amortize this frequency usage right in December 2003, and we review the IMT-2000 frequency usage right for impairment on an annual basis. In connection with our review, we utilize the estimated long-term revenue and cash flow forecasts developed as part of our planning process. The results of our review using the testing method described above did not indicate any need to impair the IMT-2000 frequency usage right in 2008. The use of different assumptions within our cash flow model could result in different amounts for the IMT-2000 frequency usage right.
 
Impairment of investment securities
 
For investments in companies, whether or not publicly held, that are not controlled, but under our significant influence, we utilize the equity method of accounting. Under the equity method of accounting, our initial investment is recorded at cost and is subsequently increased to reflect our share of the investee income and reduced to reflect our share of the investee losses or dividends received. Any excess in our acquisition cost over our share of the investee’s identifiable net assets is generally recorded as investor-level goodwill or other intangibles and amortized by the straight-line method over the estimated useful life. The amortization of investor-level goodwill or other intangibles is recorded against the equity income (losses) of affiliates.
 
Under U.S. GAAP, when events or circumstances indicate that the carrying amount of an equity method investment may not be recoverable, we review the investment for other-than-temporary impairment. As part of this review, the investee’s operating results, net asset value and future performance forecasts as well as general market conditions are taken into consideration. If we believe, based on this review, that the market value of our investment may realistically be expected to recover, the loss will continue to be classified as temporary. If economic or specific industry trends worsen beyond our estimates, valuation losses previously determined to be recoverable may need to be charged as a valuation loss in equity income (losses) of affiliates.
 
Significant management judgment is involved in the evaluation of declines in value of individual investments. The estimates and assumptions used by management to evaluate declines in value can be impacted by many factors, such as the financial condition, earnings capacity and near-term prospects of the company in which we have invested and, for publicly-traded securities, the length of time and the extent to which fair value has been less than


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cost. The evaluation of these investments is also subject to the overall condition of the economy and its impact on the capital markets.
 
Income Taxes
 
We are required to estimate the amount of tax payable or refundable for the current year and the deferred income tax liabilities and assets for the future tax consequences of events that have been reflected in our financial statements or tax returns. This process requires management to make assessments regarding the timing and probability of the tax impact. Actual income taxes could vary from these estimates due to future changes in income tax law or unpredicted results from the final determination of each year’s liability by taxing authorities.
 
We believe that the accounting estimate related to establishing tax valuation allowances is a “critical accounting estimate” because: (1) it requires management to make assessments about the timing of future events, including the probability of expected future taxable income and available tax planning opportunities, and (2) the impact that changes in actual performance versus these estimates could have on the realization of tax benefits as reported in our results of operations could be material. Management’s assumptions require significant judgment because actual performance has fluctuated in the past and may continue to do so.
 
Under Korean GAAP, recognition of deferred tax benefit from equity in losses of affiliates requires realization of the benefit within the near future, which is construed to mean five years. We do not believe it is probable to realize such benefit from KT Corporation’s investor-level goodwill amortization expenses within five years. Accordingly, we wrote off the related deferred income tax assets in the amount of W26 billion in 2006 and W38 billion in 2007 by taking a charge to deferred income tax expense. Our unrecognized deferred income tax assets decreased by W38 billion in 2008 primarily due to a decrease in income tax rate from 27.5% to 22.0%.
 
Under U.S. GAAP, deferred tax assets are recognized for the excess of the tax basis over the amount for financial reporting of domestic and foreign investments accounted for on the equity method (except for corporate joint ventures). We purchased additional shares of KTF in 2006, which became a consolidated subsidiary under U.S. GAAP as of August 20, 2006. We had recognized deferred tax assets amounting to W417 billion as of August 20, 2006 relating to the basis difference for our investment in KTF while being accounted for under the equity method. As a result of the consolidation of KTF, the deferred tax assets can no longer be recorded since it is not apparent that the temporary difference will reverse in the foreseeable future. We eliminated the deferred tax assets with the corresponding charge applied to an increase of goodwill as part of purchase accounting and the initial consolidation of KTF under U.S. GAAP.
 
Valuation of derivatives
 
We record rights and obligations arising from derivative instruments as assets and liabilities, which are stated at fair value. Gains and losses that result from the change in the fair value of derivative instruments are recognized in current earnings. However, for derivative instruments that qualify for cash flow hedge accounts, the effective portion of the gain or loss on the derivative instruments are recorded as gain (loss) on valuation of derivatives for cash flow hedge included in accumulated other comprehensive income (loss).
 
Significant management judgment is involved in determining the fair value of derivative instruments. The estimates and assumptions used by our management to determine fair value can be impacted by many factors, such as the credit quality of each derivative counterparty, interest rate, market volatility or the overall condition of the economy and its impact on the capital markets. Any changes in these assumptions could significantly affect the valuation and timing of recognition of valuation losses classified as other than temporary.
 
Adoption of New Accounting Standards
 
Through December 31, 2008, the Korea Accounting Standards Board has issued Statements of Korea Accounting Standards (“SKAS”) No. 1 through No. 25. Among these statements, SKAS No. 1 through No. 10 and SKAS No. 12 through No. 20 are required to be applied in the prior periods. Although SKAS No. 11 and SKAS No. 21 through No. 25 are required to be applied starting in 2007, the accompanying consolidated financial


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statements for the years ended December 31, 2006 have been reclassified in accordance with Statements of Korea Accounting Standards No. 16 and No. 21 for comparison purposes.
 
Operating Results
 
We have adopted new accounting standards and reclassified certain of our accounts effective January 1, 2007, and we have made the corresponding reclassification to our 2006 consolidated financial statements. Our discussion of operating results is prepared using the reclassified consolidated financial statements. See “— Adoption of New Accounting Standards” for the effects of the adoption of new accounting standards.
 
Telephone Service Revenues
 
Local Service Revenues.  Local service revenues include basic monthly charges and monthly usage charges from local telephone service and revenues from other value-added services, including local telephone directory assistance, call waiting and caller identification services. In addition, we charge interconnection fees to fixed-line competitors and mobile service providers whenever fixed-line competitors and mobile service providers use our local network in providing their services. Basic monthly charges vary depending on the location of the customer and the telephone installation charge system selected by the customer, and monthly usage charges are based on the number of call pulses. Service revenues from local service vary principally depending on the number of lines in service, the number of new lines placed in service, rates and the volume of calls. All lines in service are subject to measured service under which call pulses are a function of the number of calls made, each call’s duration and the time of day at which each call is made. Revenues from local calls placed from public telephones are also included in local service revenues.
 
In 2007, we had local service revenues of W2,856 billion, representing a decrease of 1.8% compared to 2006 local service revenues of W2,909 billion. The decrease in local service revenues in 2007 was due principally to a 9.3% decrease in the number of local call pulses in 2007 compared to 2006, which was attributable to the substitution effect from increase in usage of mobile telephone services and the Internet phone services. Effects from such decrease were partially offset by our efforts in recent years to mitigate the impact from lower usage of local calls and stabilize our revenues from fixed-line telephone services by offering optional flat rate plans, as well as an increase in revenues from value-added services.
 
In 2008, we had local service revenues of W2,752 billion, representing a decrease of 3.6% compared to 2007 local service revenues of W2,856 billion. The decrease in local service revenues in 2008 was due principally to a 15.2% decrease in the number of local call pulses in 2008 compared to 2007 attributable to the continuing substitution effect from increase in usage of mobile telephone services and the Internet phone services. Effects from such decrease were partially offset by participation by some of our subscribers in optional flat rate plans, as well as an increase in revenues from value-added services.
 
Non-refundable Service Installation Fee.  We implemented a new telephone installation charge system in April 2001, pursuant to which new customers who did not previously subscribe to our local service must pay a W60,000 non-refundable installation fee. We also recognize such non-refundable installation fee as revenue. See “Item 4. Information on the Company — Item 4.B. Business Overview — Revenues and Rates — Telephone Services — Local Telephone Service.” We recognized as revenue W46 billion in non-refundable service installation fees in 2006, W43 billion in 2007 and W28 billion in 2008.
 
Domestic Long-distance Revenues.  Service revenues from domestic long-distance service depend on rates, the number of call minutes, and the distance and the time of day each call is made. In addition, we charge interconnection fees to fixed-line competitors, mobile service providers and voice resellers whenever they use our domestic long-distance network in providing their services. Domestic long-distance revenues include revenues from domestic long-distance calls placed from public telephones. Revenues from domestic long-distance service have decreased in recent years and are accounting for a smaller portion of our consolidated operating revenues.
 
In 2007, we had domestic long-distance revenues of W673 billion, representing a decrease of 5.3% from 2006 domestic long-distance revenues of W711 billion. The decrease in domestic long-distance revenues in 2007 was due principally to a decrease in the number of domestic long-distance call minutes in 2007 compared to 2006


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primarily due to the substitution effect from increase in usage of mobile telephone services and Internet phone services. Effects from such decrease were partially offset by our efforts in recent years to mitigate the impact from lower usage of domestic long-distance calls and stabilize our revenues from fixed-line telephone services by offering optional flat rate plans.
 
In 2008, we had domestic long-distance revenues of W587 billion, representing a decrease of 12.8% from 2007 domestic long-distance revenues of W673 billion. The decrease in domestic long-distance revenues in 2008 was due principally to a decrease in the number of domestic long-distance call minutes in 2008 compared to 2007 primarily due to a continuing substitution effect from increase in usage of mobile telephone services and the Internet phone services. Effects from such decrease were partially offset by participation by some of our subscribers in optional flat rate plans.
 
International Long-distance Revenues.  Service revenues from international long-distance service consist of:
 
  •  amounts we bill to our customers for outgoing calls made to foreign countries (including customers who make calls to Korea from foreign countries under our home country direct-dial service);
 
  •  amounts we bill to foreign telecommunications carriers and administrations for connection to the Korean telephone network in respect of incoming calls (including calls placed in Korea by customers of the foreign carriers for home country direct-dial service);
 
  •  amounts we charge to fixed-line competitors, mobile service providers and voice resellers as interconnection fees for using our international network in providing their services; and
 
  •  other revenues, including revenues from international calls placed from public telephones and international leased lines.
 
Outgoing calls made by customers in Korea (and by customers from foreign countries under our home country direct-dial service) are billed in accordance with our rate schedule for the country called, under which rates vary depending on the time of day when a call is placed. Incoming calls are billed by us to the relevant foreign carrier or administration at the applicable settlement rate specified under the relevant agreement with the foreign entity. International long-distance calls to and from the United States, Japan and China in the aggregate accounted for 47.7% of our total international long-distance call minutes in 2008. See “Item 4. Information on the Company — Item 4.B. Business Overview — Our Services — Telephone Services — Fixed-line Telephone Services.”
 
In 2007, we had international long-distance revenues of W432 billion, representing an increase of 11.9% compared to 2006 international long-distance revenues of W386 billion. Our international long-distance revenues increased in 2007 primarily due to an increase in the number of international long-distance call minutes in 2007 compared to 2006 resulting from an increase in traffic from specific service providers utilizing our international long-distance network as well as an increase in revenues from international calls made using our Internet phone services.
 
In 2008, we had international long-distance revenues of W442 billion, representing an increase of 2.3% compared to 2007 international long-distance revenues of W432 billion. Our international long-distance revenues increased in 2008 primarily due to an increase in the number of international long-distance call minutes in 2008 compared to 2007 resulting from an increase in traffic from specific service providers utilizing our international long-distance network as well as an increase in revenues from international calls made using our Internet phone services.
 
Land-to-mobile Interconnection Revenues.  When a landline user initiates a call to a mobile subscriber, we record the entire amount of the usage charges for these calls in land-to-mobile interconnection revenues and pay an interconnection charge to the relevant mobile service provider. See “Item 4. Information on the Company — Item 4.B. Business Overview — Revenues and Rates — Telephone Services — Interconnection.”
 
In 2007, we had land-to-mobile interconnection revenues of W1,588 billion, representing a decrease of 10.0% from 2006 interconnection revenues of W1,765 billion, primarily due to increased volume of calls between mobile subscribers, which in turn reduced volume of calls between landline users to mobile subscribers.


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In 2008, we had land-to-mobile interconnection revenues of W1,391 billion, representing a decrease of 12.4% from 2007 interconnection revenues of W1,588 billion, primarily due to increased volume of calls between mobile subscribers, which in turn reduced the volume of calls between landline users to mobile subscribers.
 
Internet Service Revenues
 
Broadband Internet access service accounted for 12.1% of our operating revenues in 2006, 11.1% in 2007 and 10.4% in 2008. Other Internet-related services include broadband Internet connection service to institutional customers under the “Kornet” brand name and services provided by our Internet data centers, Bizmeka and QOOK TV.
 
Broadband Internet Access Service Revenues.  Broadband Internet access service revenues include basic monthly charges for fixed-line broadband service and wireless LAN service, as well as applicable one-time installation fees. We do not charge usage fees to our subscribers of broadband Internet access service.
 
Broadband Internet access service revenues decreased by 3.5% to W2,074 billion in 2007 from W2,149 billion in 2006 primarily due to special discounts provided to long-term subscribers in 2007, which was offset in part by an increase in the number of subscribers.
 
Broadband Internet access service revenues decreased by 1.2% to W2,050 billion in 2008 from W2,074 billion in 2007, primarily due to special discounts offered to long-term subscribers and bundled products in 2008, which was offset in part by an increase in the number of subscribers.
 
Other Internet-related Service Revenues.  Other Internet-related service revenues increased by 31.7% to W424 billion in 2007 from W322 billion in 2006, primarily due to an increase in revenues related to our Internet data centers and Bizmeka service. Other Internet-related service revenues increased by 48.3% to W629 billion in 2008 from W424 billion in 2007 primarily due to a further increase in revenues related to our Internet data centers and Bizmeka service, as well as an increase in revenues from our IP-TV service.
 
Mobile Revenues
 
We derive revenues from mobile service principally from:
 
  •  initial subscription fees;
 
  •  monthly fees;
 
  •  usage charges for outgoing calls;
 
  •  usage charges for wireless data transmission;
 
  •  contents download fees; and
 
  •  value-added monthly service fees.
 
Prior to the merger of KTF into KT Corporation on June 1, 2009, we also generated operating revenues from mobile resale service through our air-time reselling arrangement with KTF.
 
Mobile service revenues increased by 6.6% to W5,875 billion in 2007 from W5,510 billion in 2006, primarily due to a 6.2% increase in the number of subscribers, including resale subscribers of KT Corporation, to 13.7 million as of December 31, 2007 from 12.9 million as of December 31, 2006. The average monthly revenue per subscriber of KTF increased to W39,852 in 2007 from W38,768 in 2006.
 
Mobile service revenues increased by 6.6% to W6,261 billion in 2008 from W5,875 billion in 2007, primarily due to a 4.7% increase in the number of subscribers, including resale subscribers of KT Corporation, to 14.4 million subscribers as of December 31, 2008 from 13.7 million subscribers as of December 31, 2007, as well as an increase in revenues from wireless data usage. The average monthly revenue per subscriber of KTF increased to W40,270 in 2008 from W39,852 in 2007.


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Sale of Goods
 
Our revenues from sale of goods are generated through sale of mobile handsets and specially designed phones for fixed-line services.
 
Revenues from sale of goods increased by 23.0% to W2,324 billion in 2007 from W1,889 billion in 2006. Revenues from sale of goods increased in 2007 due primarily to an increase in the number of HSDPA-based IMT-2000 service compatible handsets.
 
Revenues from sale of goods increased by 23.4% to W2,867 billion in 2008 from W2,324 billion in 2007, primarily due to an increase in the number of HSDPA-based IMT-2000 service compatible handsets.
 
Data Communications Revenues
 
Revenues from data communications service include basic monthly charges of leased lines based on their distance, the capacity of the line and the type of line provided, and applicable one-time installation fees, as well as revenues from our satellite service. Data communications service revenues decreased by 1.0% in 2007 to W1,271 billion from W1,284 billion in 2006 primarily as a result of increased competition among leased line service providers. Data communications service revenues increased by 5.1% in 2008 to W1,336 billion from W1,271 billion in 2007 due to an increase in demand for our virtual private network service.
 
Miscellaneous Revenues
 
Miscellaneous revenues consist primarily of revenues from information technology and network services and real estate development.
 
Revenues from miscellaneous services increased by 28.8% to W1,100 billion in 2007 from W854 billion in 2006 and increased further by 18.4% to W1,302 billion in 2008, primarily due to an increase in revenues from international roaming service, fees charged to voice resellers for using our international network and KT Capital, which offset a decrease in revenues from information technology and network services and real estate development.
 
Salaries and Related Costs
 
The principal components of salaries and related costs are salaries and wages, employee welfare expenses, severance indemnities and share-based payments. Employee welfare expenses include meal subsidies and commuting subsidies. The severance indemnities are a lump-sum amount paid to employees who have been employed by us for more than one year when they leave.
 
In 2007, salaries and related costs were W3,133 billion, representing a 4.7% increase from W2,993 billion in 2006, primarily due to an increase in provisions for severance indemnities resulting from an increase in the average salary rate compared to the prior year.
 
In 2008, salaries and related costs were W3,214 billion, representing a 2.6% increase from W3,133 billion in 2007, primarily as a result of an increase in salaries and wages resulting from an increase in the number of employees of our consolidated subsidiaries.
 
Wireline Communications.  In 2007, salaries and related costs increased by 3.4% to W2,672 billion from W2,585 billion in 2006, primarily as a result of an increase in provisions for severance indemnities. In 2008, salaries and related costs decreased by 0.9% to W2,649 billion from W2,672 billion in 2007, primarily as a result of a decrease in salaries and wages resulting from a decrease in the number of employees to 35,063 as of December 31, 2008 compared to 36,913 as of December 31, 2007.
 
Mobile Service.  In 2007, salaries and related costs increased by 6.4% to W230 billion from W216 billion in 2006, primarily as a result of an increase in the number of employees of KTF. In 2008, salaries and related costs increased by 3.1% to W237 billion from W230 billion in 2007, primarily as a result of a further increase in the number of employees of KTF.


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Depreciation and Amortization
 
In 2007, depreciation and amortization expense increased by 1.3% to W3,602 billion from W3,557 billion in 2006. Depreciation and amortization expense amounted to W3,630 billion in 2008, which represented a 0.8% increase from W3,602 billion in 2007.
 
Wireline Communications.  In 2007, depreciation and amortization expense increased by 0.7% to W2,135 billion from W2,121 billion in 2006 due primarily to an expansion of its network facilities. In 2008, depreciation and amortization expense increased by 3.3% to W2,205 billion from W2,135 billion in 2007 due primarily to an increase in assets with short useful lives.
 
Mobile Service.  In 2007, depreciation and amortization expense increased by 0.7% to W1,142 billion from W1,135 billion in 2006. In 2008, depreciation and amortization expense decreased by 2.1% to W1,118 billion from W1,142 billion in 2007.
 
Other Operating and Maintenance Expenses
 
The largest components of other operating and maintenance expenses are cost of goods sold, sales commission, commissions and cost of services, interconnection charges, promotion expenses and repairs and maintenance costs. The following table shows other operating and maintenance expenses broken down by major components and the percentage changes in these expenses for each of the years in the three-year period ended December 31, 2008.
 
                                         
    Year Ended December 31,     Percentage Changes  
    2006     2007     2008     2006 vs 2007     2007 vs 2008  
    (In billions of Won)  
 
Cost of goods sold
  W 1,682     W 1,912     W 2,367       13.7 %     23.8 %
Sales commission
    1,348       1,902       2,130       41.1       12.0  
Commissions and cost of services
    1,648       1,925       2,015       16.8       4.7  
Interconnection charge
    1,178       1,200       1,234       1.9       2.8  
Promotion expenses
    561       749       1,080       33.5       44.1  
Repairs and maintenance
    705       611       580       (13.3 )     (5.0 )
Miscellaneous expenses
    1,769       1,881       1,967       6.3       4.6  
                                         
Total
  W 8,891     W 10,180     W 11,373       14.5 %     11.7 %
                                         
 
Our cost of goods sold consists primarily of our sale of mobile handsets and specially designed phones for fixed-line services. In 2007, cost of goods sold increased by 13.7% to W1,912 billion from W1,682 billion in 2006 primarily as a result of an increase in the number of HSDPA-compatible handsets sold. In 2008, cost of goods sold increased by 23.8% to W2,367 billion from W1,912 billion in 2007 primarily as a result of an increase in the sales of HSDPA-compatible handsets and specially designed phones for fixed-line services.
 
Sales commission consists principally of commission related to procurement of mobile subscribers and mobile handset sales. In 2007, our sales commission increased by 41.1% to W1,902 billion from W1,348 billion in 2006, primarily due to an increase in the number of our SHOW subscribers as well as an increase in sales commission to mobile sales agents resulting primarily from an increase in sales volume of HSDPA-compatible handsets, which are more expensive than regular handsets. In 2008, our sales commission increased by 12.0% to W2,130 billion from W1,902 billion in 2007, primarily due to a further increase in the number of our SHOW subscribers as well as a further increase in sales commission to mobile sales agents resulting primarily from an increase in sales volume of HSDPA-compatible handsets.
 
Commissions and cost of services consist principally of payments for third-party outsourcing services, including commissions to the call center staff. In 2007, our commissions increased by 16.8% to W1,925 billion from W1,648 billion in 2006, primarily due to an increase in outsourcing costs related to call center services. In 2008, our commissions increased further by 4.7% to W2,015 billion from W1,925 billion in 2007, primarily due to outsourcing of activation and installation activities to third-parties.


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We recognize as an expense the interconnection payments to mobile service providers for calls from landline users and our mobile subscribers to our competitors’ mobile service subscribers. Our interconnection charges increased by 1.9% to W1,200 billion in 2007 from W1,178 billion in 2006 primarily due to an increase in the amount of call traffic to mobile subscribers. In 2008, our interconnection charges increased by 2.8% to W1,234 billion from W1,200 billion in 2007 primarily due to continued increase in the amount of call traffic to mobile subscribers. For a discussion of the interconnection payment calculation methodology, see “Item 4. Information on the Company — Item 4.B. Business Overview — Revenues and Rates — Telephone Services — Interconnection.”
 
Our promotion expenses consist primarily of handset subsidies. In 2007, our promotion expenses increased by 33.5% to W749 billion from W561 billion in 2006 primarily due to an increase in the sales volume of HSDPA-compatible handsets. In 2008, our promotion expenses increased by 44.1% to W1,080 billion from W749 billion in 2007 primarily due to further increase in the sales volume of HSDPA-compatible handsets.
 
In 2007, our repair and maintenance expenses decreased by 13.3% to W611 billion from W705 billion in 2006 primarily due to a decrease in repair and maintenance activities related to our broadband Internet network. In 2008, our repair and maintenance expenses decreased by 5.0% to W580 billion from W611 billion in 2007 primarily as a result of decrease in repair and maintenance activities related to our transmission network facilities.
 
Wireline Communications.  The largest components of other operating and maintenance expenses are sales commission, commissions, cost of services, interconnection payments for landline to mobile calls and cost of goods sold. In 2007, other operating and maintenance expenses increased by 5.6% to W5,696 billion from W5,394 billion in 2006. Other operating and maintenance expenses increased by 2.1% in 2008 to W5,817 billion from W5,696 billion in 2007.
 
Mobile Service.  The largest components of other operating and maintenance expenses are cost of handset sales, sales commissions, interconnection charges, commissions and promotion expenses. In 2007, other operating and maintenance expenses increased by 22.1% to W5,481 billion from W4,488 billion in 2006 primarily due to an increase in cost of handset sales and marketing expenses related to the promotion of SHOW services. In 2008, other operating and maintenance expenses increased by 19.3% to W6,537 billion from W5,481 billion in 2007 primarily due to increases in cost of handset sales, promotion expenses and sales commissions.
 
Operating Income
 
Operating income decreased by 26.8% in 2007 to W1,745 billion from W2,383 billion in 2006, as the increase in operating expenses more than offset the increase in operating revenues described above. Accordingly, our operating margin decreased to 9.4% in 2007 from 13.4% in 2006. Operating income further decreased by 18.2% to W1,428 billion in 2008 from W1,745 billion in 2007, as the increase in operating expenses more than offset the increase in operating revenues described above. Accordingly, our operating margin decreased to 7.3% in 2008 from 9.4% in 2007.
 
Wireline Communications.  In 2007, operating income decreased by 18.3% to W1,434 billion from W1,756 billion in 2006 as the increase in operating expenses more than offset the increase in operating revenues described above. Operating margin decreased to 12.0% in 2007 from 14.8% in 2006. In 2008, operating income further decreased by 22.3% to W1,113 billion from W1,434 billion in 2007 as the operating expenses increased while operating revenues decreased. Operating margin decreased to 9.4% in 2008 from 12.0% in 2007.
 
Mobile Service.  In 2007, operating income decreased by 36.0% to W441 billion from W689 billion in 2006 as the increase in operating expenses more than offset the increase in revenues described above. Operating margin decreased to 6.0% in 2007 from 10.6% in 2006. In 2008, operating income increased by 3.1% to W454 billion from W441 billion in 2007 as the increase in operating revenues described above was greater than the increase in operating expenses described above. Operating margin decreased to 5.4% in 2008 from 6.0% in 2007.


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Income Taxes
 
In 2007, our income tax expense was W357 billion and our effective tax rate was 24.6%, and we recognized tax credit of W121 billion. In 2008, our income tax expense was W168 billion and our effective tax rate was 24.6%, and we recognized tax credit of W203 billion in 2008.
 
We had net deferred income tax assets of W483 billion as of December 31, 2008.
 
Wireline Communications.  In 2007, income tax expense decreased by 14.1% to W293 billion from W341 billion in 2006, primarily due to a decrease in income before income tax expense to W1,275 billion from W1,574 billion in 2006. In 2008, income tax expense decreased by 62.3% to W110 billion from W293 billion in 2007, primarily due to a decrease in income before income tax expense to W560 billion from W1,275 billion in 2007.
 
Mobile Services.  In 2007, income tax expense decreased by 58.1% to W43 billion from W102 billion in 2006, primarily due to a decrease in income before income tax expense to W287 billion in 2007 from W514 billion in 2006. In 2008, income tax expense decreased by 49.1% to W22 billion from W43 billion in 2007, primarily due to a decrease in income before income tax expense to W186 billion from W287 billion in 2007.
 
Net Income
 
In 2007, our net income decreased by 22.4% to W1,171 billion from W1,510 billion in 2006 primarily as a result of a 26.8% decrease in operating income discussed above, a net loss on foreign exchange translation and transaction in 2007 compared to a net gain in 2006 and a decrease in net gain on disposal of available-for-sale securities, the effects of which were offset in part by a net gain on valuation and settlement of derivatives in 2007 compared to a net loss in 2006, a gain from discontinuing operations in 2007 compared to no such gain in 2006, an increase in interest income and a decrease in interest expenses.
 
Such factors were principally attributable to the following:
 
  •  We recorded a net loss on foreign exchange translation and transaction of W13 billion in 2007 compared to a net gain of W136 billion in 2006 primarily as a result of the depreciation of the Korean Won against the Dollar in 2007 compared to appreciation in 2006. In terms of the market average exchange rates announced by Seoul Money Brokerage Services, Ltd., the Won depreciated against the Dollar from W929.6 to US$1.00 as of December 29, 2006 to W938.2 to US$1.00 as of December 31, 2007.
 
  •  Our net gain on disposal of available-for-sale securities decreased by 88.4% in 2007 to W9 billion from W78 billion in 2006 primarily as a result of a decrease in disposal of such securities in 2007 compared to 2006.
 
  •  We recorded a net gain on valuation and settlement of derivatives of W23 billion in 2007 compared to a net loss of W95 billion in 2006 primarily resulting from the depreciation of the Korean Won against the Dollar in 2007 compared to appreciation in 2006.
 
  •  We recorded a gain of W74 billion in 2007 as non-operating revenues from discontinuing operations of Korea Telecom Philippines Inc. and Korea Telecom Venture Fund No. 1, primarily due to reversal of cumulative loss from such operations.
 
  •  Our interest income increased by 39.2% in 2007 to W156 billion from W112 billion in 2006 primarily as a result of an increase in our interest-earning assets, as well as a general increase in market interest rates in Korea in 2007. Our interest expenses decreased by 6.6% in 2007 to W466 billion from W499 billion in 2006 primarily as a result of a decrease in our borrowing amounts.
 
In 2008, our net income decreased by 56.2% to W513 billion from W1,171 billion in 2007 primarily as a result of a 18.2% decrease in operating income discussed above, an increase in net loss on foreign exchange translation and transaction and a decrease in reversal of accrued provisions, the effects of which were offset in part by a net gain on valuation and settlement of derivatives.


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Such factors were principally attributable to the following:
 
  •  We recorded a significant increase in net loss on foreign exchange translation and transaction to W758 billion in 2008 from W13 billion in 2007 primarily as a result of the depreciation of the Korean Won against the Dollar in 2008. Depreciation of the Won causes an increase in the amount of Won required by us to make interest and principal payments on our foreign currency-denominated debt, the costs of telecommunications equipment that we purchase from overseas sources and net settlement payments to foreign carriers and administrations. In terms of the market average exchange rate announced by Seoul Money Brokerage Services, Ltd., the Won depreciated against the Dollar from W938.2 to US$1.00 as of December 31, 2007 to W1,257.5 to US$1.00 as of December 31, 2008.
 
  •  We recorded a decrease of 92.0% in reversal of accrued provisions to W4 billion in 2008 from W51 billion in 2007 primarily as a result of a decrease in the amount of reversal of accrued provisions relating to points accrued under our KT membership point program.
 
These effects were partially offset by a significant increase in net gain on valuation and settlement of derivatives of W647 billion in 2008 compared to W23 billion in 2007, reflecting our decision to hedge against the depreciation of the Korean Won against the Dollar in 2008.
 
Wireline Communications.  In 2007, net income decreased by 20.4% in 2007 to W982 billion from W1,233 billion in 2006, and further decreased by 54.2% in 2008 to W450 billion from W982 billion in 2007 primarily as a result of the reasons discussed above.
 
Mobile Service.  In 2007, net income decreased by 40.7% to W244 billion from W412 billion in 2006 primarily as a result of a 36.0% decrease in operating income in 2007 discussed above. In 2008, net income decreased by 32.6% to W165 billion from W244 billion in 2007 primarily as a result of an increase in loss on equity method investments. KTF recorded a 480.5% increase in net loss on equity method investments to W105 billion in 2008 from net loss of W18 billion in 2007 primarily due to losses from KTF M&S Co., Ltd. and KTF Technologies Co., Ltd.
 
Inflation
 
We do not consider that inflation in Korea has had a material impact on our results of operations in recent years. Inflation in Korea was 2.2% in 2006, 2.5% in 2007 and 4.7% in 2008. See “Item 3. Key Information — Item 3.D. Risk Factors — Korea is our most important market, and our current business and future growth could be materially and adversely affected if economic conditions in Korea deteriorate.”
 
Item 5.B.   Liquidity and Capital Resources
 
The following table sets forth the summary of our cash flows determined in accordance with Korean GAAP for the periods indicated.
 
                         
    For the Years Ended December 31,
    2006   2007   2008
    (In billions of Won)
 
Net cash provided by operating activities
  W 5,714     W 4,265     W 2,919  
Net cash used in investing activities
    (3,061 )     (3,449 )     (3,531 )
Net cash provided by (used in) financing activities
    (2,367 )     (1,368 )     1,051  
Cash and cash equivalents at beginning of period
    1,547       1,829       1,385  
Cash and cash equivalents at end of period
    1,829       1,385       1,891  
Net increase (decrease) in cash and cash equivalents
    282       (444 )     506  
 
Capital Requirements
 
Historically, uses of cash and cash equivalents consisted principally of purchases of property, plant and equipment and other assets and repayments of borrowings. In recent years, we have also used cash for acquisition of treasury shares and shares of our affiliates and payment of retirement and severance benefits for early retirement


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programs. From time to time, we may also require capital for investments involving acquisitions and strategic relationships.
 
Net cash used in investing activities was W3,061 billion in 2006, W3,449 billion in 2007 and W3,531 billion in 2008, including additions to property, plants and equipment of W3,518 billion in 2006, W3,636 billion in 2007 and W3,362 billion in 2008.
 
In our financing activities, we used cash of W1,284 billion in 2006, W1,359 billion in 2007 and W2,147 billion in 2008 for repayment of current portion of bonds and long-term borrowings as well as W109 billion in 2006 and W413 billion in 2008 for repayment of short-term borrowings.
 
From time to time, we have also required capital needs for acquisition of treasury shares and shares of our affiliates and payment of retirement and severance benefits for early retirement programs. We spent W214 billion in 2006, W196 billion in 2007 and W74 billion in 2008 for acquisition of treasury shares. In addition, we spent W364 billion in 2006 to acquire additional equity interest in consolidated subsidiaries, including W358 billion to purchase 12,489,850 shares of KTF. We spent approximately W509 billion in the first half of 2009 to purchase and retire 13,124,000 treasury shares.
 
In connection with KTF’s merger into KT Corporation on June 1, 2009, we also spent an aggregate of W298 billion to purchase shares of KT Corporation and KTF properly submitted for appraisal, which are now held as treasury shares. Under Korean law, holders of shares of KT Corporation or KTF common stock who opposed the merger were entitled to exercise their appraisal rights to purchase their shares, which were set at W38,535 for each share of KT Corporation common stock properly submitted to KT Corporation for appraisal and W29,284 for each share of KTF common stock properly submitted to KTF for appraisal. The merger was consummated pursuant to a “comprehensive stock transfer” under Article 360-15 of the Korean Commercial Code, whereby KTF common stockholders received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock they owned. We delivered 700,108 shares of our newly issued common stock (par value W5,000) and 45,629,480 shares of our treasury shares (par value W5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger.
 
Payments of cash dividends amounted to W426 billion in 2006, W473 billion in 2007 and W409 billion in 2008.
 
We anticipate that capital expenditures, and, to a lesser extent, repayment of outstanding contractual obligations and commitments will represent the most significant use of funds for the next several years. We may also require capital for investments involving acquisitions and strategic relationships, as well as the purchase of additional treasury shares and shares of our affiliates.
 
We compete in the telecommunications sector in Korea, which is rapidly evolving. We also face increasing competition from new entrants to the market. We may need to incur additional capital expenditures to keep up with unexpected developments in rapidly evolving telecommunications technology. There can be no assurance that we will be able to secure funds on satisfactory terms from financial institutions or other sources that are sufficient for our unanticipated needs.
 
Payments of contractual obligations and commitments will also require considerable resources. In our ordinary course of business, we routinely enter into commercial commitments for various aspects of our operations, including repair and maintenance. As of December 31, 2008, we had various contractual obligations and commitments which are more fully disclosed in the notes to our consolidated financial statements.


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The following table sets forth selected information regarding our contractual obligations to make future payments as of December 31, 2008:
 
                                         
    Payments Due by Period  
          Less than
 		    1-3
 		    4-5
 		    After 5
 		 
Contractual Obligations(1)(2)
  Total     1 Year     Years     Years     Years  
    (In billions of Won)  
 
Long-term debt obligations (including current portion of long-term debt)
  W 9,431     W 1,441     W 3,777     W 1,970     W 2,243  
Capital lease obligations
    19       11       8       —       —  
Operating lease obligations
    1       1       —       —       —  
Severance payment obligations
    1,709       6       29       71       1,603  
Long-term accounts payable — others
    450       130       320       —       —  
                                         
Total
  W 11,610     W 1,589     W 4,134     W 2,041     W 3,846  
                                         
Estimate of interest payment based on contractual interest rates effective as of December 31, 2008
  W 1,929     W 492     W 688     W 364     W 385  
                                         
 
 
(1) Contractual obligations represent contractual liabilities as of the consolidated balance sheet date excluding refundable deposits for telephone installation and accruals for customer call bonus points, which do not have definitive payment schedules.
 
(2) Excluding a put and call combination contract we entered into with Woori Investment & Securities Co., Ltd. On December 26, 2008, Woori Investment & Securities, which acquired shares of the Korea Digital Satellite Broadcasting Co., Ltd. from JP Morgan Whitefriars Inc., and we entered into a put and call combination contract. Under this contract, we may exercise a call option to acquire 9.2 million shares of the Korea Digital Satellite Broadcasting from Woori Investment & Securities during the period from December 26, 2009 to December 26, 2011, and Woori Investment & Securities has the option to exercise a put option on such shares to us on December 26, 2011. The exercise price under the contract for both parties is W46 billion.
 
Capital Resources
 
We have traditionally met our working capital and other capital requirements principally from cash provided by operations, while raising the remainder of our requirements primarily through debt financing. Our major sources of cash have been net cash provided by operating activities, including net income, expenses not involving cash payments such as depreciation and amortization and net foreign currency translation loss (offset in large part by gain on valuation of derivatives), and proceeds from issuance of bonds and long-term borrowings. We expect that these sources will continue to be our principal sources of cash in the future. Net income was W1,510 billion in 2006, W1,171 billion in 2007 and W513 billion in 2008 due to the reasons discussed in Item 5.A. Operating Results. Depreciation and amortization remained relatively stable at W3,618 billion in 2006, W3,657 billion in 2007 and W3,703 billion in 2008 primarily reflecting our capital investment activities during the past three years. We recorded net foreign currency translation gain of W111 billion in 2006 compared to net foreign currency losses of W7 billion in 2007 and W762 billion in 2008, primarily reflecting fluctuation of the Won against the Dollar. Such loss on foreign currency translation in 2008 was offset in large part by gain on valuation of derivatives of W651 billion, reflecting our decision to hedge against the depreciation of the Korean Won against the Dollar in 2008. Aggregate cash proceeds from issuance of bonds and long-term borrowings were W285 billion in 2006, W878 billion in 2007 and W3,780 billion in 2008. On May 27, 2009, we issued W344 billion of 2.024% exchangeable bonds due 2014 to NTT DoCoMo. The bonds are exchangeable into common shares or ADRs of KT Corporation at W40,743 per share. A certain portion of the KTF shares owned by NTT DoCoMo were provided to us as proceeds for the issuance of the bonds.
 
We periodically adjust our long-term debt financing depending on changes in our capital requirements. For example, we significantly increased proceeds from issuance of bonds and long-term borrowings in 2008 primarily to repay W2,147 billion in current portion of bonds and long-term borrowings in 2008 as well as to procure capital


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relating to the merger of KTF into KT Corporation on June 1, 2009. In 2008, our proceeds from issuance of bonds were W2,406 billion and our proceeds from long-term borrowings were 1,374 billion.
 
We believe that we have sufficient working capital available to us for our current requirements and that we have a variety of alternatives available to us to satisfy our financial requirements to the extent that they are not met by funds generated by operations, including the issuance of debt securities and bank borrowings denominated in Won and various foreign currencies. For example, we updated our Medium Term Note program in June 2005 from US$1 billion to US$2 billion, of which US$700 million remained unused as of December 31, 2008. However, our ability to rely on some of these alternatives could be affected by factors such as the liquidity of the Korean and the global financial markets, prevailing interest rates, our credit rating and the Government’s policies regarding Won currency and foreign currency borrowings. Other factors which could materially affect our liquidity in the future include unanticipated increase in capital expenditures and decrease in cash provided by operations resulting from a significant decrease in demand for our services. We may also need to raise additional capital sooner than we expect in order to fund unanticipated investments and acquisitions.
 
Our total stockholders’ equity increased from W10,697 billion as of December 31, 2006 to W11,138 billion as of December 31, 2007 primarily as a result of net income in 2007, which was offset in part by dividend payments and acquisition of treasury shares. However, our total stockholders’ equity decreased from W11,138 billion as of December 31, 2007 to W11,088 billion as of December 31, 2008 primarily as a result of our dividend payments, appropriation of subsidiaries’ treasury shares and acquisition of treasury shares, which more than offset our net income in 2008.
 
Liquidity
 
We had a working capital (current assets minus current liabilities) surplus of W558 billion as of December 31, 2006, W564 billion as of December 31, 2007 and W1,833 billion as of December 31, 2008. The following table sets forth the summary of our significant current assets for the periods indicated.
 
                         
    As of December 31,
    2006   2007   2008
    (In billions of Won)
 
Cash and cash equivalents
  W 1,829     W 1,385     W 1,891  
Short-term investment assets
    671       460       417  
Accounts receivable — trade
    2,543       2,621       3,015  
Inventories
    237       299       425  
 
Our cash, cash equivalents and short-term investment assets maturing within one year totaled W2,500 billion as of December 31, 2006 and W1,845 billion as of December 31, 2007 and W2,308 billion as of December 31, 2008. Under Korean GAAP, bank deposits and all highly liquid temporary cash instruments within maturities of three months are considered as cash equivalents. Short-term investment assets primarily consist of time and trust deposits with maturities between four to twelve months and short-term loans and current portion of securities such as beneficiary certificates and available-for-sale securities.
 
The following table sets forth the summary of our significant current liabilities for the periods indicated:
 
                         
    As of December 31,
    2006   2007   2008
    (In billions of Won)
 
Accounts payable — trade
  W 773     W 1,020     W 834  
Short-term borrowings
    185       226       274  
Current portion of bonds and long-term borrowings
    1,353       1,020       1,440  
Accounts payable — other
    1,708       1,442       1,476  
Accrued expenses
    422       484       528  
 
As of December 31, 2008, we entered into various commitments with financial institutions totaling W2,879 billion and US$110 million. See Note 32 to the Consolidated Financial Statements. As of December 31,


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2008, W536 billion and US$63 million were outstanding under these facilities. We have not had, and do not believe that we will have, difficulty gaining access to short-term financing sufficient to meet our current requirements. We issued guarantees in favor of our consolidated subsidiaries’ indebtedness and contract performance of W10 billion as of December 31, 2008.
 
Capital Expenditures
 
Capital expenditures on property, plants and equipment in 2008 totaled W3,362 billion compared to W3,636 billion in 2007 and W3,518 billion in 2006.
 
Our current capital expenditure plan (including expenditures on property, plants and equipment) calls for the expenditure of approximately W3,200 billion in 2009. The principal components of our capital investment plans are:
 
  •  Approximately W913 billion in general expansion and modernization of our network infrastructure;
 
  •  Approximately W297 billion in upgrading our broadband network to enable FTTH connection;
 
  •  Approximately W790 billion in capital investments for IMT-2000 (W-CDMA) service;
 
  •  Approximately W53 billion in capital investments for WiBro service;
 
  •  Approximately W280 billion in capital investments for IP-TV service; and
 
  •  Approximately W119 billion in capital investments for development of services over Internet protocol.
 
Recent Accounting Pronouncements in Korean GAAP
 
Effective January 1, 2008, we adopted Statements of Korean Accounting Standard No. 25 “Consolidated Financial Statements.” The adoption of these standards did not have a significant impact on our consolidated financial statements. For the adoption of accounting standards applied in prior periods, see “— Item 5.A. Operating Results — Adoption of New Accounting Standards.”
 
U.S. GAAP Reconciliation
 
In 2006, we recorded net earnings of W1,329 billion under U.S. GAAP compared to net income (attributable to equity holders of the parent) of W1,292 billion under Korean GAAP, primarily because of difference in the treatment of depreciation and reversal of goodwill amortization relating to equity method investments. In 2007, we recorded net earnings of W1,069 billion under U.S. GAAP compared to net income (attributable to equity holders of the parent) of W1,056 billion under Korean GAAP, primarily because of difference in the treatment of depreciation, reversal of goodwill amortization relating to equity method investments and the timing of recognition of service installation fees. In 2008, we recorded net earnings of W518 billion under U.S. GAAP compared to net income (attributable to equity holders of the parent) of W450 billion under Korean GAAP, primarily because of difference in the treatment of depreciation and reversal of goodwill amortization relating to equity method investments.
 
Stockholders’ equity under U.S. GAAP is lower than under Korean GAAP by W2,700 billion as of December 31, 2007 and W2,598 billion as of December 31, 2008 primarily as a result of:
 
  •  the difference in the treatment of minority interests;
 
  •  the difference in the treatment of impairment loss relating to equity investees;
 
  •  the difference in the treatment of depreciation; and
 
  •  the difference in the treatment of deferred service installation fees,
 
which more than offset the effect of:
 
  •  other differences in the treatment of equity in earnings of equity method affiliates; and
 
  •  the aggregate effect of deferred income taxes recognized under U.S. GAAP.


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For further discussion of the principal differences between Korean GAAP and U.S. GAAP as they relate to us, see Note 38 to the Consolidated Financial Statements.
 
Recent Accounting Pronouncements in U.S. GAAP
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (SFAS No. 157) which provides a consistent definition of fair value which focuses on exit price and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. SFAS No. 157 requires expanded disclosures about fair value measurements and establishes a three-level hierarchy for fair value measurements based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The standard also requires that a company use its own nonperformance risk when measuring liabilities carried at fair value, including derivatives. In February 2008, the FASB approved a FASB Staff Position (FSP) that permits companies to partially defer the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FSP did not permit companies to defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually. SFAS No. 157 is effective for financial assets and financial liabilities and for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually for financial statements issued for fiscal years beginning after November 15, 2007. The provisions of SFAS No. 157 will be applied prospectively. We intend to defer adoption of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis and are currently evaluating the effects, if any, that SFAS No. 157 may have on our consolidated financial condition and results of operations.
 
In September 2006, the FASB ratified Emerging Issue Task Force (EITF) Issue No. 06-1, “Accounting for Consideration Given by a Service Provider to a Manufacturer or Reseller of Equipment Necessary for an End- Customer to Receive Service from the Service Provider” (EITF No. 06-1), which provides guidance regarding whether the consideration given by a service provider to a manufacturer or reseller of specialized equipment should be characterized as a reduction of revenue or as an expense. EITF No. 06-1 is effective for the first annual reporting period beginning after June 15, 2007. Entities are required to recognize the effects of applying this issue as a change in accounting principle through retrospective application to all prior periods unless it is impracticable to do so. We estimate that upon adoption, this guidance will not have a material effect on our consolidated financial condition and results of operations.
 
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities — including an Amendment of SFAS No. 115” (SFAS No. 159), which permits an entity to measure certain financial assets and financial liabilities at fair value that are not currently required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS No. 159 amends previous guidance to extend the use of the fair value option to available-for-sale and held-to-maturity securities. The Statement also establishes presentation and disclosure requirements to help financial statement users understand the effect of the election. SFAS No. 159 is effective as of the beginning of the first fiscal year beginning after November 15, 2007. We do not expect the adoption of this standard to have a material impact on our consolidated financial condition and results of operations.
 
In June 2007, the FASB ratified EITF Issue No. 07-3, “Accounting for Nonrefundable Payments for Goods or Services to Be Used in Future Research and Development Activities” (EITF 07-3), requiring that nonrefundable advance payments for future research and development activities be deferred and capitalized. Such amounts should be expensed as the related goods are delivered or the related services are performed. The Statement is effective for fiscal years beginning after December 15, 2007. We estimate that upon adoption, this guidance will not have a material effect on our consolidated financial condition and results of operations.
 
In June 2007, the FASB ratified EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards” (EITF 06-11), which requires entities to record to additional paid-in capital the tax benefits on dividends or dividend equivalents that are charged to retained earnings for certain share-based awards. In a share-based payment arrangement, employees may receive dividends or dividend equivalents on awards of


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nonvested equity shares, nonvested equity share units during the vesting period, and share options until the exercise date. Generally, the payment of such dividends can be treated as deductible compensation for tax purposes. The amount of tax benefits recognized in additional paid-in capital should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 is effective for fiscal years beginning after December 15, 2007. We estimate that upon adoption, this guidance will not have a material effect on our consolidated financial condition and results of operations.
 
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R)) which retained the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting, but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. SFAS No. 141(R) will require that: (1) for all business combinations, the acquirer records all assets and liabilities of the acquired business, including goodwill, generally at their fair values; (2) certain contingent assets and liabilities acquired be recognized at their fair values on the acquisition date; (3) contingent consideration be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settled; (4) acquisition-related transaction and restructuring costs be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; (5) in step acquisitions, previous equity interests in an acquiree held prior to obtaining control be re-measured to their acquisition-date fair values, with any gain or loss recognized in earnings; and (6) when making adjustments to finalize initial accounting, companies revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they had been recorded on the acquisition date. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of this statement should also apply the provisions of SFAS No. 141(R). This standard will be applied to all future business combinations after December 31, 2008.
 
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51” (SFAS No. 160) which amends ARB 51 to establish new standards that will govern the accounting for and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Also, SFAS No. 160 requires that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the consolidated financial statements; (2) losses be allocated to the noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; and, (4) upon a loss of control, any gain or loss on the interest sold be recognized in earnings. SFAS No. 160 is effective on a prospective basis for all fiscal years beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. We are currently evaluating the effects, if any, that SFAS No. 160 may have on our consolidated financial condition and results of operations.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (SFAS No. 161), that expands the disclosure requirements of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133). SFAS No. 161 requires additional disclosures regarding: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. In addition, SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives described in the context of an entity’s risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related contingent features in derivative instruments. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. We anticipate that the adoption of this statement will have a material effect on our consolidated financial position and results of operations.
 
In April 2008, the FASB issued FSP FAS 142-3, “Determining of the Useful Life of Intangible Assets,” (FSP FAS 142-3) to improve the consistency between the useful life of a recognized intangible asset under


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SFAS No. 142, “Goodwill and Other Intangible Assets,” (SFAS No. 142) and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other U.S. GAAP standards. FSP FAS 142-3 establishes additional factors to be considered by an entity in developing assumptions about renewal or extension used to determine the useful life of an intangible asset recognized under SFAS No. 142. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We will adopt FSP FAS 142-3 effective January 1, 2009. We anticipate that the adoption of this statement will have a material effect on our financial position and results of operations.
 
In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement),” (FSP APB 14-1) which specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the issuer’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We are currently evaluating the effects, if any, which FSP APB 14-1 may have on our consolidated financial condition and results of operations.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162) that is intended to improve financial reporting by identifying a consistent framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS No. 162 is effective 60 days following the Securities and Exchanges Commission’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”
 
In June 2008, the EITF issued EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities,” (EITF No. 03-6-1). The FASB concluded that all unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. Early adoption is prohibited. We are currently evaluating the effects, if any, which EITF No. 03-6-1 may have on our consolidated financial condition and results of operations.
 
In September 2008, the EITF issued EITF No. 08-5, “Issuer’s Accounting for Liabilities at Fair Value with a Third-Party Credit Enhancement” (EITF No. 08-5). EITF No. 08-5 states that the issuer of debt with a third-party credit enhancement that is inseparable from the debt instrument shall not include the effect of the credit enhancement in the fair value measurement of liability. EITF No. 08-5 is effective on a prospective basis for periods ending after December 15, 2008. We are currently evaluating the effects, if any, which EITF No. 08-5 may have on our consolidated financial condition and results of operations.
 
In November 2008, the EITF issued EITF No. 08-6, “Equity Method Investment Accounting Considerations” (EITF No. 08-6) that addresses: (1) determination of the initial carrying value of an equity method investment; (2) performance of impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment; (3) treatment of equity method investee’s issuance of shares; and (4) treatment of a change in investment from equity method to cost method. EITF No. 08-6 is effective in fiscal years beginning on or after December 15, 2008 and their interim periods. EITF No. 08-6 is applied prospectively with prohibition on early application. We are currently evaluating the effects, if any, which EITF No. 08-6 may have on our consolidated financial condition and results of operations.
 
In November 2008, the EITF issued EITF No. 08-7, “Accounting for Defensive Intangible Assets,” (EITF No. 08-7) which applies to defensive intangible assets. Defensive intangible assets are acquired intangible assets that the acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As these assets are separately identifiable, EITF No. 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value in accordance with SAFS No. 141(R) and SFAS No. 157. EITF No. 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008.


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In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1), to provide guidance on an employer’s disclosure relating to plan assets of a defined benefit pension or other post-retirement plan. FSP FAS 132(R)-1 provides objectives for the disclosure relating to the employer’s (1) investment policies and strategies; (2) categories of plan assets; (3) fair value measurements; and (4) significant concentration of risks. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. Upon initial application, the provisions of FSP FAS 132(R)-1 are not required for earlier periods that are presented for comparative purposes. Earlier adoption is permitted. Because this impacts the disclosure and not the accounting treatment for benefit and other post-retirement plans, we believe the adoption of FSP FAS 132(R)-1 will not have a material effect on our consolidated financial condition and results of operations.
 
In April 2009, the FASB issued three staff positions intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of debt securities. FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions that are not Orderly,” provides guidelines for determining fair value measurements consistently with the principles presented in SFAS No. 157 when the volume and level of activity for the asset or liability has significantly decreased, and provides guidance on identifying circumstances that indicate that a transaction is not orderly. FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” expands the frequency of fair value disclosures for publicly traded entities relating to the fair value of certain financial instruments not recognized at fair value in the statement of financial position to include interim reporting periods. FSP FAS 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” amends the other-than-temporary impairment guidance for debt securities and modifies the presentation and disclosure requirements for all other-than-temporary impairments. The staff positions are effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted. We anticipate that the adoption of these staff positions will have a material effect on our consolidated financial position and results of operations.
 
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (SFAS No. 165) addressing accounting and disclosure requirements related to subsequent events. SFAS No. 165 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the entity’s expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. Entities will be required to disclose the date through which subsequent events have been evaluated. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. We believe the adoption of SFAS No. 165 will not have a material effect on our consolidated financial position and results of operations.
 
Item 5.C.   Research and Development, Patents and Licenses, Etc.
 
In order to maintain our leadership in the converging telecommunications business environment and develop additional platforms, services and applications, we operate:
 
  •  a future technology laboratory;
 
  •  a platform laboratory;
 
  •  an infrastructure laboratory;
 
  •  a marketing laboratory; and
 
  •  a network technology laboratory.
 
As of December 31, 2008, these research centers employed a total of 692 researchers and employees, of whom 122 had doctoral degrees and 417 had master’s degrees. As of December 31, 2008, KT Corporation had 3,475 registered patents and 4,063 patents pending domestically and had 286 registered patents and 775 patents pending internationally.
 
Under the Telecommunications Basic Law, network service providers and specific service providers are obligated to contribute 0.75% and 0.5% of their total annual revenues, respectively, to the Institute of Information Technology Advancement, which uses the fund to promote research and development in information technology.


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We make contributions as a network service provider and specific service provider to the Korean government (Information and Telecommunication Improvement Fund), the Korea Electronic Telecommunication Research Institute and other research and development institutes. Including such contributions, total expenditures on research and development were W282 billion in 2006, W291 billion in 2007 and W283 billion in 2008.
 
In recent years, we have focused our research and development efforts in the following areas:
 
  •  fixed mobile multimedia convergence solutions including WiBro, femtocell mobile IP-TV, mobile VoIP;
 
  •  VoIP solutions and related value-added services;
 
  •  future network structures and solutions;
 
  •  next generation wireless Internet evolution technologies such as WiBro, HSDPA and femtocell;
 
  •  platform and application services for IP-TV services; and
 
  •  network technologies for backbone and access network including FTTH solutions.
 
Item 5.D.   Trend Information
 
These matters are discussed under Item 5.A. above where relevant.
 
Item 5.E.   Off-balance Sheet Arrangements
 
These matters are discussed under Item 5.B. above where relevant.
 
Item 5.F.   Tabular Disclosure of Contractual Obligations
 
These matters are discussed under Item 5.B. above where relevant.
 
Item 5.G.   Safe Harbor
 
See “Item 3. Key Information — Item 3.D. Risk Factors — Forward-looking statements may prove to be inaccurate.”
 
Item 6.   Directors, Senior Management and Employees
 
Item 6.A.   Directors and Senior Management
 
Directors
 
Our board of directors has the ultimate responsibility for the administration of our affairs. Our articles of incorporation provide for a board of directors consisting of:
 
  •  up to three standing directors, including the President; and
 
  •  up to eight outside directors.
 
All of our directors are elected at the general shareholders’ meeting. If the total assets of a company listed on the KRX KOSPI Market as of the end of the preceding year exceeds W2,000 billion, which is the case with us, the Commercial Code of Korea requires such company to have more than three outside directors with at least half of its total directors being outside directors. The term of office for all directors is up to three years, but the term is extended to the close of the annual shareholders’ meeting convened with respect to the last fiscal year of the term.
 
Under the Commercial Code of Korea, we must establish a committee to nominate candidates for outside directors within the board of directors, and outside directors must make up not less than half of the total members of the outside director candidate nominating committee. According to our articles of incorporation, such committee must consist of one standing director and all of our outside directors. Our Outside Director Candidate Nominating Committee nominates outside director candidates for appointment at the general shareholders’ meeting.


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One-third of the outside directors must be up for election in any given year. Upon the request of any director, a meeting of the board of directors will be assembled. The chairman of the board of directors is elected from among the outside directors by a resolution of the board of directors. The term of office of the chairman is one year.
 
Our current directors are as follows:
 
                     
                Expiration
        Director
 		      of Term
Name
  Position   Since   Date of Birth   of Office
 
Standing Directors(1)
                   
Suk-Chae Lee
  Chief Executive Officer   January 2009   September 11, 1945     2012  
Sang-Hoon Lee
  President   March 2009   January 24, 1955     2010  
Hyun-Myung Pyo
  Senior Executive Vice President   March 2009   October 21, 1958     2010  
Outside Directors(1)
                   
E. Han Kim
  Chairperson of the Board of Directors, Chair Professor, University of Michigan   March 2009   May 27, 1946     2012  
Jeong-Suk Koh
  Chief Executive Officer of Ilshin Investment Co., Ltd.   February 2008   May 22, 1957     2011  
Si-Chin Kang
  Auditor, Catholic Education Foundation   January 2009   September 15, 1947     2010  
In-Man Song
  Professor, Sungkyunkwan University   January 2009   August 28, 1950     2010  
Joon Park
  Professor, Seoul National University   January 2009   October 30, 1954     2011  
Choon-Ho Lee
  Professor, Inha University   March 2009   July 22, 1945     2012  
Jeung-Soo Huh
  Professor, Kyungpook National University   March 2009   June 10, 1960     2012  
 
 
(1) All of our standing and outside directors beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.
 
Suk-Chae Lee is a standing director and has served as our chief executive officer since January 2009. Prior to joining us, he served as a senior advisor of Bae, Kim & Lee LLC, chief economic advisor to the President of Korea, Minister of Information and Telecommunications and Vice Minister of Finance and Economy. Mr. Lee holds a bachelor’s degree in economics from Seoul National University, an M.A. degree in political economy from Boston University and a Ph.D. degree in economics from Boston University.
 
Sang-Hoon Lee is a standing director and has served as the president of the Enterprise Customer Group since March 2009. He has previously served as senior executive vice president of the Business Development Group and executive vice president of the Business Marketing Unit. Mr. Lee holds a bachelor’s degree in engineering from Seoul National University and both his master’s degree and Ph.D degree in electric engineering from University of Pennsylvania.
 
Hyun-Myung Pyo is a standing director and has served as the senior executive vice president of the Corporate Center since March 2009. He has previously served as senior vice president of the Wibro Business Unit and head of the Marketing Group of KTF. Mr. Pyo holds a bachelor’s degree in electronic engineering from Korea University and both his graduate and Ph.D degrees in electronic engineering from Korea University.
 
E. Han Kim has served as our outside director since March 2009. He is currently a chair professor of business administration of University of Michigan and has served as outside director of POSCO and Hana Bank. Mr. Kim holds a bachelor’s degree from Rochester University, a master’s degree in business administration from Cornell University and a Ph.D. degree in finance from State University of New York-Buffalo.
 
Jeong-Suk Koh has served as our outside director since February 2008. He is currently chief executive officer of Ilshin Investment Co., Ltd. and was formerly a management consultant at McKinsey & Company. Mr. Koh holds a bachelor’s degree in business administration from Seoul National University, a master’s degree in management science from Korea Advanced Institute of Science and Technology and a doctoral degree from Massachusetts Institute of Technology.
 
Si-Chin Kang was elected as our outside director in January 2009. He is currently an auditor of the Catholic Education Foundation. Mr. Kang previously served as an auditor of the Korean Institute of Certified Public Accountants and the vice president of Samil PricewaterhouseCoopers. Mr. Kang holds a bachelor’s degree in


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business administration from Busan National University and a masters degree in business administration from Korea University.
 
In-Man Song has served as our outside director since January 2009. He is currently a professor at the Graduate School of Business of Sungkyunkwan University and the chairman of Internal Control over Financial Reporting Committee in Korea. Mr. Song previously served as the president of the Korean Accounting Association and a board member of the Korean Accounting Standard Board. Mr. Song holds a bachelor’s degree in business administration from Sungkyunkwan University and has received both his graduate and Ph.D. degrees in accounting from University of Wisconsin-Madison.
 
Joon Park was elected as our outside director in January 2009. He is currently a professor at the Seoul National University School of Law. Mr. Park holds a bachelor’s degree in law from Seoul National University and an LL.M. degree in law from Harvard Law School.
 
Choon-Ho Lee has served as our outside director since March 2009. She is currently a professor of politics and foreign affairs of Inha University and has served as a director of the board of Seoul Foundation for Arts and Culture. Ms. Lee holds a bachelor’s degree in politics and foreign affairs from Ewha Womans University and has received both her graduate and Ph.D. degrees in politics and foreign affairs from Ewha Womans University.
 
Jeung-Soo Huh has served as our outside director since March 2009. He is currently a professor of material science and metallurgical engineering of Kyungpook National University and was formerly a visiting professor at Manchester University. Mr. Huh holds a bachelor’s degree in physical metallurgy from Seoul National University, a graduate degree in material engineering from Seoul National University and a Ph.D. degree in material engineering from Massachusetts Institute of Technology.
 
For the purposes of the Korean Commercial Code, our President is deemed to be the “representative director” who is authorized to perform all judicial and extra-judicial acts relating to our business. Our shareholders elect the President in accordance with the provisions of the Commercial Code and our articles of incorporation. A candidate for President is nominated by a committee formed for that purpose. The president candidate nominating committee consists of:
 
  •  all of our outside directors;
 
  •  one person who is designated by the board of directors from among the ex-presidents; and
 
  •  one civilian designated by outside directors, except former and present officers and employees of telecom carriers competing with us, their affiliates, our officers and employees and government officers.
 
Under our articles of incorporation, the president candidate nominating committee must submit a draft management contract between the company and the candidate covering the management objectives of the company to the shareholders’ meeting at the time of nomination of the candidate to the meeting. When the draft management contract has been approved at the shareholders’ meeting, the company enters into such management contract with the president. In such case, the chairman of the president candidate nominating committee, on behalf of the company, signs the management contract.
 
The board of directors may conduct performance review discussions to determine if the new president performed his or her duties under the management contract, or hire a professional evaluation agency for such purpose. If the board of directors determines, based on the results of the performance review, that the new president has failed to achieve the management goals, it may propose to dismiss the president at a shareholders’ meeting.
 
Senior Management
 
Our executive officers consist of President, Senior Executive Vice President, Executive Vice Presidents and Senior Vice Presidents. The executive officers other than the standing directors are appointed by the President and may serve up to three years.


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The current executive officers are as follows:
 
                         
        Current
 		       
        Position Held
 		  Years with
 		   
Name(1)
  Title and Responsibilities   Since   the Company   Age
 
Ho-Ick Suk
  Vice Chairman, Corporate Relations Group   June 2009     —       56  
Woo-Sik Kim
  President, Personal Customer Group   June 2009     30       55  
Tae-Suk Roh
  President, Home Customer Group   January 2009     30       54  
Sang-Hoon Lee
  President, Enterprise Customer Group   January 2009     18       54  
Seong-Bok Jeong
  President, Legal & Ethics Office   January 2009     —       54  
Doo-Whan Choi
  President, Service Design Group   December 2006     18       55  
Sam-Soo Pyo
  President, Technology Strategy Office   March 2009     —       55  
Hyun-Myung Pyo
  Senior Executive Vice President, Corporate Center   February 2009     3       50  
Yu-Yeol Seo
  Senior Executive Vice President, Group Shared Service Group   January 2009     31       52  
Sung-Man Kim
  Senior Executive Vice President, Network Group   January 2009     26       52  
Soo-Ho Maeng
  Senior Executive Vice President, Global Business Unit   January 2009     19       49  
Young-Whan Kim
  Senior Executive Vice President, Corporate Relations Office   January 2009     26       51  
Han-Suk Kim
  Senior Executive Vice President, Human Resource Office   January 2009     19       53  
Hyun-Mi Yang
  Executive Vice President, Personal Customer Strategy Business Unit   June 2009     —       45  
Tae Jin Kang
  Executive Vice President, Service Incubation Office   January 2009     1       49  
Jong-Ryul Seo
  Executive Vice President, Media Business Unit   January 2009     —       49  
Tae-Gyoo Lee
  Executive Vice President, Economics & Management Research Laboratory   June 2008     1       45  
Kyung-Soo Lee
  Executive Vice President, Convergence WIBRO Business Unit   January 2009     17       49  
Yeon-Hak Kim
  Executive Vice President, Financial Management Office   January 2009     22       47  
Tae-Yol Yoo
  Executive Vice President, Economics & Management Research Laboratory   January 2009     25       49  
Gil-Joo Lee
  Executive Vice President, Public Relations Office   November 2006     33       53  
Sang-Hong Lee
  Executive Vice President, Central R&D Laboratory   January 2009     25       53  
Jeong-Tae Park
  Executive Vice President, Purchasing Strategy Office   January 2009     25       49  
Tae-Il Park
  Executive Vice President, Network Operation Business Unit   September 2005     31       53  
In-Sung Jeon
  Executive Vice President, Real Assets Management Office   January 2009     29       50  
Gyoo-Taek Nam
  Executive Vice President, Integrated Image Department   January 2009     23       48  
Sang-Heon Song
  Senior Vice President, Customer Support Business Unit   January 2009     29       50  
Young-Hee Lee
  Senior Vice President, Southern Seoul Corporate Business Center   January 2009     28       51  
Deok-Rae Lim
  Senior Vice President, Cooperation TFT   January 2009     28       54  
Tae-Poong Kang
  Senior Vice President, Northern Seoul Marketing Center   January 2009     29       54  
Kyung-Choon Shin
  Senior Vice President, Southern Seoul Marketing Center   January 2009     29       54  
Dae-Jeon Roh
  Senior Vice President, Northern Gyeonggi Marketing Center   January 2009     25       50  
Ok-Kie Lee
  Senior Vice President, Southern Gyeonggi Marketing Center   May 2009     25       50  
Ouk-Jung Hwang
  Senior Vice President, Incheon Marketing Center   January 2009     34       54  
In-Kyu Park
  Senior Vice President, Daegu Marketing Center   January 2009     24       53  
Jong-Jin Chae
  Senior Vice President, Small & Medium Business Business Unit   January 2009     23       47  
Seok-Joon Park
  Senior Vice President, Northern Seoul Corporate Business Center   January 2009     28       51  
Kie-You Song
  Senior Vice President, Southern Gyeonggi Corporate Business Center   January 2009     19       49  
Yoon-Hak Bang
  Senior Vice President, Daejeon Corporate Business Center   January 2009     25       51  
Sung-Ho Myung
  Senior Vice President, Jeonbuk Corporate Business Center   January 2009     25       51  
Young-Goon Yoo
  Senior Vice President, Gangwon Corporate Business Center   January 2009     26       53  
Byoung-Seon Jeon
  Senior Vice President, Chungbuk Corporate Business Center   January 2009     10       48  
Dong-Myun Lee
  Senior Vice President, Service Support Office   January 2009     18       46  
Dong-Hoon Han
  Senior Vice President, Technology Support Business Unit   November 2006     28       49  
Sun-Cheol Gweon
  Senior Vice President, Network R&D Laboratory   January 2009     18       47  


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        Current
 		       
        Position Held
 		  Years with
 		   
Name(1)
  Title and Responsibilities   Since   the Company   Age
 
Ju-Ouk Uhm
  Senior Vice President, Gangbuk Network O&M Center   January 2009     24       49  
Il-Sung Nam
  Senior Vice President, Busan Network O&M Center   January 2009     26       54  
Dong-Hyun Han
  Senior Vice President, CC Strategic Investment Department   January 2009     1       41  
Jae-Geun Choi
  Senior Vice President, Legal Affairs TFT   March 2009     —       47  
Kyung-Lim Yoon
  Senior Vice President, Contents TFT   January 2009     3       45  
Sun-Jong Heo
  Senior Vice President, Corporate Relations Office   July 2006     3       50  
Sang-Jik Lee
  Senior Vice President, Legal Affairs Department   June 2009     —       43  
Dae-San Lee
  Senior Vice President, Mobile Network Business Unit   June 2009     22       48  
Jong-Seog Koh
  Senior Vice President, Mobile R&D Laboratory   June 2009     20       49  
Tae-Hyo Ahn
  Senior Vice President, Group Strategy CFT Corporate Strategy Department 2   June 2009     24       47  
Hyun-Mun Lim
  Senior Vice President, Personal Marketing Strategy Department   June 2009     22       48  
Seok-Gyoon Na
  Senior Vice President, Personal Customer Business Business Unit   June 2009     12       50  
Bong-Goon Kwak
  Senior Vice President, Mobile Data Business Business Unit   June 2009     24       49  
Seong-Mook Oh
  Senior Vice President, Metropolitan Mobile Network O&M Center   June 2009     23       48  
Jong-Hack Kang
  Senior Vice President, KT Sports   June 2009     24       50  
Choong-Seop Lee
  Senior Vice President, Corporate Relations Department 2   June 2009     13       50  
Jung-Sik Suh
  Senior Vice President, Group Strategy CFT Corporate Strategy Department 1   January 2009     2       39  
Hyung-Joon Kim
  Senior Vice President, CC Corporate Planning Department   March 2009     15       45  
Sang-Cheon Shim
  Senior Vice President, CC Corporate Synergy Department   January 2009     23       49  
Hyun-Mo Gu
  Senior Vice President, CC Post Merger Integration Department   December 2007     22       45  
Yoon-Young Park
  Senior Vice President, Home Customer Business Unit   January 2009     17       47  
Kwan-Young Jung
  Senior Vice President, Youngdong Division   March 2009     23       48  
Sang-Choon Kim
  Senior Vice President, Busan Marketing Center   January 2009     33       52  
Ho-Soo Song
  Senior Vice President, Gyeongnam Marketing Center   January 2009     33       53  
Ouk-Young Yoo
  Senior Vice President, Gyeongbuk Marketing Center   January 2009     34       52  
Yoon-Sik Jung
  Senior Vice President, Enterprise Product Strategy Department   May 2009     1       44  
Seung-Dong Gye
  Senior Vice President, Enterprise Customer Business Unit   January 2009     32       50  
Kyung-Seok Park
  Senior Vice President, IMO Business Unit   December 2007     23       51  
Hyung-Oak Park
  Senior Vice President, Gwangju Corporate Business Center   May 2009     36       54  
Yung-Sig Yoon
  Senior Vice President, Gangnam Network O&M Center   January 2009     25       52  
Ju-Kyo Shim
  Senior Vice President, Jungbu Network O&M Center   May 2009     28       50  
Chan-Kyung Park
  Senior Vice President, Daegu Network O&M Center   January 2009     4       50  
Young-Lyoul Lee
  Senior Vice President, Media Advertisement & Commerce Department   January 2009     2       46  
Pan-Sik Shin
  Senior Vice President, Global Investment Department   November 2006     23       50  
Won-Sik Han
  Senior Vice President, Financial Management Office   January 2009     24       48  
Bum-Joon Kim
  Senior Vice President, Investor Relations Department   September 2005     4       44  
Jung-Won Park
  Senior Vice President, Strategic Purchasing Department   January 2009     23       49  
 
 
(1) All of our executive officers beneficially own less than one percent of the issued shares of KT Corporation in the aggregate.
 
Item 6.B.   Compensation
 
Compensation of Directors and Executive Officers
 
In 2008, the total amount of salaries, bonuses (including long-term performance-based incentives for standing directors) and allowances paid and accrued to all standing directors and executive officers of KT Corporation for services in all capacities was approximately W14 billion. The aggregate amount accrued by us to provide retirement benefits to such persons was W1.9 billion in 2008. Outside directors do not receive salaries or

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retirement and severance benefits, but we paid long-term performance-based incentives as well as expenses related to the execution of their duties in 2008. Starting in 2009, we no longer pay long-term performance-based incentives to our outside directors.
 
The chairman of the president nominating committee enters into an employment agreement on our behalf with our President. The employment agreement sets certain management targets to be achieved by the President, including a target for the amount of “EBITDA” to be achieved in each year. EBITDA is defined as earnings before interest, tax, depreciation and amortization. Failure to achieve certain thresholds below the targets will allow the board of directors to take actions with respect to the President’s employment, including proposing to the shareholders’ meeting an early termination of his employment. In addition, the head of each of our functional departments, the president of each of our subsidiaries and the heads of each regional head office have entered into employment agreements with the President that provides for similar management targets to be achieved by each of our departments, subsidiaries and regional head offices.
 
Item 6.C.   Board Practices
 
As of December 31, 2008, none of our standing or outside directors maintained directors’ service contracts with us or with any of our subsidiaries providing for benefits upon termination of employment.
 
Outside Director Candidate Nominating Committee
 
The Outside Director Candidate Nominating Committee consists of one standing director and all of our outside directors, other than for election of an outside director resulting from the expiration of the term of the office, in which case such outside director whose term is expiring may not be a member of the committee. The committee’s duties include reviewing the qualifications of potential candidates and proposing nominees to serve as outside directors on our board of directors. The committee members’ terms expire immediately after the adjournment of the shareholders’ meeting where the outside directors are elected.
 
Evaluation and Compensation Committee
 
The Evaluation and Compensation Committee is currently comprised of four outside directors, Jeong-Suk Koh, In-Man Song, Choon-Ho Lee and Jeung-Soo Huh. The chairman is Jeong-Suk Koh. The committee’s duties include the appointment of an outside management evaluation consulting firm, prior review of the President’s management goals, terms and conditions proposed for inclusion in the employment contract of the President, including, but not limited to, determining whether the President has achieved the management goals, and the determination of compensation of the President and the standing directors. The committee members are elected by the board after the closing of the annual meeting, and the term of the committee members is for one year.
 
Executive Committee
 
The Executive Committee is currently comprised of all of the standing directors. The chairman is Suk-Chae Lee. The committee’s duties include the establishment and management of branch offices, the acquisition and disposal of real estate having market value between W15 billion to W30 billion, making investments and providing guarantees up to W30 billion, the disposal and sale of stocks of our subsidiaries, which stocks have a market value of between W15 billion and W30 billion, provided that no change of control with respect to such subsidiary occurs as a result of such disposal or sale, the authorization of charitable contributions between W100 million to W1 billion and the issuance of certain debt securities.
 
Related-Party Transactions Committee
 
The Related-Party Transactions Committee is currently comprised of four outside directors, Choon-Ho Lee, Joon Park, Jeung-Soo Huh and Jeong-Suk Koh. The chairman is Joon Park. This committee reviews transactions between KT Corporation and its subsidiaries and ensures compliance with applicable antitrust laws. The committee members are elected by the board after the annual meeting, and the term of the committee members is for one year.


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Audit Committee
 
Under the Commercial Code of Korea, we are required to establish an audit committee comprised of three or more outside directors comprised of at least two-thirds of the audit committee members. Audit Committee members must also meet the applicable independence criteria set forth under the rules and regulations of the Sarbanes-Oxley Act of 2002. The committee is currently comprised of E. Han Kim, In-Man Song, Joon Park, and Si-Chin Kang. The chairman is Si-Chin Kang. Members of the committee are elected by our shareholders at the shareholders’ meeting. Our internal and external auditors report directly to the committee.
 
The duties of the committee include:
 
  •  engaging independent auditors;
 
  •  evaluating performance of independent auditors;
 
  •  approving services to be provided by the independent auditors;
 
  •  reviewing annual financial statements;
 
  •  reviewing audit results and reports;
 
  •  reviewing and evaluating our system of internal controls and policies; and
 
  •  examining improprieties or suspected improprieties.
 
In addition, in connection with the shareholders’ meeting, the committee examines the agenda for, and financial statement and other reports to be submitted by the board of directors, at each shareholders’ meeting.
 
Corporate Governance Committee
 
We maintain a Corporate Governance Committee formed on a temporary basis in May 2009 to prepare for our merger with KTF and recommend to the board revisions to the corporate governance practices applicable to the merged company. The Corporate Governance Committee is comprised of five outside directors and one standing director, Jeong-Suk Koh, Si-Chin Kang, Joon Park, Choon-Ho Lee, E. Han Kim and Hyun-Myung Pyo. The chairman is E. Han Kim. The committee is expected to dissolve in December 2009.
 
Item 6.D.   Employees
 
KT Corporation had 35,063 employees as of December 31, 2008, compared to 36,913 employees as of December 31, 2007 and 37,514 employees as of December 31, 2006. KTF had 2,560 employees as of December 31, 2008, compared to 2,521 employees as of December 31, 2007 and 2,505 employees as of December 31, 2006.
 
The Voluntary Early Retirement Programs
 
We sponsor voluntary early retirement programs where we provide additional financial incentives for our employees to retire early, as part of our efforts to improve operational efficiencies. In 2006, 564 employees retired under KT Corporation’s voluntary early retirement plan. Another 538 employees and 1,331 employees retired under KT Corporation’s voluntary early retirement plan in 2007 and 2008, respectively.
 
Labor Relations
 
We consider our current relations with our work force to be good. However, in the past, we have experienced opposition from our labor union for our strategy of restructuring to improve our efficiency and profitability by disposing of non-core businesses and reducing our employee base.
 
Under Korean labor law, our employees are permitted to strike. However, because the maintenance of our network is in the public interest, the Government has the authority to mediate or arbitrate any strike, as well as any disagreement involving the collective bargaining process. Criminal proceedings may be brought against any party refusing Government mediation or arbitration. The current collective bargaining agreement provides that even in


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the event of a strike, the minimum number of employees necessary to operate the telecommunications business must continue to work.
 
As of December 31, 2008, about 81.1% of all employees of KT Corporation were members of the KT Trade Union. On behalf of its members, the Union negotiates with us a collective bargaining agreement every two years, and our current collective bargaining agreement expires on November 12, 2009. The Union also negotiates with us an annual agreement on wages on behalf of its members. In November 2008, the Union agreed to a salary freeze. The agreement includes a one-time bonus payment of W1 million per employee for 2008 as well as an increase in monthly meal and transportation allowance by W40,000 starting in 2009. In addition, we agreed to allocate W60 billion to the welfare fund to be used for employee benefits. Under the Act of the Promotion of Worker’s Participation and Cooperation, our Employee-Employer Cooperation Committees, which are composed of representatives of management and labor for each business unit and regional office, meet quarterly to discuss employee grievances, working conditions and potential employee-initiated improvements in service or management.
 
Employee Stock Ownership and Benefits
 
We have an employee stock ownership association, which may purchase on behalf of its members up to 20.0% of any of our shares offered publicly in Korea. The employee stock ownership association owned 4.8% of our issued shares as of December 31, 2008.
 
We maintain a retirement and severance plan, as required by Korean labor law. Employees terminating their employment after one year or more of service are entitled to receive a lump-sum payment based upon the length of their service and their wage rates, with adjustments, at the time of termination. We make provision for our obligations under the retirement plan. In addition, we provide a wide range of fringe benefits to our employees, including physical education grants, meal allowances, housing, housing loans, medical examinations and training and resort centers. See “Item 5. Operating and Financial Review and Prospects — Item. 5.A. Operating Results — Salaries and Related Costs.”
 
Employee Training
 
The objective of our training program is to develop information and technology specialists who are able to create value for our customers. In recent years, we have been focusing our efforts on development of (i) consultants who interact closely with our customers such as sales professionals and information and technology supporters, (ii) key management professionals and (iii) professionals who are dedicated to developing, marketing and servicing new growth businesses such as WiBro, IP-TV and VoIP. In order to develop skills of our employees, we require 100 hours of training per year from most of our employees, using personally-tailored curriculums based on individual assessments. We also operate Cyber Academy to provide online classes to our employees, as well as offer various foreign language classes to our employees. In addition, we provide tuition and living expense reimbursements to our high potential individuals who pursue graduate programs in Korea and abroad, as well as provide financial assistance to those who pursue work-related professional licenses or participate in after-work study programs.


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Item 6.E.   Share Ownership
 
Common Stock
 
The persons who are currently our directors held, as a group, 3,667 common shares as of May 15, 2009, the most recent date for which this information is available. The table below shows the ownership of our common shares by directors.
 
         
    Number of Common
Shareholders
  Shares Owned
 
Suk-Chae Lee
    —  
Sang-Hoon Lee
    3,531  
Hyun-Myung Pyo
    136  
Jeong-Suk Koh
    —  
Si-Chin Kang
    —  
In-Man Song
    —  
Joon Park
    —  
E. Han Kim
    —  
Choon-Ho Lee
    —  
Jeung-Soo Huh
    —  
 
Stock Options
 
We have not granted any stock options to our current directors and executive officers.
 
Item 7.   Major Shareholders and Related Party Transactions
 
Item 7.A.   Major Shareholders
 
The following table sets forth certain information relating to the shareholders of our common stock as of December 31, 2008:
 
                 
        Percent
    Number of
 		  of Total
Shareholders
  Shares   Shares Issued
 
Employee stock ownership association
    13,188,220       4.82 %
National Pension Corporation
    16,179,637       5.92 %
Directors as a group
    3,667       0.00 %
Public
    172,663,772       63.12 %
KT Corporation (held in the form of treasury stock)(1)
    71,500,404       26.14 %
                 
Total issued shares
    273,535,700       100 %
                 
 
 
(1) Includes shares of treasury stock owned by our treasury stock fund.
 
Before 1993, the Government owned all of our shares. Since 1993, the Government has gradually reduced its ownership and completed the disposition of its ownership interest in us in May 2002.
 
For a discussion of our relationship with the Government, see “Item 4. Information on the Company — Item 4.B. Business Overview — Relationship with the Government.” For a discussion of the Government’s dispositions and plans for future dispositions of shares, see “Item 4. Information on the Company — Item 4.C. Organizational Structure.”
 
Item 7.B.   Related Party Transactions
 
We have issued guarantees of W35 billion as of December 31, 2006, W113 billion and $31 million as of December 31, 2007 and W10 billion as of December 31, 2008 in favor of our consolidated subsidiaries. We have


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also engaged in various transactions with our subsidiaries and affiliated companies. See Note 17 to the Consolidated Financial Statements.
 
Item 7.C.   Interests of Experts and Counsel
 
Not applicable.
 
Item 8.   Financial Information
 
Item 8.A.  Consolidated Statements and Other Financial Information
 
See “Item 18 — Financial Statements” and pages F-1 through F-118.
 
Legal Proceedings
 
Dispute with the Korea Fair Trade Commission
 
In July 2004, the Korea Fair Trade Commission began an antitrust investigation into alleged unfair collaborative practices by us, SK Broadband, LG DACOM and Onse in local, domestic long-distance and international long-distance telephone service markets, as well as in broadband Internet access and Internet leased line service markets. On May 25, 2005, the Korea Fair Trade Commission imposed fines of W116 billion on us, W2 billion on SK Broadband and W1 billion on LG DACOM, claiming that we and these other companies engaged in unfair collaborative practices in local telephone and Internet leased line service markets. On September 14, 2005, the Korea Fair Trade Commission imposed an additional fine of W24 billion on us for our alleged unfair collaborative practices in domestic and international long-distance telephone service markets. We were following administrative guidelines from the Ministry of Information and Communication, which had advised that we, as a dominant service provider in these telephone service markets, assist late market entrants in order to promote more competitive telephone service markets in Korea. The legality of such administrative guidelines from the Ministry of Information and Communication has been disputed by the Korea Fair Trade Commission.
 
In response to the initial ruling by the Korea Fair Trade Commission, we have recorded W140 billion as taxes and dues under operating expenses in 2005 and paid such amount in 2006. However, we filed for judicial review of such administrative actions relating to domestic long-distance and local telephone service markets. On December 24, 2008, the Supreme Court of Korea affirmed the Korea Fair Trade Commission’s administrative actions relating to the domestic long distance telephone service markets. The Supreme Court’s decision on the administrative actions relating to the local telephone service market is, however, still pending.
 
Miscellaneous
 
We are a defendant in various court proceedings involving claims for civil damages arising in the ordinary course of our business. While we are unable to predict the ultimate disposition of these claims, in the opinion of our management, the ultimate disposition of these claims will not, taken as a whole, have a material adverse effect on us.
 
Dividends
 
The table below sets out the annual dividends declared on the outstanding common stock to shareholders of record on December 31 of the years indicated and the interim dividends declared on the outstanding common stock to shareholders of record on June 30 of the years indicated.
 
                         
            Average Total
    Annual Dividend per
 		  Interim Dividend
 		  Dividend per
Year
  Common Stock   per Common Stock   Common Stock
    (In Won)   (In Won)   (In Won)
 
2004
    2,000       1,000       3,000  
2005
    2,000       1,000       3,000  
2006
    2,000       —       2,000  
2007
    2,000       —       2,000  
2008
    1,120       —       1,120  


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If sufficient profits are available, the Board of Directors may propose annual dividends on the outstanding common stock, which our shareholders must approve by a resolution at the ordinary general meeting of shareholders. This meeting is generally held in March of the following year and if our shareholders at such ordinary general meeting of shareholders approve the annual dividend, we must pay such dividend within one month following the date of such resolution. Typically, we pay such dividends shortly after the meeting. The declaration of annual dividends is subject to the vote of our shareholders, and consequently, there can be no assurance as to the amount of dividends per common stock or that any such dividends will be declared. Interim dividends paid in cash can be declared by a resolution of the board of directors. See “Item 10. Additional Information — Item 10.B. Memorandum and Articles of Association — Dividends” and “Item 12. Description of Securities Other than Equity Securities — Description of American Depositary Shares — Dividends and Distributions.”
 
The Commercial Code provides that shares of a company of the same class must receive equal treatment. However, major shareholders may consent to receive dividend distributions at a lesser rate than minor shareholders. Previously, the Government consented to receiving a smaller dividend compared to other shareholders. The Government no longer holds any interest in us.
 
Any cash dividends relating to the shares held in the form of ADSs will be paid to the depositary bank in Won. The deposit agreement provides that, except in certain circumstances, cash dividends received by the depositary bank will be converted by the depositary bank into Dollars and distributed to the holders of the ADRs, less withholding tax, other governmental charges and the depositary bank’s fees and expenses. See “Item 12. Description of Securities Other than Equity Securities — Description of the American Depositary Shares — Dividends and Distributions.”
 
Item 8.B.   Significant Changes
 
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.


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Item 9.   The Offer and Listing
 
Item 9.A.   Offer and Listing Details
 
Market Price Information
 
Common Stock
 
Our shares were listed on the KRX KOSPI Market on December 23, 1998. The price of the shares on the KRX KOSPI Market as of the close of trading on June 26, 2009 was W 36,500 per share. The table below shows the high and low closing prices and the average daily volume of trading activity on the KRX KOSPI Market for the shares.
 
                         
    Price   Average Daily
    High   Low   Trading Volume
    (In Won)   (Number of shares)
 
2004
    47,550       34,200       577,620  
2005
    45,150       37,600       539,707  
2006
    49,350       37,600       539,707  
2007
    56,100       40,150       917,274  
First quarter
    48,000       42,050       649,901  
Second quarter
    46,450       40,150       928,878  
Third quarter
    46,950       41,000       899,070  
Fourth quarter
    56,100       41,800       1,190,247  
2008
    52,200       29,500       1,019,430  
First quarter
    52,200       44,750       942,445  
Second quarter
    50,400       43,800       818,889  
Third quarter
    47,100       40,200       1,082,102  
Fourth quarter
    41,550       29,500       1,221,297  
2009 (through June 26)
    42,000       35,800       1,503,567  
First quarter
    42,000       35,800       1,275,616  
January
    42,000       38,750       1,304,669  
February
    40,600       35,800       1,071,391  
March
    40,100       36,900       1,436,184  
Second quarter (through June 26)
    39,000       33,100       1,737,339  
April
    39,000       36,100       1,840,227  
May
    38,300       33,100       1,768,747  
June (through June 26)
    38,150       34,600       1,580,410  
 
 
Source:  KRX KOSPI Market
 
ADSs
 
The outstanding ADSs, each of which represents one-half of one share of our common stock, have been traded on the New York Stock Exchange and the London Stock Exchange since May 25, 1999.


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The price of the ADSs on the New York Stock Exchange as of the close of trading on June 26, 2009 was $14.33 per ADS. The table below shows the high and low trading prices and the average daily volume of trading activity on the New York Stock Exchange for our ADSs since January 2004.
 
                         
    Price   Average Daily
    High   Low   Trading Volume
    (In US$)   (Number of ADSs)
 
2004
    22.73       16.57       671,995  
2005
    23.21       19.75       457,082  
2006
    26.66       20.11       562,859  
2007
    29.22       21.51       592,205  
First quarter
    25.82       22.01       557,559  
Second quarter
    24.72       21.82       638,232  
Third quarter
    25.11       21.51       493,274  
Fourth quarter
    29.22       22.80       679,756  
2008
    27.10       10.10       819,767  
First quarter
    27.10       23.35       824,931  
Second quarter
    25.35       21.20       561,939  
Third quarter
    23.03       16.79       765,989  
Fourth quarter
    17.18       10.10       1,126,453  
2009 (through June 26)
    15.74       11.42       845,524  
First quarter
    15.74       11.42       973,568  
January
    15.74       13.97       839,058  
February
    14.59       11.55       903,166  
March
    14.66       11.42       1,156,651  
Second quarter (through June 26)
    15.09       13.14       717,480  
April
    14.72       13.31       832,162  
May
    15.09       13.14       785,343  
June (through June 26)
    14.83       13.72       529,202  
 
 
Source:  New York Stock Exchange.
 
Item 9.B.   Plan of Distribution
 
Not applicable.
 
Item 9.C.   Markets
 
The KRX KOSPI Market
 
On January 27, 2005, the Korea Exchange was established pursuant to the Korea Securities and Futures Exchange Act through the consolidation of the Korea Stock Exchange, the Korea Futures Exchange, the KOSDAQ Stock Market, Inc. (the “KOSDAQ”) and the KOSDAQ Committee within the Korea Securities Dealers Association, which was in charge of the management of the KOSDAQ. There are three different markets operated by the Korea Exchange: the KRX KOSPI Market, the KRX KOSDAQ Market and the KRX Derivatives Market. The Korea Exchange has two trading floors located in Seoul, one for the KRX KOSPI Market and one for the KRX KOSDAQ Market, and one trading floor in Busan for the KRX Derivatives Market. The Korea Exchange is a limited liability company, the shares of which are held by (i) securities companies and futures companies that were formerly members of the Korea Stock Exchange or the Korea Futures Exchange, (ii) the Small Business Corporation, (iii) the Korea Securities Finance Corporation and (iv) the Korea Securities Dealers Association. Currently, the Korea Exchange is the only stock exchange in Korea and is operated by membership, having as its members most of the Korean securities companies and some Korean branches of foreign securities companies.


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The KRX KOSPI Market has the power in some circumstances to suspend trading in the shares of a given company or to de-list a security. The KRX KOSPI Market also restricts share price movements. All listed companies are required to file accounting reports annually and quarterly and to release immediately all information that may affect trading in a security.
 
The Government has in the past exerted, and continues to exert, substantial influence over many aspects of the private sector business community which can have the intention or effect of depressing or boosting the market. In the past, the Government has informally both encouraged and restricted the declaration and payment of dividends, induced mergers to reduce what it considers excess capacity in a particular industry and induced private companies to offer publicly their securities.
 
The KRX KOSPI Market publishes the Korea Composite Stock Price Index every two seconds, which is an index of all equity securities listed on the KRX KOSPI Market. On January 1, 1983, the method of computing the Korea Composite Stock Price Index was changed from the Dow Jones method to the aggregate value method. In the new method, the market capitalizations of all listed companies are aggregated, subject to certain adjustments, and this aggregate is expressed as a percentage of the aggregate market capitalization of all listed companies as of the base date, January 4, 1980.
 
Movements in Korea Composite Stock Price Index are set out in the following table together with the associated dividend yields and price earnings ratios.
 
                                                 
                    Period Average
                    Dividend
 		  Price
                    Yield(1)(2)
 		  Earnings
Year
  Opening   High   Low   Closing   (Percent)   Ratio(2)(3)
 
1983
    122.52       134.46       115.59       121.21       6.9       3.8  
1984
    115.25       142.46       115.25       142.46       5.1       4.5  
1985
    139.53       163.37       131.40       163.37       5.3       5.2  
1986
    161.40       279.67       153.85       272.61       4.3       7.6  
1987
    264.82       525.11       264.82       525.11       2.6       10.9  
1988
    532.04       922.56       527.89       907.20       2.4       11.2  
1989
    919.61       1,007.77       844.75       909.72       2.0       13.9  
1990
    908.59       928.82       566.27       696.11       2.2       12.8  
1991
    679.75       763.10       586.51       610.92       2.6       11.2  
1992
    624.23       691.48       459.07       678.44       2.2       10.9  
1993
    697.41       874.10       605.93       866.18       1.6       12.7  
1994
    879.32       1,138.75       855.37       1,027.37       1.2       16.2  
1995
    1,027.45       1,016.77       847.09       882.94       1.2       16.4  
1996
    882.29       986.84       651.22       651.22       1.3       17.8  
1997
    647.67       792.29       350.68       376.31       1.5       17.0  
1998
    374.41       579.86       280.00       562.46       1.9       10.8  
1999
    565.10       1,028.07       498.42       1,028.07       1.1       13.5  
2000
    1,028.33       1,059.04       500.60       504.62       1.6       18.6  
2001
    503.31       704.50       468.76       693.70       2.0       14.2  
2002
    698.00       937.61       584.04       627.55       1.4       17.8  
2003
    633.03       822.16       515.24       810.71       2.2       10.9  
2004
    821.26       936.06       719.59       895.92       2.1       15.8  
2005
    896.00       1,379.37       870.84       1,379.37       1.7       11.0  
2006
    1,383.32       1,464.70       1,203.86       1,434.46       1.7       11.4  
2007
    1,435.26       2,064.85       1,355.79       1,897.13       1.6       14.8  
2008
    1,853.45       1,888.88       938.75       1,124.47       2.6       8.9  
2009 (through June 26)
    1,401.57       1,404.01       1,388.38       1,394.53       1.44       18.45  
 
 
Source: The KRX KOSPI Market
 
(1) Dividend yields are based on daily figures. Dividend yields after January 3, 1984 include cash dividends only.


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(2) Starting in April 2000, dividend yield and price earnings ratio are calculated based on KOSPI 200, an index of 200 equity securities listed on the KRX KOSPI Market. Starting in April 2000, KOSPI 200 excludes classified companies, companies which did not submit annual reports to the KRX KOSPI Market, and companies which received qualified opinion from external auditors.
 
(3) The price earnings ratio is based on figures for companies that record a profit in the preceding year.
 
Shares are quoted “ex-dividend” on the first trading day of the relevant company’s accounting period; since the calendar year is the accounting period for the majority of listed companies, this may account for the drop in the Korea Composite Stock Price Index between its closing level at the end of one calendar year and its opening level at the beginning of the following calendar year.
 
With certain exceptions, principally to take account of a share being quoted “ex-dividend” and “ex-rights,” permitted upward and downward movements in share prices of any category of shares on any day are limited under the rules of the KRX KOSPI Market to 15% of the previous day’s closing price of the shares, rounded down as set out below:
 
         
Previous Days’ Closing Price
  Rounded Down To
 
Less than W5,000
  W 5  
W5,000 to less than W10,000
  W 10  
W10,000 to less than W50,000
  W 50  
W50,000 to less than W100,000
  W 100  
W100,000 to less than W500,000
  W 500  
W500,000 or more
  W 1,000  
 
As a consequence, if a particular closing price is the same as the price set by the fluctuation limit, the closing price may not reflect the price at which persons would have been prepared, or would be prepared to continue, if so permitted, to buy and sell shares. Orders are executed on an auction system with priority rules to deal with competing bids and offers.
 
Due to a deregulation of restrictions on brokerage commission rates, the brokerage commission rate on equity securities transactions may be determined by the parties, subject to commission schedules being filed with the KRX KOSPI Market by the securities companies. In addition, a securities transaction tax will generally be imposed on the transfer of shares or certain securities representing rights to subscribe for shares at the rate of 0.15% if such transfer is made through the KRX KOSPI Market. A special agricultural and fishery tax of 0.15% of the sales prices will also be imposed on transfer of these shares and securities on the KRX KOSPI Market. See “Item 10. Additional Information — Item 10.A. Taxation — Korean Taxation.”


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The number of companies listed on the KRX KOSPI Market, the corresponding total market capitalization at the end of the periods indicated and the average daily trading volume for those periods are set forth in the following table:
 
                                                 
    Market Capitalization
 		           
    on the Last Day of Each Period   Average Daily Trading Volume,
    Number of
 		          Value
    Listed
 		  (Billions of
 		  (Millions of
 		  Thousands
 		  (Millions of
 		  (Thousands of
Year
  Companies   Won)   Dollars)(1)   of Shares   Won)   Dollars)(1)
 
1983
    328       3,490       4,387       9,325       5,941       7,468  
1984
    336       5,149       6,223       14,847       10,642       12,862  
1985
    342       6,570       7,381       18,925       12,315       13,834  
1986
    355       11,994       13,924       31,755       32,870       38,159  
1987
    389       26,172       33,033       20,353       70,185       88,583  
1988
    502       64,544       94,348       10,367       198,364       289,963  
1989
    626       95,477       140,490       11,757       280,967       414,430  
1990
    669       79,020       110,301       10,866       183,692       256,411  
1991
    686       73,118       96,107       14,022       214,263       281,629  
1992
    688       84,712       107,448       24,028       308,246       390,977  
1993
    693       112,665       139,420       35,130       574,048       710,367  
1994
    699       151,217       191,730       36,862       776,257       984,223  
1995
    721       141,151       182,201       26,130       487,762       629,613  
1996
    760       117,370       139,031       26,571       486,834       575,680  
1997
    776       70,989       50,162       41,525       555,759       392,707  
1998
    748       137,799       114,091       97,716       660,429       546,803  
1999
    725       349,504       305,137       278,551       3,481,620       3,039,655  
2000
    704       188,042       149,275       306,163       2,602,211       2,065,739  
2001
    689       255,850       192,934       473,241       1,997,420       1,506,237  
2002
    683       258,681       215,496       857,245       3,041,598       2,533,815  
2003
    684       355,363       296,679       542,010       2,216,636       1,850,589  
2004
    683       412,588       395,275       372,895       2,232,109       2,138,445  
2005
    702       655,075       646,158       467,629       3,157,662       3,114,679  
2006
    731       704,588       757,948       279,096       3,435,180       3,695,331  
2007
    745       951,900       1,017,205       363,732       5,539,588       5,917,731  
2008
    763       576,888       457,122       355,205       5,189,644       4,112,238  
2009 (through June 26)
    758       721,831       562,349       423,778       4,809,359       3,746,774  
 
 
Source: The KRX KOSPI Market
 
(1) Converted at the Concentration Base Rate of The Bank of Korea or the Market Average Exchange Rate as announced by Seoul Money Brokerage Services Limited, as the case may be, at the end of the periods indicated.
 
The Korean securities markets are principally regulated by the Financial Services Commission of Korea and the Financial Investment Services and Capital Markets Act. The Securities and Exchange Act which regulated the securities markets in the past was replaced with the Financial Investment Services and Capital Markets Act on February 4, 2009. The new law, as did the Securities and Exchange Act, imposes restrictions on insider trading and price manipulation, requires specified information to be made available by listed companies to investors and establishes rules regarding margin trading, proxy solicitation, takeover bids, acquisition of treasury shares and reporting requirements for shareholders holding substantial interests.
 
Further Opening of the Korean Securities Market
 
A stock index futures market was opened on May 3, 1996 and a stock index option market was opened on July 7, 1997, in each case at the KRX KOSPI Market. Remittance and repatriation of funds in connection with investment in stock index futures and options are subject to regulations similar to those that govern remittance and repatriation in the context of foreign investment in Korean stocks.
 
Starting from May 1, 1996, foreign investors were permitted to invest in warrants representing the right to subscribe for shares of a company listed on the KRX KOSPI Market or registered on the KRX KOSDAQ Market,


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subject to certain investment limitations. A foreign investor may not acquire such warrants with respect to shares of a class of a company for which the ceiling on aggregate investment by foreigners has been reached or exceeded.
 
As of December 30, 1997, foreign investors were permitted to invest in all types of corporate bonds, bonds issued by national or local governments and bonds issued in accordance with certain special laws without being subject to any aggregate or individual investment ceiling. The Financial Services Commission sets forth procedural requirements for such investments. The Government announced on February 8, 1998 its plans for the liberalization of the money market with respect to investment in money market instruments by foreigners in 1998. According to the plan, foreigners have been permitted to invest in money market instruments issued by corporations, including commercial paper, starting February 16, 1998 with no restrictions as to the amount. Starting May 25, 1998, foreigners have been permitted to invest in certificates of deposit and repurchase agreements.
 
Currently, foreigners are permitted to invest in securities including shares of all Korean companies which are not listed on the KRX KOSPI Market nor registered on the KRX KOSDAQ Market and in bonds which are not listed.
 
Protection of Customer’s Interest in Case of Insolvency of Securities Companies
 
Under Korean law, the relationship between a customer and a securities company in connection with a securities sell or buy order is deemed to be consignment and the securities acquired by a consignment agent (i.e., the securities company) through such sell or buy order are regarded as belonging to the customer in so far as the customer and the consignment agent’s creditors are concerned. Therefore, in the event of a bankruptcy or reorganization procedure involving a securities company, the customer of the securities company is entitled to the proceeds of the securities sold by the securities company.
 
When a customer places a sell order with a securities company which is not a member of the KRX KOSPI Market and this securities company places a sell order with another securities company which is a member of the KRX KOSPI Market, the customer is still entitled to the proceeds of the securities sold received by the non-member company from the member company regardless of the bankruptcy or reorganization of the non-member company.
 
Under the Financial Investment Services and Capital Markets Act, the KRX KOSPI Market is obliged to indemnify any loss or damage incurred by a counterparty as a result of a breach by its members. If a securities company which is a member of the KRX KOSPI Market breaches its obligation in connection with a buy order, the KRX KOSPI Market is obliged to pay the purchase price on behalf of the breaching member. Therefore, the customer can acquire the securities that have been ordered to be purchased by the breaching member.
 
When a customer places a buy order with a non-member company and the non-member company places a buy order with a member company, the customer has the legal right to the securities received by the non-member company from the member company because the purchased securities are regarded as belonging to the customer in so far as the customer and the non-member company’s creditors are concerned.
 
As the cash deposited with a securities company is regarded as belonging to the securities company, which is liable to return the same at the request of its customer, the customer cannot take back deposited cash from the securities company if a bankruptcy or reorganization procedure is instituted against the securities company and, therefore, can suffer from loss or damage as a result. However, the Depositor Protection Act provides that Korea Deposit Insurance Corporation will, upon the request of the investors, pay investors up to W50 million in case of the securities company’s bankruptcy, liquidation, cancellation of securities business license or other insolvency events. Pursuant to the Financial Investment Services and Capital Markets Act, securities companies are required to deposit the cash received from its customers to the extent the amount not covered by the insurance with the Korea Securities Finance Corporation, a special entity established pursuant to the Securities and Exchange Act.
 
Set-off or attachment of cash deposits by securities companies is prohibited. The premiums related to this insurance are paid by securities companies.
 
Item 9.D.   Selling Shareholders
 
Not applicable.


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Item 9.E.   Dilution
 
Not applicable.
 
Item 9.F.   Expenses of the Issuer
 
Not applicable.
 
Item 10.   Additional Information
 
Item 10.A.   Share Capital
 
Currently, our authorized share capital is 1,000,000,000 shares, which consists of shares of common stock, par value W5,000 per share (“Common Shares”) and shares of non-voting preferred stock, par value W5,000 per share (“Non-Voting Shares”). Common Shares and Non-Voting Shares together are referred to as “Shares.” Under our articles of incorporation, we are authorized to issue Non-Voting Shares up to one-fourth of our total issued capital stock. As of December 31, 2008, 273,535,700 Common Shares were issued, of which 71,500,404 shares were held by the treasury stock fund or us as treasury shares. We have never issued any Non-Voting Shares. All of the issued Common Shares are fully-paid and non-assessable and are in registered form. We issue share certificates in denominations of 1, 5, 10, 50, 100, 500, 1,000 and 10,000 shares.
 
Item 10.B.   Memorandum and Articles of Association
 
This section provides information relating to our capital stock, including brief summaries of material provisions of our articles of incorporation, the Financial Investment Services and Capital Markets Act, the Commercial Code and related laws of Korea, all as currently in effect. The following summaries are subject to, and are qualified in their entirety by reference to, our articles of incorporation and the applicable provisions of the Financial Investment Services and Capital Markets Act and the Commercial Code. We have filed copies of our articles of incorporation and these laws as exhibits to registration statements under the Securities Act or the Securities Exchange Act previously filed by us.
 
Dividends
 
We distribute dividends to our shareholders in proportion to the number of shares owned by each shareholder. No dividends are distributed with respect to shares held by us or our treasury stock fund. The Common Shares represented by the ADSs have the same dividend rights as other outstanding Common Shares.
 
Holders of Non-Voting Shares are entitled to receive dividends in priority to the holders of Common Shares in an amount of not less than 9% of the par value of the Non-Voting Shares as determined by the board of directors at the time of their issuance, provided that if the dividends on the Common Shares exceed those on the Non-Voting Shares, the Non-Voting Shares will also participate in the distribution of such excess dividend amount in the same proportion as the Common Shares. If the amount available for dividends is less than the aggregate amount of such minimum dividend, the holders of Non-Voting Shares will be entitled to receive such accumulated unpaid dividend in priority to the holders of Common Shares from the dividends payable in respect of the next fiscal year.
 
We declare dividends annually at the annual general meeting of shareholders which is held within three months after the end of the fiscal year. We pay the annual dividend shortly after the annual general meeting to the shareholders of record as of the end of the preceding fiscal year. We may distribute the annual dividend in cash or in Shares. However, a dividend of Shares must be distributed at par value. If the market price of the Shares is less than their par value, dividends in Shares may not exceed one-half of the annual dividend. We may pay interim dividends in cash once a year to shareholders or registered pledgees who are registered in the registry of shareholders as of June 30 of each fiscal year by a resolution of the board of directors. We have no obligation to pay any annual dividend unclaimed for five years from the payment date.
 
Under the Commercial Code, we may pay our dividend only out of the excess of our net assets, on a non-consolidated basis, over the sum of (1) our stated capital and (2) the total amount of our capital surplus reserve and legal reserve accumulated up to the end of the relevant dividend period. In addition, we may not pay any dividend


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unless we have set aside as legal reserve an amount equal to at least 10% of the cash portion of the dividend or unless we have accumulated a legal reserve of not less than one-half of our stated capital. Financial Services Commission regulations applicable to companies listed on the KRX KOSPI Market requires us to set aside specified amounts as financial structure improvement reserve until the ratio of our shareholders’ equity to the total assets reaches 30.0%. We may not use legal reserve to pay cash dividends but may transfer amounts from legal reserve to capital stock or use legal reserve to reduce an accumulated deficit.
 
Distribution of Free Shares
 
In addition to paying dividends in Shares out of our retained or current earnings, we may also distribute to our shareholders an amount transferred from our capital surplus or legal reserve to our stated capital in the form of free shares. We must distribute such free shares to all our shareholders in proportion to their existing shareholdings.
 
Preemptive Rights and Issuance of Additional Shares
 
We may issue authorized but unissued shares at times and, unless otherwise provided in the Commercial Code, on terms our board of directors may determine. Subject to the limitation described in “Limitation on Shareholdings” below, all our shareholders are generally entitled to subscribe for any newly issued Shares in proportion to their existing shareholdings. We must offer new Shares on uniform terms to all shareholders who have preemptive rights and are listed on our shareholders’ register as of the relevant record date. Under the Commercial Code, we may vary, without shareholders’ approval, the terms of these preemptive rights for different classes of shares. We must give notice to all persons who are entitled to exercise preemptive rights regarding new Shares and their transferability at least two weeks before the relevant record date. Our board of directors may determine how to distribute Shares for which preemptive rights have not been exercised or where fractions of Shares occur.
 
Under the Commercial Code, it is required that the new Shares, convertible bonds or bonds with warrants be issued to persons other than the existing shareholders solely for the purpose of achieving managerial objectives. Under our articles of incorporation, we may issue new Shares pursuant to a board resolution to persons other than existing shareholders, who in these circumstances will not have preemptive rights, if the new Shares are:
 
  •  publicly offered pursuant to the Financial Investment Services and Capital Markets Act;
 
  •  issued to members of our employee stock ownership association;
 
  •  represented by depositary receipts;
 
  •  issued upon exercise of stock options granted to our officers and employees;
 
  •  issued through an offering to public investors, the amount of which is no more than 10% of the issued Shares;
 
  •  issued in order to satisfy specific needs such as strategic alliance, inducement of foreign funds or new technology, improvement of financial structure or other capital raising requirement; or
 
  •  issued to domestic or foreign financial institutions when necessary for raising funds in emergency cases.
 
In addition, we may issue convertible bonds or bonds with warrants, each up to an aggregate principal amount of W2,000 billion, to persons other than existing shareholders in the situations described above.
 
Members of our employee stock ownership association, whether or not they are our shareholders, generally have a preemptive right to subscribe for up to 20.0% of the Shares publicly offered pursuant to the Financial Investment Services and Capital Markets Act. This right is exercisable only to the extent that the total number of Shares so acquired and held by members of our employee stock ownership association does not then exceed 20.0% of the total number of Shares then issued (including in such total both: (i) all issued and outstanding Shares at the time the preemptive rights are exercised; and (ii) all Shares to be newly issued in the applicable share issuance transaction in connection with which such preemptive rights are exercised). As of December 31, 2008, 4.8% of the issued Shares were held by members of our employee stock ownership association.


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Limitation on Shareholdings
 
The Telecommunications Business Act permits maximum aggregate foreign shareholding in us to be 49.0% of our total issued and outstanding Shares with voting rights (including equivalent securities with voting rights, e.g., depositary certificates and certain other equity interests). For the purposes of the foregoing, a shareholder is a “foreign shareholder” if such shareholder is: (1) a foreign person; (2) a foreign government; or (3) a company whose largest shareholder is a foreign person (including any “specially related persons” as determined under the Financial Investment Services and Capital Markets Act) or a foreign government, in circumstances where (i) such foreign person or foreign government holds, in aggregate, 15.0% or more of such company’s total voting shares, and (ii) such company holds at least 1.0% of our total issued and outstanding Shares with voting rights. For the avoidance of doubt, all of conditions (i) to (ii) in the foregoing item (3) must exist for such a company to be counted as a “foreign shareholder” for the purposes of calculating whether the 49.0% foreign shareholding threshold is reached under the Telecommunications Business Act. In addition, the Telecommunications Business Act prohibits a foreign shareholder from being our largest shareholder if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction, any two or more foreign persons or foreign governments who enter into an agreement to act in concert in the exercise of their voting rights will be counted together and prohibited from becoming our largest shareholder in the event that they collectively hold 5.0% or more of our Shares. The Foreign Investment Promotion Act also prohibits any foreign shareholder from being our largest shareholder, if such shareholder owns 5.0% or more of our Shares with voting rights. For the purposes of this restriction under the Foreign Investment Promotion Act, a “foreign shareholder” is defined in the same manner as described above with respect to the foreign shareholding restriction under the Telecommunications Business Act, provided, however, that no exception is made under the Foreign Investment Promotion Act regulations for companies that own less than 1.0% of our Shares (see item (3)(ii) above in this paragraph). A foreigner who has acquired the Shares in excess of such ceiling described above may not exercise its voting rights for shares in excess of such limitation, and the Korea Communications Commission may require corrective measures to comply with the ownership restrictions.
 
General Meeting of Shareholders
 
We hold the annual general meeting of shareholders within three months after the end of each fiscal year. Subject to a board resolution or court approval, we may hold an extraordinary general meeting of shareholders:
 
  •  as necessary;
 
  •  at the request of shareholders of an aggregate of 3.0% or more of our issued Common Shares;
 
  •  at the request of shareholders holding an aggregate of 1.5% or more of our issued Shares for at least six months; or
 
  •  at the request of our audit committee.
 
Holders of Non-Voting Shares may request a general meeting of shareholders only after the Non-Voting Shares become entitled to vote or are enfranchised, as described under “— Voting Rights” below.
 
We must give shareholders written notice setting out the date, place and agenda of the meeting at least two weeks before the date of the general meeting of shareholders. However, for holders of less than 1.0% of the total number of issued and outstanding Common Shares, we may give notice by placing at least two public notices in at least two daily newspapers at least two weeks in advance of the meeting. Currently, we use Seoul Shinmun, Maeil Business Newspaper and The Korea Economic Daily published in Seoul for this purpose. Shareholders not on the shareholders’ register as of the record date are not entitled to receive notice of the general meeting of shareholders or attend or vote at the meeting. Holders of Non-Voting Shares, unless enfranchised, are not entitled to receive notice of general meetings of shareholders, but may attend such meetings.
 
Our general meetings of shareholders are held at our head office, in Sungnam, or if necessary, may be held anywhere near our head office or in Seoul.


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Voting Rights
 
Holders of our Common Shares are entitled to one vote for each Common Share, except that voting rights of Common Shares held by us, or by a corporate shareholder that is more than 10.0% owned by us either directly or indirectly, may not be exercised. The Commercial Code permits cumulative voting, under which voting method each shareholder has multiple voting rights corresponding to the number of directors to be appointed in the voting and may exercise all voting rights cumulatively to elect one director. Our articles of incorporation permit cumulative voting at our shareholders’ meeting. Under the Commercial Code of Korea, any shareholder holding shares equivalent to not less than 1/100 of the total number of shares issued may apply to us for selecting and appointing such directors by cumulative voting.
 
Our shareholders may adopt resolutions at a general meeting by an affirmative majority vote of the voting shares present or represented at the meeting, where the affirmative votes also represent at least one-fourth of our total voting shares then outstanding. However, under the Commercial Code and our articles of incorporation, the following matters, among others, require approval by the holders of at least two-thirds of the voting shares present or represented at a meeting, where the affirmative votes also represent at least one-third of our total voting shares then outstanding:
 
  •  amending our articles of incorporation;
 
  •  removing a director;
 
  •  reduction of our capital stock;
 
  •  effecting any dissolution, merger or consolidation of us;
 
  •  transferring the whole or any significant part of our business;
 
  •  effecting our acquisition of all of the business of any other company or our acquisition of a part of the business of any other company which will significantly affect our business; or
 
  •  issuing any new Shares at a price lower than their par value.
 
In general, holders of Non-Voting Shares are not entitled to vote on any resolution or receive notice of any general meeting of shareholders. However, in the case of amendments to our articles of incorporation, any merger or consolidation of us, or in some other cases that affect the rights or interests of the Non-Voting Shares, approval of the holders of Non-Voting Shares is required. We may obtain such approval by a resolution of holders of at least two-thirds of the Non-Voting Shares present or represented at a class meeting of the holders of Non-Voting Shares, where the affirmative votes also represent at least one-third of our total outstanding Non-Voting Shares. In addition, if we are unable to pay dividends on Non-Voting Shares as provided in our articles of incorporation, the holders of Non-Voting Shares will become enfranchised and will be entitled to exercise voting rights until those dividends are paid. The holders of enfranchised Non-Voting Shares have the same rights as holders of Common Shares to request, receive notice of, attend and vote at a general meeting of shareholders.
 
Shareholders may exercise their voting rights by proxy. The proxy must present a document evidencing an appropriate power of attorney prior to the start of the general meeting of shareholders. Additionally, shareholders may exercise their voting rights in absentia by submission of signed write-in voting forms. To make it possible for our shareholders to proceed with voting on a write-in basis, we are required to attach the appropriate write-in voting form and related informational material to the notices distributed to shareholders for convening the relevant general meeting of shareholders. Any of our shareholders who desires to vote on such write-in basis must submit their completed and signed write-in voting forms to us no later than one day prior to the date that the relevant general meeting of shareholders is convened.
 
Holders of ADRs exercise their voting rights through the ADR depositary, an agent of which is the record holder of the underlying Common Shares. Subject to the provisions of the deposit agreement, ADR holders are entitled to instruct the ADR depositary how to vote the Common Shares underlying their ADSs. See “Item 12. Description of Securities Other than Equity Securities — Description of American Depositary Shares — Voting Rights.”


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Rights of Dissenting Shareholders
 
In some limited circumstances, including the transfer of the whole or any significant part of our business and our merger or consolidation with another company, dissenting shareholders have the right to require us to purchase their Shares. To exercise this right, shareholders must submit to us a written notice of their intention to dissent before the general meeting of shareholders. Within 20 days after the relevant resolution is passed at a meeting, the dissenting shareholders must request us in writing to purchase their Shares. We are obligated to purchase the Shares of dissenting shareholders within one month after the expiration of the 20-day period. The purchase price for the Shares is required to be determined through negotiation between the dissenting shareholders and us. If we cannot agree on a price through negotiation, the purchase price will be the average of (1) the weighted average of the daily Share prices on the KRX KOSPI Market for the two-month period before the date of the adoption of the relevant board resolution, (2) the weighted average of the daily Share price on the KRX KOSPI Market for the one month period before the date of the adoption of the relevant board resolution and (3) the weighted average of the daily Share price on the KRX KOSPI Market for the one week period before the date of the adoption of the relevant board resolution. However, if we or any of the dissenting shareholders do not accept the purchase price calculated using the above method, the rejecting party may request the court to determine the purchase price. Holders of ADSs will not be able to exercise dissenter’s rights unless they have withdrawn the underlying common stock and become our direct shareholders.
 
Register of Shareholders and Record Dates
 
Our transfer agent, Kookmin Bank, maintains the register of our shareholders at its office in Seoul, Korea. It registers transfers of Shares on the register of shareholders on presentation of the Share certificates.
 
The record date for annual dividends is December 31. For the purpose of determining the shareholders entitled to annual dividends, the register of shareholders may be closed for the period from the day after the record date to January 31 of the following year. Further, for the purpose of determining the shareholders entitled to some other rights pertaining to the Shares, we may, on at least two weeks’ public notice, set a record date and/or close the register of shareholders for not more than three months. The trading of Shares and the delivery of share certificates may continue while the register of shareholders is closed.
 
Annual Reports
 
At least one week before the annual general meeting of shareholders, we must make our annual report and audited non-consolidated financial statements available for inspection at our principal office and at all of our branch offices. In addition, copies of annual reports, the audited non-consolidated financial statements and any resolutions adopted at the general meeting of shareholders will be available to our shareholders.
 
Under the Financial Investment Services and Capital Markets Act, we must file with the Financial Services Commission and the KRX KOSPI Market (1) an annual report within 90 days after the end of our fiscal year and (2) interim reports with respect to the three month period, six month period and nine month period from the beginning of each fiscal year within 45 calendar days following the end of each period. Copies of these reports are or will be available for public inspection at the Financial Services Commission and the KRX KOSPI Market.
 
Transfer of Shares
 
Under the Commercial Code, the transfer of Shares is effected by delivery of share certificates. However, to assert shareholders’ rights against us, the transferee must have his name and address registered on our register of shareholders. For this purpose, a shareholder is required to file his name, address and seal with our transfer agent. A non-Korean shareholder may file a specimen signature in place of a seal, unless he is a citizen of a country with a sealing system similar to that of Korea. In addition, a non-resident shareholder must appoint an agent authorized to receive notices on his behalf in Korea and file a mailing address in Korea. The above requirements do not apply to the holders of ADSs.
 
Under current Korean regulations, Korean securities companies and banks, including licensed branches of non-Korean securities companies and banks, investment management companies, futures trading companies,


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internationally recognized foreign custodians and the Korea Securities Depository may act as agents and provide related services for foreign shareholders. Certain foreign exchange controls and securities regulations apply to the transfer of Shares by non-residents or non-Koreans. See “Item 10. Additional Information — Item 10.D. Exchange Controls.”
 
Our transfer agent is Kookmin Bank, located at 24-3, Yoido-dong, Youngdungpo-ku, Seoul, Korea.
 
Acquisition of Shares by Us
 
We may not acquire our own Shares except in limited circumstances, such as a reduction in capital. In addition, pursuant to the Financial Investment Services and Capital Markets Act, we may acquire Shares only by (i) purchasing on the KRX KOSPI Market, (ii) a tender offer, or (iii) receiving Shares returned to us upon the cancellation or termination of a trust agreement with a trustee who acquired the Shares by either of the methods indicated above. The aggregate purchase price for the Shares may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year, subject to certain procedural requirements, provided that, in case of acquisition of our own Shares by us for the purpose of cancellation, the aggregate purchase price may not exceed the total amount available for distribution of dividends at the end of the preceding fiscal year minus certain reserves.
 
In general, corporate entities in which we own a 50.0% or more equity interest may not acquire our Shares.
 
As of December 31, 2008, there were 71,500,404 treasury shares including shares held by our treasury stock fund.
 
Liquidation Rights
 
In the event of our liquidation, after payment of all debts, liquidation expenses and taxes, our remaining assets will be distributed among shareholders in proportion to their shareholdings. Holders of Non-Voting Shares have no preference in liquidation.
 
Item 10.C.   Material Contracts
 
The Merger Agreement between KT Corporation and KTF
 
On January 20, 2009, KTF and KT Corporation entered into a merger agreement, pursuant to which KTF merged into KT Corporation on June 1, 2009. KTF common stockholder received 0.7192335 share of KT Corporation common stock for every one share of KTF common stock that they owned. KT Corporation waived issuance of any merger consideration in respect of all of the outstanding shares of KTF common stock held by KT Corporation immediately prior to the merger.
 
Pursuant to the merger agreement, all of the assets, liabilities, rights and obligations (including contractual rights and obligations) of KTF were comprehensively succeeded by KT Corporation. The employees of KTF became employees of KT Corporation as a result of the merger, and the obligations to pay severance payments to those employees were succeeded by KT Corporation.
 
Under Korean law, holders of shares of KT Corporation or KTF common stock who opposed the merger were entitled to exercise their appraisal rights to purchase their shares, which were set at W38,535 for each share of KT Corporation common stock properly submitted to KT Corporation for appraisal and W29,284 for each share of KTF common stock properly submitted to KTF for appraisal.
 
KT Corporation delivered 700,108 shares of its newly issued common stock (par value W5,000) and 45,629,480 shares of its treasury shares (par value W5,000) to KTF stockholders listed on the stockholder registry of KTF as of the date of the merger. See “Item 5. Operating and Financial Review and Prospects — Item 5.A. Operating Result — Overview — Merger of KTF into KT Corporation.”


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Item 10.D.   Exchange Controls
 
General
 
The Foreign Exchange Transaction Act and the Presidential Decree and regulations under that Act and Decree (collectively the “Foreign Exchange Transaction Laws”) regulate investment in Korean securities by non-residents and issuance of securities outside Korea by Korean companies. Under the Foreign Exchange Transaction Laws, non-residents may invest in Korean securities only in compliance with the provisions of, and to the extent specifically allowed by, these laws or otherwise permitted by the Ministry of Strategy and Finance. The Financial Services Commission has also adopted, pursuant to its authority under the Korean Financial Investment Services and Capital Markets Act, regulations that control investment by foreigners in Korean securities and regulate the issuance of securities outside Korea by Korean companies.
 
Under the Foreign Exchange Transaction Laws, if the Government deems that certain emergency circumstances, including, but not limited to, the outbreak of natural calamities, wars or grave and sudden changes in domestic or foreign economies, are likely to occur, the Ministry of Strategy and Finance may temporarily suspend the transactions where Foreign Exchange Transaction Laws are applicable, or impose an obligation to deposit or sell capital to certain Korean governmental agencies or financial institutions. In addition, if the Government deems that it is confronted or is likely to be confronted with serious difficulty in movement of capital between Korea and abroad which will bring serious obstacles in carrying out its currency policies, exchange rate policies and other macroeconomic policies, the Ministry of Strategy and Finance may take measures to require any person who performs transactions to deposit such capital to certain Korean governmental agencies or financial institutions.
 
Government Review of Issuance of ADSs
 
In order for us to issue shares represented by ADSs, we are required to file a prior report of the issuance with the Ministry of Strategy and Finance if our securities and borrowings denominated in foreign currencies issued during the one-year period preceding such filing date exceed US$30 million in aggregate. No further Korean governmental approval is necessary for the initial offering and issuance of the ADSs.
 
Under current Korean laws and regulations, the depositary bank is required to obtain our prior consent for the number of shares to be deposited in any given proposed deposit which exceeds the difference between (1) the aggregate number of shares deposited by us or with the consent of us for the issuance of ADSs (including deposits in connection with the initial and all subsequent offerings of ADSs and stock dividends or other distributions related to these ADSs) and (2) the number of shares on deposit with the depositary bank at the time of such proposed deposit. We can give no assurance that we would grant our consent, if our consent is required. Therefore, a holder of ADRs who surrenders ADRs and withdraws shares may not be permitted subsequently to deposit those shares and obtain ADRs.
 
Reporting Requirements for Holders of Substantial Interests
 
Any person whose direct or beneficial ownership of shares, whether in the form of shares or ADSs, certificates representing the rights to subscribe for Shares and equity-related debt securities including convertible bonds and bonds with warrants (collectively, the “Equity Securities”) together with the Equity Securities beneficially owned by certain related persons or by any person acting in concert with the person accounts for 5.0% or more of the total issued Equity Securities is required to report the status of the holdings to the Financial Services Commission and the KRX KOSPI Market within five business days after reaching the 5.0% ownership interest. In addition, any change in the ownership interest subsequent to the report which equals or exceeds 1.0% of the total issued Equity Securities is required to be reported to the Financial Services Commission and the KRX KOSPI Market within five business days from the date of the change. The required information to be included in the 5.0% report may be different if the acquisition of such shareholding interest is for the purpose of exercising influence over the management, as opposed to an acquisition for investment purposes. Any person reporting the holding of 5.0% or more of the total issued Equity Securities and any person reporting the change in the ownership interest which equals or exceeds 1.0% of the total issued Equity Securities pursuant to the requirements described above must also deliver a copy of such reports to us.


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Violation of these reporting requirements may subject a person to criminal sanctions such as fines or imprisonment and may result in a loss of voting rights with respect to the unreported ownership of Equity Securities exceeding 5.0%. Furthermore, the Financial Services Commission may issue an order to dispose of non-reported Equity Securities.
 
Restrictions Applicable to ADSs
 
No Korean governmental approval is necessary for the sale and purchase of ADSs in the secondary market outside Korea or for the withdrawal of shares underlying ADSs and the delivery inside Korea of shares in connection with the withdrawal, provided that a foreigner who intends to acquire the shares must obtain an investment registration certificate from the Financial Supervisory Service as described below. In general, the acquisition of the shares by a foreigner must be reported by the foreigner or his standing proxy in Korea immediately to the Governor of the Financial Supervisory Service; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository.
 
Persons who have acquired shares as a result of the withdrawal of shares underlying the ADSs may exercise their preemptive rights for new shares, participate in free distributions and receive dividends on shares without any further governmental approval.
 
Restrictions Applicable to Shares
 
As a result of amendments to the Foreign Exchange Transaction Laws and Financial Services Commission regulations adopted in connection with the stock market opening from January 1992, which we refer to collectively as the Investment Rules, foreigners may invest, with limited exceptions and subject to procedural requirements, in all shares of Korean companies, whether listed on the KRX KOSPI Market or the KRX KOSDAQ Market, unless prohibited by specific laws. Foreign investors may trade shares listed on the KRX KOSPI Market or the KRX KOSDAQ Market only through the KRX KOSPI Market or the KRX KOSDAQ Market, except in limited circumstances, including:
 
  •  odd-lot trading of shares;
 
  •  acquisition of shares (“Converted Shares”) by exercise of warrant, conversion right under convertible bonds or withdrawal right under depositary receipts issued outside of Korea by a Korean company;
 
  •  acquisition of shares as a result of inheritance, donation, bequest or exercise of shareholders’ rights, including preemptive rights or rights to participate in free distributions and receive dividends;
 
  •  over-the-counter transactions between foreigners of a class of shares for which the ceiling on aggregate acquisition by foreigners, as explained below, has been reached or exceeded certain exceptions;
 
  •  shares acquired by direct investment as defined in the Foreign Investment Promotion Law;
 
  •  disposal of shares pursuant to the exercise of appraisal rights of dissenting shareholders;
 
  •  disposal of shares in connection with a tender offer;
 
  •  acquisition of shares by a foreign depositary in connection with the issuance of depositary receipts;
 
  •  acquisition and disposal of shares through overseas stock exchange market if such shares are simultaneously listed on the KRX KOSPI Market or the KRX KOSDAQ Market and such overseas stock exchange; and
 
  •  arm’s length transactions between foreigners, if all of such foreigners belong to an investment group managed by the same person.
 
For over-the-counter transactions of shares between foreigners outside the KRX KOSPI Market or the KRX KOSDAQ Market for shares with respect to which the limit on aggregate foreign ownership has been reached or exceeded, an investment broker licensed in Korea must act as an intermediary. Odd-lot trading of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market must involve a licensed investment trader in Korea as the other


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party. Foreign investors are prohibited from engaging in margin transactions through borrowing shares from a securities company with respect to shares which are subject to a foreign ownership limit.
 
The Investment Rules require a foreign investor who wishes to invest in shares on the KRX KOSPI Market or the KRX KOSDAQ Market (including Converted Shares) to register its identity with the Financial Supervisory Service prior to making any such investment; however, the registration requirement does not apply to foreign investors who acquire Converted Shares with the intention of selling such Converted Shares within three months from the date of acquisition of the Converted Shares or who acquire the shares in an over-the-counter transaction or dispose of shares where such acquisition or disposal is deemed to be a foreign direct investment pursuant to the Financial Investment Services and Capital Markets Act. Upon registration, the Financial Supervisory Service will issue to the foreign investor an investment registration certificate that must be presented each time the foreign investor opens a brokerage account with a financial investment business entity. Foreigners eligible to obtain an investment registration certificate include foreign nationals who are individuals residing abroad for more than six months, foreign governments, foreign municipal authorities, foreign public institutions, corporations incorporated under foreign laws, international organizations, funds and associations as defined under the Financial Investment Services and Capital Markets Act. All Korean offices of a foreign corporation as a group are treated as a separate entity from the offices of the corporation outside Korea. However, a foreign corporation or depositary bank issuing depositary receipts may obtain one or more investment registration certificates in its name in certain circumstances as described in the relevant regulations.
 
Upon a foreign investor’s purchase of shares through the KRX KOSPI Market or the KRX KOSDAQ Market, no separate report by the investor is required because the investment registration certificate system is designed to control and oversee foreign investment through a computer system. However, a foreign investor’s acquisition or sale of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market (as discussed above) must be reported by the foreign investor or his standing proxy to the Governor of the Financial Supervisory Service at the time of each such acquisition or sale; provided, however, that in cases where a foreigner acquires shares through the exercise of rights as a holder of ADSs (or other depositary certificates), the foreigner must cause such report to the Governor of the Financial Supervisory Service to be filed by the Korea Securities Depository; and further provided that a foreign investor must ensure that any acquisition or sale by it of shares outside the KRX KOSPI Market or the KRX KOSDAQ Market in the case of trades in connection with a tender offer, odd-lot trading of shares or trades of a class of shares for which the aggregate foreign ownership limit has been reached or exceeded, is reported to the Governor of the Financial Supervisory Service by the investment trader, the investment broker, the Korea Securities Depository or the financial securities company engaged to facilitate such transaction. A foreign investor must appoint one or more standing proxies from among the Korea Securities Depository, foreign exchange banks, including domestic branches of foreign banks, investment traders, investment brokers, the Korea Securities Depository, financial securities companies and internationally recognized custodians that satisfies all relevant requirements under the Financial Investment Services and Capital Markets Act and will act as a standing proxy to exercise shareholders’ rights or perform any matters related to the foregoing activities if the foreign investor does not perform these activities himself. However, a foreign investor may be exempted from complying with these standing proxy rules with the approval of the Governor of the Financial Supervisory Service in cases deemed inevitable by reason of conflict between laws of Korea and the home country of the foreign investor.
 
Certificates evidencing shares of Korean companies must be kept in custody with an eligible custodian in Korea. Only the Korea Securities Depository, foreign exchange banks including domestic branches of foreign banks, investment traders, investment brokers, collective investment business entities and internationally recognized custodians satisfying the relevant requirements under the Financial Investment Services and Capital Markets Act are eligible to act as a custodian of shares for a non-resident or foreign investor. A foreign investor must ensure that his custodian deposits its shares with the Korea Securities Depository. However, a foreign investor may be exempted from complying with this deposit requirement with the approval of the Governor of the Financial Supervisory Service in circumstances where compliance with that requirement is made impracticable, including cases where compliance would contravene the laws of the home country of such foreign investor.
 
Under the Investment Rules, with certain exceptions, foreign investors may acquire shares of a Korean company without being subject to any foreign investment ceiling. As one such exception, designated public corporations are subject to a 40.0% ceiling on the acquisition of shares by foreigners in the aggregate and a ceiling


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on the acquisition of shares by a single foreign investor pursuant to the articles of incorporation of such corporation. Currently, Korea Electric Power Corporation is the only designated public corporation which has set such a ceiling. Furthermore, an investment by a foreign investor of not less than 10.0% of the issued shares with voting rights of a Korean company is defined as a direct foreign investment under the Foreign Investment Promotion Act, which is, in general, subject to the report to, and acceptance, by the Ministry of Knowledge Economy. The acquisition of shares of a Korean company by a foreign investor may also be subject to certain foreign shareholding restrictions in the event that the restrictions are prescribed in each specific law which regulates the business of the Korean company. A foreigner who has acquired shares of our common stock in excess of this ceiling may not exercise his voting rights with respect to the shares of our common stock exceeding the limit.
 
Under the Foreign Exchange Transaction Laws, a foreign investor who intends to acquire shares must designate a foreign exchange bank at which he must open a foreign currency account and a Won account exclusively for stock investments. No approval is required for remittance into Korea and deposit of foreign currency funds in the foreign currency account. Foreign currency funds may be transferred from the foreign currency account at the time required to place a deposit for, or settle the purchase price of, a stock purchase transaction to a Won account opened at an investment broker or an investment trader. Funds in the foreign currency account may be remitted abroad without any governmental approval.
 
Dividends on Shares are paid in Won. No governmental approval is required for foreign investors to receive dividends on, or the Won proceeds of the sale of, any shares to be paid, received and retained in Korea. Dividends paid on, and the Won proceeds of the sale of, any shares held by a non-resident of Korea must be deposited either in a Won account with the investor’s investment broker or investment trader or his Won Account. Funds in the investor’s Won Account may be transferred to his foreign currency account or withdrawn for local living expenses up to certain limitations. Funds in the Won Account may also be used for future investment in shares or for payment of the subscription price of new shares obtained through the exercise of preemptive rights.
 
Investment brokers and investment traders are allowed to open foreign currency accounts with foreign exchange banks exclusively for accommodating foreign investors’ stock investments in Korea. Through these accounts, these investment brokers and investment traders may enter into foreign exchange transactions on a limited basis, such as conversion of foreign currency funds and Won funds, either as a counterparty to or on behalf of foreign investors, without the investors having to open their own accounts with foreign exchange banks.
 
Item 10.E.   Taxation
 
The following summary is based upon tax laws of the United States and the Republic of Korea as in effect on the date of this annual report on Form 20-F, and is subject to any change in United States or Korean law that may come into effect after such date. Investors in the shares of common stock or ADSs are advised to consult their own tax advisers as to the United States, Korean or other tax consequences of the purchase, ownership and disposition of such securities, including the effect of any national, state or local tax laws.
 
Korean Taxation
 
The following summary of Korean tax considerations applies to you as long as you are not:
 
  •  a resident of Korea;
 
  •  a corporation organized under Korean law; or
 
  •  engaged in a trade or business in Korea through a permanent establishment or a fixed base.
 
Shares or ADSs
 
Dividends on Shares of Common Stock or ADSs
 
Unless an applicable tax treaty provides otherwise, we will deduct Korean withholding tax from dividends paid to you either in cash or shares at a rate of 22.0% (including resident surtax). If you are a resident of a country that has entered into a tax treaty with Korea, you may qualify for a reduced rate of Korean withholding tax under such a treaty. For example, if you are a qualified resident of the United States for purposes of the US-Korea Tax Treaty (the


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“Treaty”) and you are the beneficial owner of a dividend, a reduced withholding tax rate of 16.5% generally will apply. You will not be entitled to claim treaty benefits if you are not the beneficial owner of a dividend.
 
In order to obtain the benefits of a reduced withholding tax rate under a tax treaty, you must submit to us, prior to the dividend payment date, such evidence of tax residence as may be required by the Korean tax authorities. In the case of ADSs, evidence of tax residence may be submitted to us through the depositary. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have tax withheld at a lower rate.
 
If we distribute to you free shares representing a transfer of certain capital reserves or asset revaluation reserves into paid-in capital, that distribution may be a deemed dividend subject to Korean tax.
 
Capital Gains
 
Capital gain from a sale of shares of common stock will generally be exempt from Korean taxation if you have owned, together with certain related parties, less than 25.0% of our total issued shares during the year of sale and the five calendar years before the year of sale, and the sale is made through the KRX KOSPI Market, and you have no permanent establishment in Korea. Capital gain earned by a non-Korean holder from a sale of ADSs outside of Korea are exempt from Korean taxation by virtue of the Special Tax Treatment Control Law of Korea (the “STTCL”), provided that the issuance of the ADSs is deemed to be an overseas issuance under the STTCL.
 
If you are subject to tax on capital gain from a sale of ADSs, or shares of common stock that you acquired as a result of a withdrawal, your gain will be calculated based on your cost of acquiring the ADSs representing the shares of common stock, although there are no specific Korean tax provisions or rulings on this issue. In the absence of the application of a tax treaty that exempts tax on capital gain, the amount of Korean tax imposed on such capital gains will be the lesser of 11.0% (including resident surtax) of the gross realization proceeds or, subject to the production of satisfactory evidence of the acquisition cost and the transaction costs of the ADSs, 22.0% (including resident surtax) of the net capital gain.
 
If you sell your shares of common stock or ADSs, the purchaser or, in the case of a sale of shares of common stock on the KRX KOSPI Market or through a licensed securities company in Korea, the licensed securities company, is required to withhold Korean tax from the sales price in an amount equal to 11% of the gross realization proceeds and to make payment thereof to the Korean tax authorities, unless you establish your entitlement to an exemption of taxation under an applicable tax treaty or produce satisfactory evidence of your acquisition cost and the transaction costs for the shares of common stock or ADSs. In order to obtain the benefit of an exemption of tax pursuant to a tax treaty, you must submit to the purchaser or the securities company (or through the depositary), as the case may be, prior to the first payment, an exemption application, together with a certificate of your tax residence issued by a competent authority of your residence country. This requirement will not apply to exemptions under Korean tax law. Excess taxes withheld may be recoverable if you subsequently produce satisfactory evidence that you were entitled to have taxes withheld at a lower rate.
 
Most tax treaties that Korea has entered into provide exemptions for capital gains tax for capital gains from sale and purchase of shares of common stock. However, Korea’s tax treaties with Japan, Austria, Spain and a few other countries do not provide an exemption from such capital gains tax. For example, Article 13 of Korea’s tax treaty with Japan provides that if a taxpayer holding 25% or more (including those shares held by any related party of the taxpayer) of total issued shares of a company in a taxable year sells 5% or more (including those sold by any related party of the taxpayer) of total issued shares of the same company in the same taxable year, the country where the company is a resident may impose tax on such taxpayer.
 
Inheritance Tax and Gift Tax
 
Korean inheritance tax is imposed upon (a) all assets (wherever located) of the deceased if at the time of his death he was domiciled in Korea and (b) all property located in Korea which passes on death (irrespective of the domicile of the deceased). Gift tax is imposed in similar circumstances to the above. Taxes are currently imposed at the rate of 10% to 50% if the value of the relevant property is above a certain limit and vary according to the identity of the parties involved.


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Under Korean Inheritance and Gift Tax Law, shares issued by a Korean corporation are deemed located in Korea irrespective of where they are physically located or by whom they are owned. It remains unclear whether, for Korean inheritance and gift tax purposes, a non-resident holder of ADSs will be treated as the owner of the shares underlying the ADSs. If such non-resident is treated as the owner of the shares, the heir or donee of such non-resident (or in certain circumstances, the non-resident as the donor) will be subject to Korean inheritance or gift tax at the same rate as described above.
 
Securities Transaction Tax
 
If you transfer shares of common stock on the KRX KOSPI Market, you will be subject to securities transaction tax at a rate of 0.15% and an agriculture and fishery special tax at a rate of 0.15%, calculated based on the sales price of the shares. If you transfer shares of common stock and your transfer is not made on the KRX KOSPI Market you will generally be subject to the securities transaction tax at a rate of 0.5% and will generally not be subject to the agriculture and fishery special tax. Transfers of ADSs will not be subject to either the securities transaction tax or the agriculture and fishery special tax.
 
With respect to transfers of ADSs, a tax ruling recently issued in 2004 by the Korean tax authority appears to hold that depositary receipts (such as the ADSs) constitute share certificates subject to the securities transaction tax. In May 2007, the Seoul Administrative Court held that depositary receipts do not constitute share certificates subject to the securities transaction tax. In 2008, the case was upheld by the Seoul High Court and was further upheld by the Supreme Court. However, as the Supreme Court dismissed the tax authorities’ appeal without ruling on the substantive law issue, it is not clear if the Supreme Court’s decision for this case will serve as the Supreme Court’s precedent on this issue. Even if depositary receipts (such as the ADSs) constitute share certificates subject to the securities transaction tax under the Securities Transaction Tax Law, capital gains from a transfer of depositary receipts listed on the New York Stock Exchange, the Nasdaq National Market or other qualified foreign exchanges are exempt from the securities transaction tax.
 
United States Federal Income Taxation
 
This summary describes the material U.S. federal income tax consequences to you, if you are a U.S. holder (as defined below), of owning our shares of common stock or ADSs. This summary applies to you only if you hold shares of common stock or ADSs as capital assets for tax purposes. This summary does not apply to you if you are a member of a class of holders subject to special rules, such as:
 
  •  a dealer in securities or currencies;
 
  •  a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings;
 
  •  a bank;
 
  •  a life insurance company;
 
  •  a tax-exempt organization;
 
  •  a person that holds shares of common stock or ADSs that are a hedge or that are hedged against interest rate or currency risks;
 
  •  a person that holds shares of common stock or ADSs as part of a straddle or conversion transaction for tax purposes;
 
  •  a person whose functional currency for tax purposes is not the U.S. dollar; or
 
  •  a person that owns or is deemed to own 10% or more of any class of our stock.
 
This summary is based on laws, treaties and regulatory interpretations in effect on the date hereof, all of which are subject to change, possibly on a retroactive basis.
 
Please consult your own tax advisers concerning the U.S. federal, state, local and other national tax consequences of purchasing, owning and disposing of shares of common stock or ADSs in your particular circumstances.


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For purposes of this summary, you are a “U.S. holder” if you are a beneficial owner of shares of common stock or ADSs that is:
 
  •  a citizen or resident of the United States;
 
  •  a U.S. domestic corporation; or
 
  •  subject to U.S. federal income tax on a net income basis with respect to income from the shares of common stock or ADSs.
 
The Shares of Common Stock and ADSs
 
In general, if you hold ADSs, you will be treated as the holder of the shares of common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if you exchange an ADS for the shares of common stock represented by that ADS.
 
Dividends
 
The gross amount of cash dividends that you receive (prior to deduction of Korean taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income. Dividends paid in Won will be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your (or, in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the payment is in fact converted into U.S. dollars. If such a dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisers regarding the treatment of any foreign currency gain or loss on any Won received by a U.S. holders that are converted into U.S. dollars on a date subsequent to receipt.
 
Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2011 with respect to the ADSs and common stock will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on the ADSs and common stock will be treated as qualified dividends if (i) we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The income tax treaty between Korea and the United States (the “Treaty”) has been approved for the purposes of the qualified dividend rules. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2007 or 2008 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2009 taxable year. You should consult your own tax advisers regarding the availability of the reduced dividend tax rate in the light of your own particular circumstances.
 
Distributions of additional shares in respect of shares of common stock or ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.
 
Sales and Other Dispositions
 
For U.S. federal income tax purposes, gain or loss that you realize on the sale or other disposition of shares of common stock or ADSs will be capital gain or loss, and will be long-term capital gain or loss if the shares of common stock or ADSs were held for more than one year. Your ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder generally is subject to taxation at reduced rates.
 
Foreign Tax Credit Considerations
 
You should consult your own tax advisers to determine whether you are subject to any special rules that limit your ability to make effective use of foreign tax credits, including the possible adverse impact of failing to take


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advantage of benefits under the income tax treaty between the United States and Korea. If no such rules apply, you generally may claim a credit, up to any applicable reduced rates provided under the Treaty, against your U.S. federal income tax liability for Korean taxes withheld from dividends on shares of common stock or ADSs, so long as you have owned the shares of common stock or ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, you may, at your election, deduct such Korean taxes in computing your taxable income, subject to generally applicable limitations under U.S. tax law. Foreign tax credits will not be allowed for withholding taxes imposed in respect of certain hedged positions in securities and may not be allowed in respect of arrangements in which your expected economic profit is insubstantial. You may not be able to use the foreign tax credit associated with any Korean withholding tax imposed on a distribution of additional shares that is not subject to U.S. tax unless you can use the credit against United States tax due on other foreign-source income.
 
Any Korean securities transaction tax or agriculture and fishery special tax that you pay will not be creditable for foreign tax credit purposes.
 
The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions involve the application of complex rules that depend on a U.S. holder’s particular circumstances. You should consult your own tax advisers regarding the creditability or deductibility of such taxes.
 
U.S. Information Reporting and Backup Withholding Rules
 
Payments in respect of the shares of common stock or ADSs that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Holders that are not U.S. persons generally are not subject to information reporting or backup withholding. However, such a holder may be required to provide a certification of its non-U.S. status in connection with payments received within the United States or through a U.S.-related financial intermediary.
 
Item 10.F.   Dividends and Paying Agents
 
See “Item 8. Financial Information — Consolidated Statements and Other Financial Information — Dividends” for information concerning our dividend policies and our payment of dividends. See “Item 10. Additional Information — Item 10.B. Memorandum and Articles of Association — Dividends” for a discussion of the process by which dividends are paid on our common shares. See “Item 12. Description of Securities Other than Equity Securities — Description of American Depositary Shares — Dividends and Distributions” for a discussion of the process by which dividends are paid on our ADSs. The paying agent for payment of our dividends on ADSs in the United States is Citibank, N.A.
 
Item 10.G.   Statements by Experts
 
Not applicable.
 
Item 10.H.   Documents on Display
 
We are subject to the information requirements of the U.S. Securities Exchange Act of 1934, as amended, and, in accordance therewith, are required to file reports, including annual reports on Form 20-F, and other information with the U.S. Securities and Exchange Commission. These materials, including this annual report and the exhibits thereto, may be inspected and copied at the Commission’s public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. We are required to make filings with the Commission by electronic means, which will be available to the public over the Internet at the Commission’s web site at http://www.sec.gov.
 
Item 10.I.   Subsidiary Information
 
Not applicable.


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Item 11.   Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to foreign exchange rate and interest rate risks primarily associated with underlying liabilities, and to equity price risk as a result of our investment in equity-linked securities. Following evaluation of these positions, we selectively enter into derivative financial instruments to manage the related risk exposures. These contracts are entered into with major financial institutions, thereby minimizing the risk of credit loss. The activities of our finance division are subject to policies approved by our foreign exchange and interest rate risk management committee. These policies address the use of derivative financial instruments, including the approval of counterparties, setting of limits and investment of excess liquidity. Our general policy is to hold or issue derivative financial instruments only for hedging purposes.
 
For details of the assets and liabilities recorded relating to our derivative contracts outstanding as of December 31, 2007 and 2008, see Note 33 to the Consolidated Financial Statements. We recognized a valuation gain of W40 billion and a valuation loss of W16 billion in 2007 and a valuation gain of W651 billion and a valuation loss of W17 billion in 2008.
 
Exchange Rate Risk
 
Substantially all of our cash flow is denominated in Won. We are exposed to foreign exchange risk related to foreign currency denominated liabilities and anticipated foreign exchange payments. Anticipated foreign exchange payments, mostly in Dollars, relate primarily to payments of foreign currency denominated debt, net settlements paid to foreign telecommunication carriers and payments for equipment purchased from foreign suppliers.
 
In 2007 and 2008, we entered into various currency-related derivative contracts with various financial institutions, including the following:
 
         
Transaction Type
  Financial Institution   Description
 
Currency swap contracts
  Merrill Lynch and others   Exchange foreign currency cash flow for local currency cash flow for a specified period
Combined interest rate currency swap contracts
 
Merrill Lynch and others 		  Exchange foreign currency-denominated fixed or variable interest rate payments for local currency-denominated variable or fixed interest rate payments
Currency forward contracts
  Kookmin Bank and others   Exchange a specified currency at an agreed exchange rate at a specified date
 
Interest Rate Risk
 
We are also subject to market risk exposure arising from changing interest rates. A reduction of interest rates increases the fair value of our debt portfolio, which is primarily of a fixed interest nature. We use, to a limited extent, interest rate swap contracts and combined interest rate and currency swap contracts to reduce interest rate volatility on some of our debt and manage our interest expense by achieving a balanced mixture of floating and fixed rate debt. We entered into several interest rate swap contracts with Merrill Lynch and others in which we exchange fixed interest rate payments with variable interest rate payments for a specified period, as well as entered into the combined interest rate and currency swap contracts described above.


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The following table summarizes the carrying amounts, fair values, principal cash flows by maturity date and weighted average interest rates of our short-term and long-term liabilities as of December 31, 2008 which are sensitive to exchange rates and/or interest rates. The information is presented in Won, which is our reporting currency.
 
                                                                 
    Maturities  
                                        December 31, 2008  
    2009     2010     2011     2012     2013     Thereafter     Total     Fair Value  
    (In Won millions except rates)  
 
Local currency:
                                                               
Fixed rate
    1,636,291       1,524,326       1,405,771       580,608       730,608       608,428       6,486,032       6,389,560  
Average weighted rate(1)
    6.18 %     5.67 %     5.98 %     4.62 %     5.96 %     5.18 %     5.74 %     —  
Variable rate
    27,927       29,384       18,018       4,630       911       —       80,870       80,256  
Average weighted rate(1)
    6.64 %     6.75 %     6.24 %     5.91 %     5.91 %     0.00 %     6.54 %     —  
                                                                 
Sub-total
    1,664,218       1,553,710       1,423,789       585,238       731,519       608,428       6,566,902       6,469,816  
                                                                 
Foreign currency:
                                                               
Fixed rate
    —       50,424       38,535       251,500       —       1,634,750       1,975,209       1,955,797  
Average weighted rate(1)
    0.00 %     4.88 %     6.00 %     5.13 %     0.00 %     5.62 %     5.53 %     —  
Variable rate
    50,803       28,170       682,257       146,373       255,524       —       1,163,127       1,080,953  
Average weighted rate(1)
    5.81 %     4.94 %     2.92 %     4.45 %     4.36 %     0.00 %     3.53 %     —  
                                                                 
Subtotal
    50,803       78,594       720,792       397,873       255,524       1,634,750       3,138,336       3,036,750  
                                                                 
Total
    1,715,021       1,632,304       2,144,581       983,111       987,043       2,243,178       9,705,238       9,506,567  
                                                                 
 
 
(1) Weighted average rates of the portfolio at the period end.
 
Item 12.   Description of Securities Other than Equity Securities
 
Item 12.A.   Debt Securities
 
Not applicable.
 
Item 12.B.   Warrants and Rights
 
Not applicable.
 
Item 12.C.   Other Securities
 
Not applicable.
 
Item 12.D.   American Depositary Shares
 
Not applicable.
 
PART II
 
Item 13.   Defaults, Dividend Arrearages and Delinquencies
 
Not applicable.
 
Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds
 
Not applicable.


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Item 15.   Controls and Procedures
 
Disclosure Controls and Procedures
 
Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2008. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
 
Management’s Annual Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed by, and under the supervision of, our principal executive, principal operating and principal financial officers, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
 
Our internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Our management has completed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2008 based on criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2008.
 
Deloitte Anjin LLC, an independent registered public accounting firm, which also audited our consolidated financial statements as of, and for the year ended December 31, 2008, as stated in their report which is included herein, has issued an attestation report on the effectiveness of our internal control over financial reporting.
 
Attestation Report of the Registered Public Accounting Firm
 
The attestation report of our independent registered public accounting firm on the effectiveness of our internal control over financial reporting is furnished in Item 18 of this Form 20-F.


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Changes in Internal Control Over Financial Reporting
 
There has been no change in our internal control over financial reporting during the year covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Item 16.   [Reserved]
 
Item 16A.   Audit Committee Financial Expert
 
At our annual shareholders’ meetings in January and March 2009, our shareholders elected In-Man Song, Joon Park, Si-Chin Kang and E. Han Kim as members of the Audit Committee. Our Audit Committee is comprised of In-Man Song, Joon Park, Si-Chin Kang and E. Han Kim. The board of directors has approved this newly elected Audit Committee and determined that In-Man Song and Si-Chin Kang are audit committee financial experts and further determined that they are independent within the meaning of applicable SEC rules and the listing standards of the New York Stock Exchange.
 
Item 16B.   Code of Ethics
 
We have adopted a code of ethics, as defined in Item 16B. of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, as well as to our directors, other officers and employees. Our code of ethics is available on our web site at www.kt.com. If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our web site.
 
Item 16C.   Principal Accountant Fees and Services
 
Audit and Non-Audit Fees
 
The following table sets forth the fees billed to us by our independent auditors during the fiscal year ended December 31, 2007 and 2008:
 
                 
    Year Ended
 		 
    December 31,  
    2007     2008  
    (In millions)  
 
Audit fees
  W 3,078     W 3,741  
Audit-related fees
    —       —  
Tax fees
    12       25  
Other fees
    —       —  
                 
Total fees
  W 3,090     W 3,766  
                 
 
Audit fees in the above table are the aggregate fees billed by our auditors in connection with the audit of our annual financial statements and the review of our interim financial statements.
 
Audit Committee Pre-Approval Policies and Procedures
 
Our audit committee has not established pre-approval policies and procedures for the engagement of our independent auditors for services. Our audit committee instead expressly approves on a case-by-case basis any engagement of our independent auditors for audit and non-audit services provided to our consolidated subsidiaries or us.
 
Item 16D.   Exemptions from the Listing Standards for Audit Committees
 
Not applicable.


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Item 16E.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
The following table sets forth the repurchases of common shares by us or any affiliated purchasers during the fiscal year ended December 31, 2008:
 
                                 
            Total Number
 		  Maximum
            of Shares
 		  Number of
            Purchased as
 		  Shares that
            Part of
 		  May Yet be
    Total Number
 		  Average Price
 		  Publicly
 		  Purchased
    of Shares
 		  Paid per Share
 		  Announced
 		  Under the
Period
  Purchased   (In Won)   Plans(2)   Plans(2)
 
January 1 to January 31
    0       0       0       0  
February 1 to February 29
    0       0       0       0  
March 1 to March 31
    0       0       0       0  
April 1 to April 30
    0       0       0       0  
May 1 to May 31
    0       0       0       1,666,700  
June 1 to June 30
    280,000 (1)     44,848       280,000       1,386,700  
July 1 to July 31
    1,386,700 (1)     44,132       1,386,700       0  
August 1 to August 31
    0       0       0       0  
September 1 to September 30
    0       0       0       0  
October 1 to October 31
    0       0       0       0  
November 1 to November 30
    0       0       0       0  
December 1 to December 31
    0       0       0       0  
                                 
Total
    1,666,700       44,252       1,666,700       0  
                                 
 
 
(1) Purchased through open-market transactions.
 
(2) On June 18, 2008, we announced a plan to repurchase up to 1,666,700 common shares during the period from June 23, 2008 to September 19, 2008. On July 18, 2008, we completed the repurchase of such shares under this plan.
 
Neither we nor any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this annual report.
 
Item 16G.   Corporate Governance
 
The following is a summary of the significant differences between the New York Stock Exchange’s corporate governance standards and those that we follow under Korean law.
 
     
NYSE Corporate Governance Standards   KT Corporation’s Corporate Governance Practice
 
Director Independence
 		   
Independent directors must comprise a majority of the board.  
The Commercial Code of Korea requires that our board of directors must comprise no less than a majority of outside directors. Our outside directors must meet the criteria for outside directorship set forth under the Commercial Code of Korea.

The majority of our board of directors is independent (as defined in accordance with the New York Stock Exchange’s standards), and 7 out of 10 directors are outside directors.


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NYSE Corporate Governance Standards   KT Corporation’s Corporate Governance Practice
 
Nomination/Corporate Governance Committee    
Listed companies must have a nomination/corporate governance committee composed entirely of independent directors.   We have not established a separate nomination/corporate governance committee. However, we maintain an Outside Director Candidate Nominating Committee composed of all of our outside directors and one standing director. We also maintain a Corporate Governance Committee comprised of five outside directors and one standing director. The committee was formed on a temporary basis in May 2009 to prepare for our merger with KTF and recommend to the board revisions to the corporate governance practices applicable to the merged company. The committee is expected to dissolve in December 2009.
Compensation Committee    
Listed companies must have a compensation committee composed entirely of independent directors.   We maintain an Evaluation and Compensation Committee composed of four outside directors.
Executive Session    
Listed companies must hold meetings solely attended by non-management directors to more effectively check and balance management directors.   Our outside directors hold meetings solely attended by outside directors in accordance with the charter of our board of directors.
Audit Committee
   
Listed companies must have an audit committee that is composed of more than three directors and satisfy the requirements of Rule 10A-3 under the Exchange Act.   We maintain an Audit Committee comprised of four outside directors who meet the applicable independence criteria set forth under Rule 10A-3 under the Exchange Act.
Shareholder Approval of Equity Compensation Plan    
Listed companies must allow their shareholders to exercise their voting rights with respect to any material revision to the company’s equity compensation plan.   We currently have two equity compensation plans: one providing for the grant of stock options to officers and standing directors; and an employee stock ownership association program.
    All material matters related to the granting stock options are provided in our articles of incorporation, and any amendments to the articles of incorporation are subject to shareholders’ approval. Matters related to the employee stock ownership association program are not subject to shareholders’ approval under Korean law.
Corporate Governance Guidelines    
Listed companies must adopt and disclose corporate governance guidelines.   We have adopted Corporate Governance Guidelines in March 2009 setting forth our practices with respect to corporate governance matters. Our Corporate Governance Guidelines are in compliance with Korean law but do not meet all requirements established by the New York Stock Exchange for U.S. companies listed on the exchange. A copy of our Corporate Governance Guidelines in Korean is available on our website at www.kt.com
Code of Business Conduct and Ethics    
Listed companies must adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for executive officers.   We have adopted a Code of Ethics for all directors, officers and employees. A copy of our Code of Ethics in Korean is available on our website at www.kt.com

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PART III
 
Item 17.   Financial Statements
 
Not applicable.
 
Item 18.   Financial Statements
 
AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT CORPORATION
 
         
    Page
 
    F-1  
    F-2  
    F-3  
    F-4  
    F-6  
    F-8  
    F-16  
 
Item 19.   Exhibits
 
         
  1     Articles of Incorporation of KT Corporation (English translation) Form of Common Stock Certificate of KT Corporation, par value W5,000 per share (including translation in English)
  2 .1*   Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit(a)(i) of the Registrant’s Registration Statement (Registration No. 333-13578) on Form F-6)
  2 .2*   Form of Amendment No. 1 Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit(a)(ii) of the Registrant’s Registration Statement (Registration No. 333-13578) on Form F-6)
  2 .3*   Letter from Citibank, N.A., as depositary, to the Registrant relating to the pre-release of the American depositary receipts (incorporated herein by reference to the Registrant’s Registration Statement (Registration No. 333-10330) on Form F-6)
  2 .4*   Letter from Citibank, N.A., as depositary, to the Registrant relating to the establishment of a direct registration system for ADSs and the issuance of uncertified ADSs as part of the direct registration system. (incorporated herein by reference to Exhibit 2.4 of the Registrant’s Annual Report on Form 20-F filed on June 30, 2008)
  4 .1*   The Merger Agreement dated January 20, 2009, entered into by and between KT Corporation and KT Freetel Co., Ltd. (incorporated herein by reference to Annex I of the Registrant’s Registration Statement (Registration No. 333-156817) on Form F-4)
  8 .1   List of subsidiaries of KT Corporation
  12 .1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  12 .2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  13 .1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  15 .1   The Telecommunications Basic Law (English translation)
  15 .2   Enforcement Decree of the Telecommunications Basic Law (English translation)
  15 .3   The Telecommunications Business Act (English translation)
  15 .4   Enforcement Decree of the Telecommunications Business Act (English translation)
 
 
* Filed previously.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 
To the Board of Directors and Stockholders of
KT Corporation
Sungnam, Korea
 
We have audited the internal control over financial reporting of KT Corporation and subsidiaries (the “Company”) as of December 31, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting in Item 15. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on that risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
 
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheets and the related Consolidated Statements of Income, Cash Flows, and Changes in Equity of the Company as of and for the year ended December 31, 2008. Our report dated June 24, 2009 expressed an unqualified opinion on those financial statements and included an explanatory paragraph relating to the adoption of Statements of Korean Accounting Standards, reclassification of certain accounts in prior periods to conform to current period’s presentation, our audit comprehending the convenience translation of Korean won amounts to U.S. dollar amounts and information relating to the nature and effect of differences between accounting principles generally accepted in the Republic of Korea and accounting principles generally accepted in the United States of America.
 
/s/  Deloitte Anjin LLC
Seoul, Korea
June 24, 2009


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
KT Corporation
Sungnam, Korea
 
We have audited the accompanying Consolidated Balance Sheets of KT Corporation and subsidiaries (the “Company”) as of December 31, 2007 and 2008, and the related Consolidated Statements of Income, Cash Flows and Changes in Equity for years then ended (all expressed in Korean won). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company for the year ended December 31, 2006, before the effects of the adjustments to retrospectively apply the adoption of Statements of Korean Accounting Standards and reclassification of certain accounts as discussed in Note 2 to the consolidated financial statements were audited by other auditors whose report, dated May 25, 2007, expressed an unqualified opinion on those statements.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of KT Corporation and subsidiaries at December 31, 2007 and 2008, and the results of their operations and their cash flows for years then ended, in conformity with accounting principles generally accepted in the Republic of Korea.
 
As discussed in Note 2 to the consolidated financial statements, we have also audited the adjustments to the 2006 consolidated financial statements to retrospectively apply the adoption of Statements of Korean Accounting Standards and reclassify certain accounts in prior periods to conform to current period’s presentation. Our procedures included (1) comparing the adjustment amounts to the Company’s underlying analysis, and (2) testing the mathematical accuracy of the underlying analysis, and (3) on a test basis compared the adjustments to the Company’s supporting documentation. In our opinion, such retrospective adjustments are appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2006 consolidated financial statements of the Company other than with respect to the retrospective adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2006 consolidated financial statements taken as a whole.
 
Our audit also comprehended the translation of Korean won amounts into U.S. dollar amounts and, in our opinion, such convenience translation has been made in conformity with the basis stated in Note 2 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers of financial statements.
 
Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 38 to the consolidated financial statements.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 24, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
 
/s/  Deloitte Anjin LLC
Seoul, Korea
June 24, 2009


F-2

Table of Contents

 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Stockholders
KT Corporation:
 
We have audited, before the effects of the adjustments and disclosures to retrospectively apply the changes in accounting and reclassifications described in note 2, the accompanying consolidated statements of income, changes in equity and cash flows of KT Corporation and subsidiaries (the “Company”) for the year ended December 31, 2006, expressed in Korean Won. The 2006 consolidated financial statements before the effects of the adjustments and reclassifications discussed in note 2 are not presented herein. The 2006 consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We did not audit the financial statements of KT Freetel Co., Ltd. (“KTF”), a 52.2% owned subsidiary at December 31, 2006, as of and for the year ended December 31, 2006. The financial statements of KTF, which are included in the consolidated financial statements of the Company, reflect total revenues constituting 32.6% for the year ended December 31, 2006, of the related consolidated totals before the effects of the adjustments and reclassifications discussed in note 2. Those financial statements were audited by other auditors whose report has been furnished to us, and our report, insofar as it relates to the amounts included for KTF, is based solely on the report of the other auditors.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, based on our audit and the report of the other auditors, the 2006 consolidated financial statements, before the effects of the adjustments and disclosures to retrospectively apply the changes in accounting and reclassifications described in note 2, present fairly, in all material respects, the results of the Company’s operations and their cash flows for the year ended December 31, 2006 in accordance with accounting principles generally accepted in the Republic of Korea.
 
Accounting principles generally accepted in the Republic of Korea vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 38 to the consolidated financial statements.
 
We were not engaged to audit, review, or apply any procedures to the adjustments and disclosures to retrospectively apply the changes in accounting and reclassifications described in note 2 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments and disclosures were audited by a successor auditor.
 
/s/  KPMG Samjong Accounting Corp.
Seoul, Korea
May 25, 2007


F-3

Table of Contents

 
KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND 2008
 
                         
                (Note 2)  
    2007     2008     2008  
                In thousands of
 		 
                U.S. dollars  
    In millions of Korean won        
 
ASSETS
CURRENT ASSETS:
                       
Cash and cash equivalents (Notes 2, 16 and 31)
  W 1,384,985     W 1,890,918     $ 1,498,350  
Short-term investment assets (Notes 3, 6 and 16)
    460,170       417,138       330,537  
Accounts receivable — trade, less allowance for doubtful accounts of W484,279 million in 2007 and W482,242 million in 2008 (Notes 2, 11, 16, 17 and 32)
    2,621,035       3,014,687       2,388,817  
Loans, less allowance for doubtful accounts of W2,887 million in 2007 and W4,142 million in 2008 (Notes 2, 5 and 16)
    215,945       292,884       232,079  
Current finance lease receivables, less allowance for doubtful accounts of W563 million in 2007 and W2,355 million in 2008 (Notes 2, 14 and 29)
    78,103       180,954       143,387  
Accounts receivable — other, less allowance for doubtful accounts of W93,561 million in 2007 and W109,312 million in 2008 (Notes 2, 11 and 16)
    176,317       202,872       160,754  
Accrued revenues
    13,684       21,413       16,968  
Advance payments
    67,272       73,962       58,607  
Prepaid expenses
    54,918       99,214       78,616  
Prepaid income taxes
    1,411       1,518       1,203  
Guarantee deposits (Note 16)
    9,414       1,382       1,095  
Current derivative instruments assets (Notes 2 and 33)
    696       201,709       159,833  
Current deferred income tax assets (Notes 2 and 26)
    259,525       249,941       198,052  
Inventories (Notes 2, 4 and 29)
    299,104       424,841       336,641  
Other current assets
    220       393       311  
                         
Total Current Assets
    5,642,799       7,073,826       5,605,250  
                         
NON-CURRENT ASSETS:
                       
Available-for-sale securities (Notes 2 and 6)
    83,352       74,744       59,227  
Equity method investment securities (Notes 2 and 7)
    234,582       353,347       279,990  
Held-to-maturity securities (Notes 2 and 6)
    244       8,077       6,400  
Long-term loans to employees
    107,675       85,969       68,121  
Long-term financial instruments (Note 3)
    2,864       44       35  
Other investment assets
    41,478       23,819       18,874  
Property and equipment, at cost (Note 2, 8, 9, 14 and 29)
    49,503,020       49,393,746       39,139,260  
Less accumulated depreciation
    (33,998,827 )     (33,965,691 )     (26,914,177 )
Less accumulated impairment loss
    (10,990 )     (6,957 )     (5,513 )
Less contribution for construction
    (205,201 )     (232,467 )     (184,205 )
                         
Net property and equipment
    15,288,002       15,188,631       12,035,365  
                         
Intangible assets, net (Notes 2 and 10)
    1,735,323       1,474,238       1,168,176  
Leasehold rights and deposits (Notes 2 and 16)
    347,217       352,655       279,441  
Long-term accounts receivable — trade, less allowance for doubtful accounts of W10,601 million in 2007 and W13,320 million in 2008 (Notes 2, 11 and 17)
    144,804       282,162       223,583  
Long-term loans, less allowance for doubtful accounts of W3,028 million in 2007 and W7,734 million in 2008 (Notes 2 and 5)
    145,967       253,445       200,828  
Non-current finance lease receivables, less allowance for doubtful accounts of W860 million in 2007 and W3,642 million in 2008 (Notes 2, 14 and 29)
    137,827       290,799       230,427  
Non-current deferred income tax assets (Notes 2 and 26)
    91,429       235,514       186,620  
Long-term accounts receivable — other (Notes 2 and 11)
    36,171       17,260       13,677  
Non-current derivative instruments assets (Notes 2 and 33)
    3,681       302,689       239,849  
Other non-current assets
    83,470       121,385       96,184  
                         
Total Non-current Assets
    18,484,086       19,064,778       15,106,797  
                         
TOTAL ASSETS
  W 24,126,885     W 26,138,604     $ 20,712,047  
                         


F-4

Table of Contents

KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS — (Continued)
AS OF DECEMBER 31, 2007 AND 2008
 
                         
                (Note 2)  
    2007     2008     2008  
                In thousands of
 		 
                U.S. dollars  
    In millions of Korean won        
 
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
                       
Accounts payable — trade (Notes 11, 16 and 17)
  W 1,020,487     W 833,818     $ 660,712  
Short-term borrowings (Note 16)
    225,970       274,306       217,358  
Accounts payable — other (Notes 11, 14, 16 and 17)
    1,441,686       1,475,873       1,169,471  
Advance receipts
    87,442       119,356       94,577  
Withholdings (Note 16)
    200,744       228,517       181,075  
Accrued expenses (Notes 16 and 17)
    483,596       528,004       418,387  
Income taxes payable (Note 2)
    303,096       151,794       120,281  
Current portion of bonds and long-term borrowings (Notes 2, 11, 12 and 16)
    1,019,802       1,439,960       1,141,014  
Unearned revenue
    7,807       9,170       7,266  
Key money deposits (Notes 16 and 17)
    101,360       127,689       101,180  
Current derivative instruments liabilities (Notes 2 and 33)
    132,325       13,619       10,792  
Current accrued provisions (Notes 2 and 13)
    47,417       38,815       30,757  
Other current liabilities
    6,889       107       84  
                         
Total Current Liabilities
    5,078,621       5,241,028       4,152,954  
                         
NON-CURRENT LIABILITIES:
                       
Bonds (Notes 2, 12 and 16)
    5,842,827       7,662,663       6,071,841  
Long-term borrowings in Korean won (Notes 2, 11 and 12)
    110,935       146,813       116,334  
Long-term borrowings in foreign currency (Notes 2, 12 and 16)
    19,709       137,249       108,755  
Provisions for severance indemnities (Note 2)
    514,991       507,819       402,392  
Refundable deposits for telephone installation (Note 15)
    840,962       781,525       619,275  
Long-term accounts payable — trade (Note 11)
    —       16,856       13,357  
Long-term accounts payable — other (Notes 2, 11 and 14)
    469,255       317,101       251,269  
Long-term deposits received
    42,257       93,800       74,326  
Non-current accrued provisions (Notes 2 and 13)
    25,420       85,146       67,469  
Non-current deferred income tax liabilities (Notes 2 and 26)
    1,896       2,734       2,166  
Non-current derivative instruments liabilities (Notes 2 and 33)
    —       6,777       5,370  
Other non-current liabilities
    42,246       51,195       40,566  
                         
Total Non-current Liabilities
    7,910,498       9,809,678       7,773,120  
                         
Total Liabilities
    12,989,119       15,050,706       11,926,074  
                         
EQUITY:
                       
Common Stock (Notes 1 and 18)
    1,560,998       1,560,998       1,236,924  
Capital Surplus
    1,440,777       1,440,633       1,141,548  
Capital Adjustments:
                       
Treasury stock (Note 22)
    (3,825,688 )     (3,824,881 )     (3,030,809 )
Stock options (Notes 2 and 21)
    8,880       8,880       7,037  
Other share — based payments (Notes 2 and 21)
    1,022       1,420       1,125  
Other capital adjustments
    (168,143 )     (180,155 )     (142,754 )
                         
Total Capital Adjustments
    (3,983,929 )     (3,994,736 )     (3,165,401 )
                         
Accumulated Other Comprehensive Income (Note 20):
                       
Gain on translation of foreign operations (Note 2)
    2,471       11,083       8,782  
Loss on translation of foreign operations (Note 2)
    (13,195 )     (4,887 )     (3,872 )
Unrealized gain on valuation of available-for-sale securities (Notes 2 and 6)
    10,644       4,813       3,814  
Unrealized loss on valuation of available-for-sale securities (Notes 2 and 6)
    —       (4,345 )     (3,443 )
Gain on valuation of derivatives for cash flow hedge (Notes 2 and 33)
    2,024       11,136       8,824  
Loss on valuation of derivatives for cash flow hedge (Notes 2 and 33)
    —       (13,710 )     (10,864 )
Increase in equity of associates (Notes 2 and 7)
    2,766       10,369       8,216  
Decrease in equity of associates (Notes 2 and 7)
    (4,568 )     (3,580 )     (2,837 )
                         
Total Accumulated Other Comprehensive Income
    142       10,879       8,620  
                         
Retained Earnings
    9,843,775       9,814,115       7,776,636  
                         
Equity attributable to equity holders of the parent
    8,861,763       8,831,889       6,998,327  
                         
Minority Interest
    2,276,003       2,256,009       1,787,646  
                         
Total Equity
    11,137,766       11,087,898       8,785,973  
                         
TOTAL LIABILITIES AND EQUITY
  W 24,126,885     W 26,138,604     $ 20,712,047  
                         
 
See accompanying notes to consolidated financial statements


F-5

Table of Contents

 
KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 
                                 
                      (Note 2)  
    2006     2007     2008     2008  
    In millions of Korean won     In thousands of
 		 
          U.S. dollars  
 
OPERATING REVENUES (Notes 2, 17, 23, 24 and 34)
                               
Service revenue
  W 15,935,902     W 16,336,254     W 16,777,327     $ 13,294,237  
PCS handset sales
    1,888,978       2,323,828       2,867,216       2,271,962  
                                 
      17,824,880       18,660,082       19,644,543       15,566,199  
                                 
OPERATING EXPENSES (Notes 2, 17, 25, 34 and 35)
    15,441,504       16,914,741       18,216,781       14,434,850  
                                 
OPERATING INCOME
    2,383,376       1,745,341       1,427,762       1,131,349  
                                 
NON-OPERATING REVENUES:
                               
Interest income
    111,988       155,862       151,563       120,097  
Dividend income
    1,561       583       1,060       840  
Foreign currency transaction gain
    37,956       7,508       67,475       53,467  
Foreign currency translation gain (Note 2)
    126,215       8,626       40,668       32,225  
Equity in income of associates (Notes 2 and 7)
    8,685       24,285       16,061       12,727  
Gain on breach of contracts
    2,784       1,821       1,555       1,232  
Gain on disposal of useless materials
    21,919       25,328       —       —  
Gain on disposal of short-term investment assets
    880       2,094       446       353  
Gain on valuation of short-term investment assets
    158       1,085       537       426  
Gain on disposal of available-for-sale securities (Note 6)
    83,581       9,664       3,996       3,166  
Reversal of impairment losses of available-for-sale securities (Notes 2)
    227       76       —       —  
Reversal of impairment losses of held-to-maturity securities (Note 2)
    12,493       —       —       —  
Gain on disposal of equity method investment securities
    5,029       1,832       1       1  
Gain on disposal of property and equipment
    8,953       29,459       5,391       4,272  
Gain on disposal of intangible assets
    131       221       1,000       792  
Reversal of accrued provisions (Note 13)
    21,124       50,945       4,069       3,224  
Amortization of negative goodwill (Notes 2 and 10)
    —       518       65       52  
Gain on settlement of derivatives (Note 2)
    8,730       9,778       17,183       13,616  
Gain on valuation of derivatives (Notes 2 and 33)
    8,654       40,140       650,680       515,594  
Other non-operating revenue
    104,097       118,157       92,157       73,025  
                                 
Total Non-operating Revenues
    565,165       487,982       1,053,907       835,109  
                                 
NON-OPERATING EXPENSES:
                               
Interest expense
    (499,169 )     (466,461 )     (481,629 )     (381,639 )
Other bad debt expense (Note 2)
    (19,148 )     (4,473 )     (22,355 )     (17,714 )
Foreign currency transaction loss
    (12,638 )     (13,064 )     (63,422 )     (50,255 )
Foreign currency translation loss (Note 2)
    (15,675 )     (15,819 )     (802,452 )     (635,857 )
Equity in loss of associates (Notes 2 and 7)
    (15,390 )     (8,407 )     (28,386 )     (22,493 )
Loss on disposal of equity method investment securities
    (143 )     (549 )     (137 )     (109 )
Loss on impairment of equity method investment securities (Notes 2 and 7)
    —       —       (2,654 )     (2,103 )
Contribution payments for research and development
    (10,000 )     —       —       —  
Donations
    (76,257 )     (89,563 )     (79,544 )     (63,030 )
Loss on disposal of short-term investment assets
    —       —       (1,004 )     (796 )
Loss on valuation of short-term investment assets
    —       —       (1,841 )     (1,459 )
Loss on disposal of available-for-sale securities (Note 6)
    (5,161 )     (828 )     (250 )     (198 )


F-6

Table of Contents

KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF INCOME — (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 
                                 
                      (Note 2)  
    2006     2007     2008     2008  
    In millions of Korean won     In thousands of
 		 
          U.S. dollars  
 
Loss on Impairment of available-for-sale securities (Notes 2 and 6)
    (2,091 )     (1,809 )     (3,826 )     (3,032 )
Loss on impairment of investment assets
    (899 )     (6,855 )     (2,677 )     (2,121 )
Loss on disposal of property and equipment
    (108,290 )     (94,775 )     (94,308 )     (74,729 )
Loss on impairment of property and equipment (Notes 2 and 8)
    (1,555 )     (7,990 )     (20,676 )     (16,384 )
Loss on disposal of intangible assets
    (1,541 )     (535 )     (1,653 )     (1,310 )
Loss on impairment of intangible assets (Notes 2 and 10)
    (10,885 )     (9,178 )     (17,435 )     (13,815 )
Loss on disposal of accounts receivable — trade
    (10,881 )     (492 )     (582 )     (461 )
Loss on lease cancellation
    (22,695 )     —       —       —  
Loss on settlement of derivatives (Note 2)
    (25,313 )     (11,381 )     (9,665 )     (7,658 )
Loss on valuation of derivatives (Notes 2 and 33)
    (86,715 )     (15,542 )     (10,936 )     (8,666 )
Other non-operating expense
    (38,249 )     (37,839 )     (155,088 )     (122,891 )
                                 
Total Non-operating Expenses
    (962,695 )     (785,560 )     (1,800,520 )     (1,426,720 )
                                 
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
    1,985,846       1,447,763       681,149       539,738  
INCOME TAX EXPENSE ON CONTINUING OPERATIONS (Note 26)
    476,125       356,799       167,859       133,011  
NEWLY INCLUDED SUBSIDIARY’S NET LOSS BEFORE ACQUISITION
    —       5,810       —       —  
                                 
INCOME FROM CONTINUING OPERATIONS
    1,509,721       1,096,774       513,290       406,727  
INCOME (LOSS) FROM DISCONTINUING OPERATIONS (Note 27)
    (4 )     74,204       —       —  
                                 
NET INCOME
  W 1,509,717     W 1,170,978     W 513,290     $ 406,727  
                                 
Attributable to:
                               
EQUITY HOLDERS OF THE PARENT
  W 1,291,863     W 1,056,227     W 449,810     $ 356,426  
MINORITY INTEREST
    217,854       114,751       63,480       50,301  
                                 
    W 1,509,717     W 1,170,978     W 513,290     $ 406,727  
                                 
NET INCOME PER SHARE (Note 28)(*)
                               
Basic income per share from continuing operations (in Korean won)
  W 6,153     W 4,754     W 2,217     $ 1,757  
                                 
Basic net income per share (in Korean won)
  W 6,155     W 5,112     W 2,217     $ 1,757  
                                 
Diluted income per share from continuing operations (in Korean won)
  W 6,146     W 4,754     W 2,217     $ 1,757  
                                 
Diluted net income per share (in Korean won)
  W 6,148     W 5,112     W 2,217     $ 1,757  
                                 
 
 
(*) Income per share attributable to the equity holders of the parent
 
See accompanying notes to consolidated financial statements


F-7

Table of Contents

 
KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 
                                 
                      (Note 2)  
    2006     2007     2008     2008  
    In millions of Korean won     In thousands of
 		 
          U.S. dollars  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                               
Net income
  W 1,509,717     W 1,170,978     W 513,290     $ 406,727  
Expenses not involving cash payments:
                               
Share-based payment
    531       1,239       1,922       1,523  
Accrued severance indemnities
    240,843       359,473       362,342       287,117  
Depreciation
    3,228,293       3,225,887       3,264,291       2,586,601  
Amortization
    389,710       430,623       438,544       347,499  
Provision for doubtful accounts
    111,285       69,790       150,583       119,321  
Interest expense
    27,292       27,942       45,581       36,118  
Other bad debt expense
    19,148       3,539       22,355       17,714  
Foreign currency translation loss
    15,675       15,810       801,357       634,990  
Equity in loss of associates
    15,390       6,268       28,386       22,493  
Loss on disposal of equity method investment securities
    143       549       137       109  
Loss on impairment of equity method investment securities
    —       —       2,654       2,103  
Loss on disposal of short-term investment assets
    —       —       1,004       796  
Loss on valuation of short-term investment assets
    —       —       1,841       1,459  
Loss on disposal of available-for-sale securities
    5,161       603       250       198  
Loss on impairment of available-for-sale securities
    4,185       1,809       3,826       3,032  
Loss on impairment of investment assets
    899       139       2,677       2,121  
Loss on disposal of property and equipment
    108,290       94,604       94,308       74,729  
Loss on impairment of property and equipment
    1,555       7,990       20,676       16,384  
Loss on disposal of intangible assets
    1,541       535       1,653       1,310  
Loss on impairment of intangible assets
    10,885       8,957       17,435       13,815  
Loss on valuation of derivatives
    86,715       15,542       10,936       8,666  
Other non-operating expenses
    2,675       15,943       16,935       13,418  
                                 
Sub-total
    4,270,216       4,287,242       5,289,693       4,191,516  
                                 
Income not involving cash receipts:
                               
Interest income
    8,432       6,380       20,964       16,612  
Foreign currency translation gain
    130,038       8,279       40,490       32,084  
Equity in income of associates
    8,685       24,250       16,061       12,727  
Gain on disposal of short-term investment assets
    880       2,052       446       353  
Gain on valuation of short-term investment assets
    158       1,085       537       426  
Gain on disposal of available-for-sale securities
    83,605       9,479       3,996       3,166  
Reversal of impairment losses of available-for-sale securities
    227       76       —       —  
Reversal of impairment losses of held-to-maturity securities
    12,493       —       —       —  
Gain on disposal of equity method investment securities
    5,029       1,832       1       1  
Gain on disposal of property and equipment
    8,953       29,382       5,391       4,272  
Gain on disposal of intangible assets
    131       221       1,000       792  
Amortization of negative goodwill
    518       518       65       52  
Gain on valuation of derivatives
    8,654       40,140       650,680       515,594  
Other non-operating revenues
    —       4,373       2,780       2,202  
                                 
Sub-total
    (267,803 )     (128,067 )     (742,411 )     (588,281 )
                                 


F-8

Table of Contents

 
KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 
                                 
                      (Note 2)  
    2006     2007     2008     2008  
    In millions of Korean won     In thousands of
 		 
          U.S. dollars  
 
Changes in assets and liabilities related to operating activities:
                               
Accounts receivable — trade
    88,336       (463,325 )     (367,263 )     (291,017 )
Loans
    33,134       (228,022 )     (71,188 )     (56,409 )
Current finance lease receivables
    —       75,577       78,103       61,888  
Accounts receivable — other
    (26,848 )     123,167       20,460       16,212  
Accrued revenues
    791       (2,538 )     (7,676 )     (6,082 )
Advance payments
    45,414       (25,946 )     (6,919 )     (5,483 )
Prepaid expenses
    (8,343 )     (12,522 )     (44,282 )     (35,089 )
Prepaid income taxes
    —       (223 )     (107 )     (85 )
Guarantee deposits
    904       (7,195 )     8,026       6,360  
Derivative instruments, net
    (35,807 )     (3,381 )     166       132  
Deferred income tax, net
    74,351       (45,506 )     (126,811 )     (100,484 )
Other current assets
    (151 )     (77 )     (173 )     (137 )
Inventories
    140,036       (65,106 )     (131,305 )     (104,045 )
Leasehold rights and deposits
    (953 )     (36,349 )     (3,804 )     (3,014 )
Long-term accounts receivable — trade
    159,544       97,729       (253,257 )     (200,679 )
Long-term loans
    (192,656 )     (7,326 )     (113,229 )     (89,722 )
Non-current finance lease receivables
    —       (109,895 )     (299,257 )     (237,129 )
Long-term accounts receivable — other
    183       (26,910 )     (8,146 )     (6,455 )
Other non-current assets
    —       (8,778 )     (19,536 )     (15,480 )
Accounts payable — trade
    (132,168 )     239,238       (262,733 )     (208,188 )
Accounts payable — other
    153,661       (242,595 )     (160,717 )     (127,351 )
Advance receipts
    (420 )     (30,293 )     31,905       25,281  
Withholdings
    16,046       25,650       26,901       21,316  
Accrued expenses
    (35,593 )     67,302       44,402       35,184  
Income taxes payable
    184,726       (86,281 )     (152,286 )     (120,670 )
Unearned revenue
    (672 )     2,512       1,363       1,080  
Key money deposits
    7,967       4,049       77,868       61,702  
Accrued provisions
    (6,110 )     (29,931 )     18,500       14,659  
Other current liabilities
    3,091       (1,143 )     (6,782 )     (5,374 )
Payment of severance indemnities
    (79,533 )     (103,955 )     (220,800 )     (174,960 )
Deposits for severance indemnities
    (151,773 )     (132,471 )     (148,848 )     (117,946 )
Contribution to National Pension Fund
    109       (51 )     122       97  
Refundable deposits for telephone installation
    (49,670 )     (66,145 )     (59,437 )     (47,097 )
Long-term accounts payable — trade
    —       —       30,794       24,401  
Long-term accounts payable — other
    (6,446 )     —       (24,833 )     (19,677 )
Other non-current liabilities
    20,296       35,153       8,949       7,090  
                                 
Sub-total
    201,446       (1,065,587 )     (2,141,830 )     (1,697,171 )
                                 
Net Cash Provided by Operating Activities
    5,713,576       4,264,566       2,918,742       2,312,791  
                                 

F-9

Table of Contents

 
KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 
                                 
                      (Note 2)  
    2006     2007     2008     2008  
    In millions of Korean won     In thousands of
 		 
          U.S. dollars  
 
CASH FLOWS FROM INVESTING ACTIVITIES :
                               
Cash inflows from investing activities :
                               
Decrease in short-term investment assets
    728,351       182,501       544,946       431,811  
Disposal of available-for-sale securities
    19,303       1,183,121       614,822       487,181  
Decrease in equity method investment securities
    7,001       10,807       1,047       830  
Disposal of equity method investment securities
            —       1,580       1,252  
Collection of held-to-maturity securities
    607       252       65       51  
Collection of long-term loans to employees
    12,649       25,736       10,001       7,925  
Disposal of long-term financial instruments
            —       2,819       2,234  
Decrease in other investment assets
    760       3,480       5,630       4,461  
Disposal of land
    14,757       15,246       9,222       7,307  
Disposal of buildings
    13,892       4,791       17,650       13,986  
Disposal of structures
    377       17       4,674       3,704  
Disposal of machinery
    18,643       68,889       4,665       3,696  
Disposal of vehicles
    2,005       16,536       665       527  
Disposal of other property and equipment
    8,403       13,978       19,463       15,422  
Disposal of construction-in-progress
    902       10       26       21  
Increase of contribution for construction
    66,368       76,625       74,228       58,818  
Disposal of intangible assets
    —       706       17,013       13,481  
                                 
Sub-total
    894,018       1,602,695       1,328,516       1,052,707  
                                 
Cash outflows for investing activities :
                               
Acquisition of short-term investment assets
    31,200       61,397       343,115       271,882  
Acquisition of available-for-sale securities
    150,150       989,112       714,831       566,427  
Acquisition of equity method investment securities
    11,140       7,220       123,371       97,758  
Acquisition of assets and liabilities of consolidated subsidiaries
    —       124,384       55,655       44,101  
Acquisition of held-to-maturity securities
    281       5       13,988       11,084  
Increase in long-term loans to employees
    10,005       25,451       50,421       39,953  
Increase in long-term financial instruments
    1,089       18       11       9  
Increase in other investment assets
    23,938       19,826       6,245       4,948  
Acquisition of land
    304       1,424       225       178  
Acquisition of buildings
    910       3,398       38,787       30,735  
Acquisition of structures
    148       122       482       382  
Acquisition of machinery
    72,420       65,188       67,543       53,521  
Acquisition of vehicles
    2,076       990       33,161       26,277  
Acquisition of other property and equipment
    118,464       258,167       134,534       106,604  
Acquisition of construction-in-progress
    3,323,375       3,306,356       3,087,737       2,446,701  
Acquisition of intangible assets
    209,433       188,995       189,772       150,374  
                                 
Sub-total
    (3,954,933 )     (5,052,053 )     (4,859,878 )     (3,850,934 )
                                 
Net Cash Used in Investing Activities
    (3,060,915 )     (3,449,358 )     (3,531,362 )     (2,798,227 )
                                 

F-10

Table of Contents

 
KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 
                                 
                      (Note 2)  
    2006     2007     2008     2008  
    In millions of Korean won     In thousands of
 		 
          U.S. dollars  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                               
Cash inflows from financing activities :
                               
Increase in short-term borrowings
    179,748       49,601       455,117       360,632  
Issuance of bonds
    208,680       777,981       2,405,577       1,906,163  
Increase in long-term borrowings
    76,423       100,104       1,374,480       1,089,128  
Inflows from capital transactions of consolidated entities
    7,698       2,128       7,951       6,300  
                                 
Sub-total
    472,549       929,814       4,243,125       3,362,223  
                                 
Cash outflows for financing activities :
                               
Repayment of short-term borrowings
    109,252       —       412,579       326,925  
Payment of accounts payable — other
    —       118,470       29,764       23,585  
Repayment of current portion of bonds and long-term borrowings
    1,207,144       1,353,689       2,146,790       1,701,101  
Repayment of long-term borrowings
    42,543       132       697       552  
Repayment of bonds
    34,300       5,000       —       —  
Increase in accounts receivable — trade
    200,000       —       —       —  
Payment of dividends
    426,113       472,774       409,270       324,303  
Loss on translation of foreign operations
    10,131       —       —       —  
Acquisition of treasury stock
    213,664       196,329       73,807       58,484  
Outflows for capital transactions of consolidated entities
    596,566       151,666       118,868       94,190  
                                 
Sub-total
    (2,839,713 )     (2,298,060 )     (3,191,775 )     (2,529,140 )
                                 
Net Cash Provided by (Used in) Financing Activities
    (2,367,164 )     (1,368,246 )     1,051,350       833,083  
                                 
EFFECT OF CHANGES IN CONSOLIDATED ENTITIES
    (3,571 )     108,992       48,482       38,417  
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
    —       462       18,721       14,834  
                                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    281,926       (443,584 )     505,933       400,898  
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
    1,546,643       1,828,569       1,384,985       1,097,452  
                                 
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
  W 1,828,569     W 1,384,985     W 1,890,918     $ 1,498,350  
                                 
 
See accompanying notes to consolidated financial statements

F-11

Table of Contents

KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006
 
                                                         
                      Other
 		                   
    Common
 		    Capital
 		    Capital
 		    Comprehensive
 		    Retained
 		    Minority
 		       
    Stock     Surplus     Adjustments     Income (Loss)     Earnings     Interest     Total  
    (In millions of Korean won)  
 
Balance as of January 1, 2006 (as reported)
  W 1,560,998     W 1,391,432     W (3,870,288 )   W 3,166     W 8,786,413     W 2,518,213     W 10,389,934  
Cumulative effect of changes in accounting policies (Note 2)
    —       48,826       (48,826 )     —       —       —       —  
                                                         
As restated
    1,560,998       1,440,258       (3,919,114 )     3,166       8,786,413       2,518,213       10,389,934  
Dividends
    —       —       —       —       (426,113 )     (67,814 )     (493,927 )
                                                         
Retained earnings after appropriations
                                    8,360,300       2,450,399       9,896,007  
Net income for the period
    —       —       —       —       1,291,863       217,854       1,509,717  
Disposal of treasury stock
    —       652       13,913       —       —       —       14,565  
Retirement of treasury stock
    —       —       —       —       (213,664 )     —       (213,664 )
Appropriation of loss on disposal of treasury stock
    —       —       38,431       —       (38,431 )     —       —  
Acquisition of subsidiaries’ stock
    —       —       (94,435 )     —       —       (269,433 )     (363,868 )
Disposal of subsidiaries’ treasury stock
    —       —       5,646       —       —       2,052       7,698  
Appropriation of subsidiaries’ treasury stock
    —       —       (22,130 )     —       —       (142,754 )     (164,884 )
Retirement of subsidiaries’ treasury stock
    —       —       10,848       —       —       (10,848 )     —  
Changes in consolidated entities
    —       —       —       —       —       20,492       20,492  
Stock options
    —       —       227       —       —       (158 )     69  
Other share-based payments
    —       —       462       —       —       —       462  
Gain (loss) in translation of foreign operations
    —       —       —       (10,520 )     —       389       (10,131 )
Gain on valuation of available-for-sale securities
    —       —       —       (1,130 )     —       (796 )     (1,926 )
Increase in equity of associates
    —       —       —       2,712       —       55       2,767  
                                                         
Balance as of December 31, 2006
  W 1,560,998     W 1,440,910     W (3,966,152 )   W (5,772 )   W 9,400,068     W 2,267,252     W 10,697,304  
                                                         


F-12

Table of Contents

KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY — (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2007
 
                                                         
                      Other
 		                   
    Common
 		    Capital
 		    Capital
 		    Comprehensive
 		    Retained
 		    Minority
 		       
    Stock     Surplus     Adjustments     Income (Loss)     Earnings     Interest     Total  
    (In millions of Korean won)  
 
Balance as of January 1, 2007 (as reported)
  W 1,560,998     W 1,292,475     W (3,817,717 )   W (5,772 )   W 9,400,068     W 2,267,252     W 10,697,304  
Cumulative effect of changes in accounting policies
                                                       
(Note 2)
    —       148,435       (148,435 )     —       —       —       —  
                                                         
As restated
    1,560,998       1,440,910       (3,966,152 )     (5,772 )     9,400,068       2,267,252       10,697,304  
Dividends
    —       —       —       —       (416,191 )     (56,583 )     (472,774 )
                                                         
Retained earnings after appropriations
    —       —       —       —       8,983,877       2,210,669       10,224,530  
Net income for the year
    —       —       —       —       1,056,227       114,751       1,170,978  
Acquisition of treasury stock
    —       —       (196,329 )     —       —       —       (196,329 )
Disposal of treasury stock
    —       —       884       —       —       —       884  
Retirement of treasury stock
    —       —       196,329       —       (196,329 )     —       —  
Gain (loss) on disposal of treasury stock
    —       (133 )     —       —       —       —       (133 )
Acquisition of subsidiaries’ stock
    —       —       (1,152 )     —       —       (365 )     (1,517 )
Increase in subsidiaries’ capital stock
    —       —       212       —       —       1,916       2,128  
Acquisition of subsidiaries’ treasury stock
    —       —       (392 )     —       —       (620 )     (1,012 )
Appropriation of subsidiaries’ treasury stock
    —       —       (14,489 )     —       —       (79,582 )     (94,071 )
Changes in consolidated entities
    —       —       (3,302 )     (20,688 )     —       25,096       1,106  
Stock options
    —       —       25       —       —       —       25  
Other share-based payment
    —       —       1,022       —       —       —       1,022  
Other capital adjustments
    —       —       (585 )     —       —       (687 )     (1,272 )
Gain on translation of foreign operations
    —       —       —       55       —       —       55  
Loss on translation of foreign operations
    —       —       —       19,240       —       2,896       22,136  
Unrealized gain on valuation of available-for-sale Securities
    —       —       —       2,496       —       1,668       4,164  
Gain on valuation of derivatives for cash flow hedge
    —       —       —       2,024       —       —       2,024  
Increase in equity of associates
    —       —       —       (975 )     —       261       (714 )
Decrease in equity of associates
    —       —       —       3,762       —       —       3,762  
                                                         
Balance as of December 31, 2007
  W 1,560,998     W 1,440,777     W (3,983,929 )   W 142     W 9,843,775     W 2,276,003     W 11,137,766  
                                                         


F-13

Table of Contents

KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY — (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2008
 
                                                         
                      Other
 		                   
    Common
 		    Capital
 		    Capital
 		    Comprehensive
 		    Retained
 		    Minority
 		       
    Stock     Surplus     Adjustments     Income (Loss)     Earnings     Interest     Total  
    (In millions of Korean won)  
 
Balance as of January 1, 2008 (as reported)
  W 1,560,998     W 1,272,634     W (3,815,786 )   W 142     W 9,843,775     W 2,276,003     W 11,137,766  
Cumulative effect of changes in accounting policies
                                                       
(Note 2)
    —       168,143       (168,143 )     —       1,711       2,141       3,852  
                                                         
As restated
    1,560,998       1,440,777       (3,983,929 )     142       9,845,486       2,278,144       11,141,618  
Dividends
    —       —       —       —       (407,374 )     (1,896 )     (409,270 )
                                                         
Retained earnings after appropriations
    —       —       —       —       9,438,112       2,276,248       10,732,348  
Net income for the year
    —       —       —       —       449,810       63,480       513,290  
Acquisition of treasury stock
    —       —       (73,807 )     —       —       —       (73,807 )
Disposal of treasury stock
    —       —       807       —       —       —       807  
Retirement of treasury stock
    —       —       73,807       —       (73,807 )     —       —  
Gain (loss) on disposal of treasury stock
    —       (144 )     —       —       —       —       (144 )
Acquisition of subsidiaries’ stock
    —       —       (944 )     —       —       (210 )     (1,154 )
Increase in subsidiaries’ capital stock
    —       —       2,439       —       —       13,428       15,867  
Acquisition of subsidiaries’ treasury stock
    —       —       158       —       —       140       298  
Appropriation of subsidiaries’ treasury stock
    —       —       (14,651 )     —       —       (112,298 )     (126,949 )
Changes in consolidated entities
    —       —       —       —       —       14,964       14,964  
Other share-based payment
    —       —       398       —       —       —       398  
Other capital adjustments
    —       —       986       —       —       221       1,207  
Gain on translation of foreign operations
    —       —       —       8,612       —       4,947       13,559  
Loss on translation of foreign operations
    —       —       —       8,308       —       3,471       11,779  
Unrealized gain on valuation of available-for-sale Securities
    —       —       —       (5,831 )     —       (3,108 )     (8,939 )
Unrealized loss on valuation of available-for-sale securities
    —       —       —       (4,345 )     —       (3,200 )     (7,545 )
Gain on valuation of derivatives for cash flow hedge
    —       —       —       9,112       —       262       9,374  
Loss on valuation of derivatives for cash flow hedge
    —       —       —       (13,710 )     —       (4,660 )     (18,370 )
Increase in equity of associates
    —       —       —       7,603       —       2,351       9,954  
Decrease in equity of associates
    —       —       —       988       —       (27 )     961  
                                                         
Balance as of December 31, 2008
  W 1,560,998     W 1,440,633     W (3,994,736 )   W 10,879     W 9,814,115     W 2,256,009     W 11,087,898  
                                                         


F-14

Table of Contents

KT CORPORATION AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY — (Continued)
FOR THE YEAR ENDED DECEMBER 31, 2008
 
                                                         
                      Other
 		                   
    Common
 		    Capital
 		    Capital
 		    Comprehensive
 		    Retained
 		    Noncontrolling
 		       
    Stock     Surplus     Adjustments     Income (Loss)     Earnings     Interest     Total  
    (In thousands of U.S. dollars)  
 
Balance as of January 1, 2008 (as reported)
  $ 1,236,924     $ 1,008,426     $ (3,023,602 )   $ 113     $ 7,800,138     $ 1,803,489     $ 8,825,488  
Cumulative effect of changes in accounting policies (Note 2)
    —       133,236       (133,236 )     —       1,356       1,696       3,052  
                                                         
As restated Dividends
    1,236,924       1,141,662       (3,156,838 )     113       7,801,494       1,805,185       8,828,540  
                                                         
Retained earnings after appropriations
    —       —       —       —       (322,800 )     (1,502 )     (324,302 )
Net income for the year
    —       —       —       —       7,478,694       1,803,683       8,504,238  
Acquisition of treasury stock
    —       —       —       —       356,426       50,301       406,727  
Disposal of treasury stock
    —       —       (58,484 )     —       —       —       (58,484 )
Retirement of treasury stock
    —       —       640       —       —       —       640  
Gain (loss) on disposal of treasury stock
    —       —       58,484       —       (58,484 )     —       —  
Acquisition of subsidiaries’ stock
    —       (114 )     —       —       —       —       (114 )
Increase in subsidiaries’ capital stock
    —       —       (748 )     —       —       (166 )     (914 )
Acquisition of subsidiaries’ treasury stock
    —       —       1,933       —       —       10,640       12,573  
Appropriation of subsidiaries’ treasury stock
    —       —       125       —       —       111       236  
Changes in consolidated entities
    —       —       (11,609 )     —       —       (88,984 )     (100,593 )
Other share-based payment
    —       —       —       —       —       11,857       11,857  
Other capital adjustments
    —       —       315       —       —       —       315  
Gain on translation of foreign operations
    —       —       781       —       —       175       956  
Loss on translation of foreign operations
    —       —       —       6,824       —       3,920       10,744  
Unrealized gain on valuation of available-for-sale Securities
    —       —       —       6,583       —       2,751       9,334  
Unrealized loss on valuation of available-for-sale securities
    —       —       —       (4,620 )     —       (2,463 )     (7,083 )
Gain on valuation of derivatives for cash flow hedge
    —       —       —       (3,443 )     —       (2,536 )     (5,979 )
Loss on valuation of derivatives for cash flow hedge
    —       —       —       7,220       —       208       7,428  
Increase in equity of associates
    —       —       —       (10,864 )     —       (3,693 )     (14,557 )
Decrease in equity of associates
    —       —       —       6,024       —       1,863       7,887  
                                                         
Balance as of December 31, 2008
  $ 1,236,924     $ 1,141,548     $ (3,165,401 )   $ 8,620     $ 7,776,636     $ 1,787,646     $ 8,785,973  
                                                         
 
See accompanying notes to consolidated financial statements


F-15

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008
 
1.   ORGANIZATION AND DESCRIPTION OF THE BUSINESS
 
a.   Parent
 
KT Corporation (“KT”) commenced operations on January 1, 1982 through the segregation of specified operations from the previous Korean Ministry of Information and Communication (the “MIC”) for the purpose of contributing to the convenience in national life and improvement of public welfare through rational management of the public telecommunication business and improvement of telecommunication technology under the Korea Telecom Act.
 
Upon the announcements of the Government-Invested Enterprises Management Basic Act and the Privatization Law, as of October 1, 1997, KT became a government invested institution regulated by the Korean Commercial Code and KT’s shares were listed on the Korea Exchange (formerly “Korea Stock Exchange”) on December 23, 1998. KT issued 24,282,195 additional shares on May 29, 1999 and issued American Depository Shares (“ADS”), representing these new shares and government-owned shares on the New York Stock Exchange and the London Exchange. On July 2, 2001, additional ADS representing 55,502,161 government-owned shares were issued.
 
In 2002, KT acquired its 60,294,575 government-owned shares according to the government’s privatization plan for government-owned companies and there is no government-owned share as of December 31, 2008.
 
KT’s shares as of December 31, 2008 are owned as follows:
 
                 
    Number of
 		    Ownership
 		 
    Shares     Percentage (%)  
 
Employee Stock Ownership Association
    13,184,421       4.82 %
National Pension Service
    16,179,637       5.92 %
Others
    172,667,439       63.12 %
Treasury stock
    71,500,404       26.14 %
                 
Total
    273,535,700       100.00 %
                 
 
Prior to 1991, KT was the only telecommunication service provider in Korea. Since then, several new providers have entered the markets, as licensed by the MIC; an international call service by LG Dacom, the second telecommunication service provider, in December 1991, and local call service by Hanaro Telecom, the second local call provider, in 1999. Onse Telecom also entered a long-distance call service after its international call service. The entry of these new providers into the markets resulted in severe competition in fixed-line telephone services and high speed internet services in which large growth is not expected in the future. In order to develop new business areas, KT commercialized the Wireless Broadband Internet (“WiBro”) service in 2006 and launched new products such as mixed products which combine certain previous services and Internet Contests On Demand (“ICOD”) services under the new brand name “MegaTV” in 2007.


F-16

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
b.   Consolidated Subsidiaries
 
The consolidated financial statements included the subsidiaries of which KT is the largest stockholder with more than 30% of ownership interests. The consolidated subsidiaries as of December 31, 2008 are as follows:
 
                                 
          Year of
 		               
    Year of
 		    Obtaining
 		            Financial
 		 
Subsidiary
  Incorporation     Control     Primary Business   Location   Year End  
 
KT Powertel Co., Ltd. (“KTP”)
    1985       1985    
Trunk radio system business
  Korea     Dec.31  
KT Networks Corporation (“KTN”)
    1986       1986    
Group telephone management
  Korea     Dec.31  
KT Linkus Co., Ltd. (“KTL”)
    1988       1988    
Public telephone maintenance
  Korea     Dec.31  
KT Hitel Co., Ltd. (“KTH”)
    1991       1992    
Data communication
  Korea     Dec.31  
KT Submarine Co., Ltd. (“KTSC”)
    1995       1995    
Submarine cable construction and maintenance
  Korea     Dec.31  
KT Freetel Co., Ltd. (“KTF”)
    1997       1997    
PCS business
  Korea     Dec.31  
KT Commerce Inc. (“KTC”)
    2002       2002    
B2C, B2B service
  Korea     Dec.31  
KTF Technologies Inc. (“KTFT”)
    2001       2002    
PCS handset development
  Korea     Dec.31  
KT Internal Venture Fund No. 2
    2003       2003    
Investment fund
  Korea     Feb.28  
KTF M Hows Co., Ltd. (“KTF M Hows”)
    2004       2004    
Mobile marketing
  Korea     Dec.31  
KT Rental Co., Ltd. (“KTR”)
    2005       2005    
Rental service
  Korea     Dec.31  
Sidus FNH Corporation (“Sidus FNH”)
    2005       2005    
Movie production
  Korea     Dec.31  
Sidus FNH Benex Cinema Investment Fund
    2006       2006    
Movie investment fund
  Korea     Dec.31  
KT Capital Co., Ltd. (“KT Capital”)
    2006       2006    
Financing service
  Korea     Dec.31  
Telecop Service Co., Ltd. (“TSC”)
    2006       2006    
Security service
  Korea     Dec.31  
Olive Nine Co., Ltd. (“Olive Nine”)
    1999       2006    
Broad casting production
  Korea     Dec.31  
KTF M&S Co., Ltd. (“KTF M&S”)
    2007       2007    
PCS distribution
  Korea     Dec.31  
KT FDS Co., Ltd. (“KT FDS”)
    1990       2007    
Software development and system integration
  Korea     Dec.31  
KTF Music Corporation (“KTF Music” formerly, Bluecord Technology Co., Ltd.)
    1991       2007    
Semiconductor and telecommunication equipment manufacture
  Korea     Dec.31  
Doremi Media Co., Ltd. (“Doremi Media”)
    1997       2007    
Recording device (magneto-optical disk) and music disc manufacture
  Korea     Dec.31  
Nasmedia, Inc. (“Nasmedia”)
    2000       2008    
Online advertisement
  Korea     Dec.31  
Sofnics, Inc.(“Sofnics”)
    2008       2008    
Software development and sales
  Korea     Dec.31  
JungBoPremiumEdu Co., Ltd. (“JB Edu”)
    2008       2008    
Online education business
  Korea     Dec.31  
KT New Business Fund No. 1
    2008       2008    
Investment fund
  Korea     Dec.31  
KT DataSystems Co., Ltd. (“KTDS”)
    2008       2008    
System integration and maintenance
  Korea     Dec.31  
Korea Telecom America, Inc. (“KTAI”)
    1993       1993    
Foreign telecommunication business
  America     Dec.31  
New Telephone Company, Inc. (“NTC”)
    1993       1998    
Foreign telecommunication business
  Russia     Dec.31  
Korea Telecom Japan Co., Ltd. (“KTJ”)
    1999       1999    
Foreign telecommunication business
  Japan     Dec.31  
Korea Telecom China Co., Ltd. (“KTCC”)
    2003       2003    
Foreign telecommunication business
  China     Dec.31  
PT. KTF Indonesia
    2005       2005    
Foreign telecommunication business
  Indonesia     Dec.31  
Super iMax
    2007       2007    
Wireless high speed internet business
  Uzbekistan     Dec.31  
East Telecom
    2003       2007    
Fixed line telecommunication business
  Uzbekistan     Dec.31  
KTSC Investment Management B.V. 
    2007       2007    
Management of investment in Super iMax and East Telecom
  Netherlands     Dec.31  


F-17

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Details of investments in subsidiaries as of December 31, 2006, 2007 and 2008 are as follows :
 
                                     
    Year of
 		        Ownership percentage (%)  
Subsidiary
  Establishment     Primary Business   2006     2007     2008  
 
KTP
    1985    
Trunk radio system business
    44.85 %     44.85 %     44.85 %
KTN
    1986    
Group telephone management
    100.00 %     100.00 %     100.00 %
KTL
    1988    
Public telephone maintenance
    93.82 %     93.82 %     93.82 %
KTH
    1991    
Data communication
    65.94 %     65.94 %     65.94 %
KTSC
    1995    
Submarine cable construction and maintenance
    36.92 %     36.92 %     36.92 %
KTF (Note 1)
    1997    
PCS Business
    52.19 %     52.99 %     54.25 %
KTC (Note 2)
    2002    
B2C, B2B service
    100.00 %     100.00 %     100.00 %
KTFT
    2001    
PCS handset development
    74.94 %     78.79 %     78.79 %
KT Internal Venture Fund No. 2
    2003    
Investment fund
    94.34 %     94.34 %     94.34 %
KTF M Hows (Note 3)
    2004    
Mobile marketing
    51.00 %     51.00 %     51.00 %
KTR
    2005    
Rental service
    100.00 %     100.00 %     100.00 %
Sidus FNH (Note 4)
    2005    
Movie production
    51.00 %     51.00 %     51.00 %
Sidus FNH Benex Cinema Investment Fund (Note 5)
    2006    
Movie investment fund
    43.33 %     43.33 %     43.33 %
KT Capital (Note 6)
    2006    
Financing service
    100.00 %     100.00 %     100.00 %
TSC (Note 7)
    2006    
Security service
    93.82 %     93.82 %     90.12 %
Olive Nine. (Note 8)
    1999    
Broadcasting production
    19.68 %     19.20 %     19.48 %
KTF M&S (Note 9)
    2007    
PCS distribution
    —       100.00 %     100.00 %
KT FDS
    1990    
Software development and system integration
    —       100.00 %     100.00 %
KTF Music (formerly, Bluecord Technology Co.,Ltd.) (Note 10)
    1991    
Semiconductor and telecommunication equipment manufacture
    —       35.28 %     35.28 %
Doremi Media (Note 11)
    1997    
Recording device (magneto-optical disk) and music disc manufacture
    —       64.24 %     64.24 %
Nasmedia (Note 12)
    2008    
Online advertisement
    —       —       50.00 %
Sofnics (Note 13)
    2008    
Software development and sales
    —       —       60.00 %
JB Edu (Note 14)
    2008    
Online education business
    —       —       54.55 %
KT New Business Fund No. 1 (Note 15)
    2008    
Investment fund
    —       —       100.00 %
KTDS (Note 16)
    2008    
System integration and maintenance
    —       —       100.00 %
KTAI
    1993    
Foreign telecommunication business
    100.00 %     100.00 %     100.00 %
NTC
    1993    
Foreign telecommunication business
    79.96 %     79.96 %     79.96 %
KTJ
    1999    
Foreign telecommunication business
    100.00 %     100.00 %     100.00 %
KTCC
    2003    
Foreign telecommunication business
    100.00 %     100.00 %     100.00 %
PT. KTF Indonesia (Note 17)
    2005    
Foreign telecommunication business
    99.00 %     99.00 %     99.00 %
Super iMax (Note 18)
    2007    
Wireless high speed internet business
    —       60.00 %     100.00 %
East Telecom (Note 18)
    2003    
Fixed line telecommunication business
    —       51.00 %     85.00 %
KTSC Investment Management B.V. (Note 18)
    2007    
Management of investment in Super iMax and East Telecom
    —       60.00 %     60.00 %


F-18

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
     
(Note 1)
  KTF purchased 4,448,000 shares of treasury stock for retirement by a charge against its retained earnings. As a result, the Company’s equity ownership interest in KTF increased from 53.0% to 54.3% as of December 31, 2008.
(Note 2)
  KTC is owned 19.0% by KT and 81.0% by KTH, respectively.
(Note 3)
  KTF M Hows is owned 51.0% by KTF.
(Note 4)
  Sidus FNH is owned 35.7% by KT and 15.3% by KTF, respectively.
(Note 5)
  Sidus FNH Benex Cinema Investment Fund is owned 13.3% by KT, 6.7% by KTF, 3.3% by KTH and 20.0% by Sidus FNH, respectively.
(Note 6)
  On December 1, 2006, KTR was spun off into KTR and KT Capital.
(Note 7)
  During the year ended December 31, 2008, TSC, which was spun off from the KTL on November 14, 2006, issued new shares and accordingly, KT’s ownership interest in TSC has decreased from 93.8% to 90.1% as of December 31, 2008.
(Note 8)
  As KT holds rights to appoint the majority of the members of the board of directors of Olive Nine, it is determined that Olive Nine is controlled by KT and included in the consolidated subsidiaries. In addition, KT’s ownership interest in Olive Nine increased from 19.2% to 19.5% at December 31, 2008 according to the conversion of convertible bonds and purchase of additional shares.
(Note 9)
  KTF M&S is owned 100.0% by KTF.
(Note 10)
  KTF Music (formerly, Bluecord Technology Co., Ltd.) is owned 35.3% by KTF.
(Note 11)
  Doremi Media is owned 64.2% by KTF Music (formerly, Bluecord Technology Co., Ltd.).
(Note 12)
  During the year ended December 31, 2008, KT obtained 50.0% ownership interest plus one share of Nasmedia for W26,055 million.
(Note 13)
  During the year ended December 31, 2008, KT obtained 60.0% ownership interest of Sofnics for W600 million.
(Note 14)
  During the year ended December 31, 2008, KT obtained 54.6% ownership interest of JB Edu for W6,000 million.
(Note 15)
  During the year ended December 31, 2008, KT and KT Capital obtained 90.9% and 9.1% ownership interests for W10,000 million and W1,000 million, respectively, of KT New Business Fund No. 1, respectively.
(Note 16)
  During the year ended December 31, 2008, KT and KTF obtained 80.0% and 20.0% ownership interests for W9,600 million and W2,400 million of KTDS, respectively.
(Note 17)
  PT. KTF Indonesia is owned 99.0% by KTF.
(Note 18)
  During the year ended December 31, 2008, KT additionally invested in KTSC Investment Management B.V. cash of W15,009 million and in-kind contribution of W15,836 million which consists of the shares of Super iMax and East Telecom totaling W1,321 million and W14,515 million, respectively, together with other stockholder on a proportionate basis. As a result, KTSC Investment Management B.V. obtained 100.0% ownership interest of Super iMax and 85.0% ownership interest of East Telecom, respectively.
 
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
a.   Basis of Financial Statement Presentation
 
The Company maintains its official accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the Republic of Korea may not conform with generally accepted accounting principles in other countries. To conform more closely to presentations customary in filings with the Securities and


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Exchange Commission of the United States of America, the accompanying consolidated financial statements have been restructured and translated into English for the convenience of the readers of financial statements. Certain supplementary information included in the statutory Korean language consolidated financial statements, not required for a fair presentation of the Company and its subsidiaries’ financial position or result of operations, is not presented in the accompanying consolidated financial statements.
 
b.   Adoption of Statements of Korea Accounting Standards (“SKAS”)
 
Through December 31, 2008, Korea Accounting Institute and Financial Supervisory Service have issued and revised various Korea accounting standards and the following is a summary of major changes, which are newly adopted by the Company.
 
     
Accounting Standards
 
Key Requirements
 
SKAS No. 25 “Consolidated Financial Statements”
 
•   If negative consolidated capital surplus is incurred, it is first charged to related consolidated capital surplus, and remaining amount is recorded as a consolidated capital adjustment.
Opinion on Application of Accounting Standards 06-2,
“Accounting for Recognition of Deferred Tax Related to Investments on a Subsidiary”
 
•   Temporary differences related to investments in subsidiary, equity method investee or joint venture are not classified by origin but are treated as a lump-sum difference in considering whether to recognize deferred tax assets or liabilities. However, temporary differences arising from certain transactions under SKAS No. 16, such as elimination of inter-company transactions through equity method, shall be separately treated in the same way as they are recognized in the consolidated financial statements.
 
As a result of the adoption of the accounting standards, the Company’s total assets at the beginning of 2008 and as of December 31, 2008 increased by W3,852 million and W7,933 million, respectively, and net income for the year ended December 31, 2008 increased by W2,196 million, even though there was no impact on the net income for the years ended December 31, 2006 and 2007.
 
c.   Cash and Cash Equivalents
 
Cash and cash equivalents includes cash, substitute securities including checks issued by others, and checking accounts, ordinary deposits and financial instruments, which can be easily converted into cash and whose value changes due to changes in interest rates are not material, with maturities (or date of redemption) of three months or less upon acquisition.
 
d.   Allowance for Doubtful Accounts
 
An allowance for doubtful accounts is provided to cover estimated losses on receivables (account receivable — trade, accounts receivable — other, loans and other), based on collection experience and analysis of the collectability of individual outstanding receivables.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Changes in the allowance for doubtful accounts for accounts receivable — trade and loans for each of the three years in the period ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Balance at the beginning of year
  W 613,873     W 563,164     W 487,729  
Provision
    111,285       71,502       150,583  
Write-offs
    (161,994 )     (146,937 )     (149,573 )
                         
Balance at the end of year
  W 563,164     W 487,729     W 488,739  
                         
 
e.   Inventories
 
Inventories, which consist mainly of supplies for telecommunication facilities and PCS handsets for sales, are stated at the acquisition cost, with cost determined using the moving average method, except for goods-in-transit and land for construction for which cost are determined using the specific identification method. During the year, perpetual inventory systems are used to value inventories, which are adjusted to physical inventory counts performed at the end of the year. When the market value of inventories (net realizable value for merchandise and current replacement cost for supplies) is less than the carrying value, carrying value is stated at the lower of cost or market. The lower of cost or market method is applied by group of inventories and loss on inventory valuation is presented as a deductive item from inventories and charged to operating expenses. However, when the circumstances that previously caused inventories to be written down below cost no longer exist and the new market value of inventories subsequently recovers, the valuation loss is reversed to the extent of the original valuation loss and the reversal is deducted from operating expenses.
 
f.   Securities (excluding the equity method investment securities)
 
Debt and equity securities are initially stated at the market value of consideration given for acquisition (market value of securities acquired if market value of consideration given is not available) plus incidental costs attributable to the acquisition of the securities and are classified into trading, available-for-sale and held-to-maturity securities depending on the purpose and nature of acquisition. Trading securities are presented as short-term investments while available-for-sale securities and held-to-maturity securities are presented as short-term investments or long-term investment securities depending on their nature in the balance sheet. The moving average method for equity securities and the specific identification method for debt securities are used to determine the cost of securities for the calculation of gain (loss) on disposal of those securities.
 
• Trading securities
 
Securities that are bought and held principally for the purpose of selling them in the near term with active and frequent buying and selling, including securities which consist of a portfolio of securities with the clear objective of generating profits on short-term differences in price, are classified as trading securities. Trading securities are recorded at their fair value and unrealized gains or losses from trading securities are recorded as gain (loss) on valuation of trading securities included in the non-operating revenues (expenses).
 
• Held-to-maturity securities
 
Debt securities that have fixed or determinable payments with a fixed maturity are classified as held-to-maturity securities only if the Company has both the positive intent and ability to hold those securities to maturity. However, debt securities, whose maturity dates are due within one year from the balance sheet date are classified as current assets.
 
After initial recognition, held-to-maturity securities are stated at amortized cost in the balance sheet. When held-to-maturity securities are measured at amortized costs, the difference between their acquisition cost and face


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
value is amortized using the effective interest rate method and the amortization is included in the cost and interest income.
 
When the possibility of not being able to collect the principal and interest of held-to-maturity securities according to the terms of the contracts is highly likely, the difference between the recoverable amount (the present value of expected cash flows using the effective interest rate upon acquisition of the securities) and book value are recorded as loss on impairment of held-to-maturity securities included in the non-operating expenses and the held-to-maturity securities are stated at the recoverable amount after impairment loss. If the value of impaired securities subsequently recovers and the recovery can be objectively related to an event occurring after the impairment loss was recognized, the reversal of impairment loss are recorded as reversal of impairment loss on held-to-maturity securities included in non-operating revenues. However, the resulting carrying amount after the reversal of impairment loss shall not exceed the amortized cost that would have been measured, at the date of the reversal, if no impairment loss were recognized.
 
• Available-for-sale securities
 
Debt and equity securities that do not fall under the classifications of trading or held-to-maturity securities are categorized and presented as available-for-sale securities included in investment assets. However, if an available-for-sale security matures or it is certain that such security will be disposed of within one year from the balance sheet date, it is classified as a current asset.
 
Available-for-sale securities are recorded at fair value. Unrealized gain or loss from available-for-sale securities are presented as gain or loss on valuation of available-for-sale securities included in accumulated other comprehensive income of stockholders’ equity. In addition, accumulated gain or loss on valuation of available-for-sale securities are reflected in either gain or loss on disposal of available-for-sale securities or loss on impairment of available-for-sale securities upon disposal or recognition of impairment of the securities. However, available-for-sale equity securities that are not marketable and whose fair value cannot be reliably measured are recorded at acquisition cost.
 
When there is objective evidence that the available-for-sale securities are impaired and the recoverable amount is lower than the cost (amortized cost for debt securities) of the available-for-sale securities, an impairment loss is recognized as loss on impairment of available-for-sale securities of non-operating expenses and the related unrealized gain or loss remaining in stockholders’ equity is adjusted to the impairment loss. If the value of impaired securities subsequently recovers and the recovery can be objectively related to an event occurring after the impairment loss was recognized, the reversal of impairment loss can be recognized up to the previously recorded impairment loss as a reversal of loss on impairment of available-for-sale securities included in non-operating revenues. However, if the fair value increases after the impairment loss is recognized but does not relate to the recovery of impairment loss as described above, the increase in fair value is recorded in stockholders’ equity.
 
• Reclassification of securities
 
Trading securities should not be reclassified to other categories of securities. However, when those securities can no longer be held for sale in the near-term to generate profits from short-term price differences, the trading securities can be reclassified as available-for-sale or held-to-maturity securities. When those securities are no longer traded in an active market, such securities are reclassified as available-for-sale securities.
 
When trading securities are reclassified to other categories, the fair value (latest market value) as of the date of the reclassification becomes new acquisition cost of the security and the security’s unrealized holding gain or loss through the date of the reclassification should be recorded in non-operating revenues or expenses.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
g.   Equity Method Investment Securities
 
Investments in equity securities of companies, over which the Company exercises significant influence, are reported using the equity method of accounting.
 
• Accounting for changes in the equity of the investee
 
Under the equity method of accounting, the Company records changes in its proportionate equity of the net assets of the investee depending on the nature of the underlying changes in the investee as follows; (i) “equity in income (loss) of associates” in the non-operating revenues (expense) for net income (loss) of the investee; (ii) “increase (decrease) in retained earnings of associates” in the retained earnings for changes in beginning retained earnings of the investee; (iii) “increase (decrease) in equity of associates” in the accumulated other comprehensive income (loss) for other changes in stockholders’ equity of the investee.
 
When the equity method investee’s unappropriated retained earnings carried over from prior period changes due to significant error corrections, the Company records the changes in equity as “equity in income (loss) of associates” included in the non-operating revenues (expenses) unless the impact of the changes on the Company’s consolidated financial statements is significant. If the changes results from the changes in accounting policies of the equity method investee, they are reflected in the unappropriated retained earnings carried over from prior period in accordance with SKAS on changes in accounting policy and errors corrections. When the investee declares cash dividends, the dividends to be received are deducted directly from equity method investment securities.
 
• Treatment of investment difference
 
Difference between the acquisition cost and the Company’s proportionate equity in the fair value of net assets of the investee upon acquisition (“Investment difference”) are considered as (negative) goodwill and accounted for in accordance with accounting standards for business combination. The goodwill portion which is amortized over useful lives (4~10 years) on a straight line method and the negative goodwill portion which is amortized over the weighted average useful lives of depreciable non-monetary assets of the investee are included in “equity in income (loss) of associates”.
 
When the Company’s equity interest in the investee increases due to an increase (or decrease) in contributed capital with (or without) consideration, the changes in the Company’s proportionate equity in the investee is accounted for as investment difference. If the Company’s equity interest decreases, the changes are accounted for as “gain (loss) on disposal of the equity method investment securities”.
 
• Difference between the fair value and book value of net assets of the investee
 
Upon acquisition of the equity method investment securities, the Company’s proportionate shares in the differences between the fair values and book values of the identifiable assets and liabilities of the investee are amortized/reversed and included in “equity in income (loss) of associates” in accordance with the investee’s methods of accounting for the assets and liabilities.
 
• Elimination of unrealized gain or loss from intercompany transactions
 
The Company’s proportionate share in the gain (loss) arising from transactions between the Company and the investee, which remains in the book value of assets held as of balance sheet date is considered unrealized gain (loss) and adjusted to equity method investment securities.
 
• Impairment loss on equity method investment securities
 
When there is objective evidence that the equity method investment securities are impaired and the recoverable amount is lower than the carrying amount of the equity method investment securities, an impairment loss is


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
recognized as “loss on impairment of equity method investment securities” included in non-operating expenses and shall first reduce the unamortized investment difference, if any. When the recoverable amount is recovered after the recognition of impairment loss, the reversal of impairment loss can be recognized as income up to the previously recorded impairment loss. The book value of the equity method investment securities after the reversal of the impairment loss cannot exceed the book value calculated as if the impairment loss had not been originally recognized. The reversal of the impairment loss recognized against the unamortized investment difference is not allowed.
 
• Translation of financial statements of overseas investees
 
For overseas investees whose financial statements are prepared in foreign currencies, the equity method of accounting is applied after assets and liabilities are translated in accordance with the accounting treatments for the translation of the financial statements of overseas’ subsidiaries for consolidated financial statements. The Company’s proportionate share of the difference between assets net of liabilities and stockholders’ equity after translation into Korean won is accounted for as “increase (decrease) in equity of associates” included in the accumulated other comprehensive income (loss).
 
h.   Property and Equipment
 
Property and equipment are stated at cost (acquisition cost or manufacturing cost plus expenditures directly related to preparing the asset ready for use), except for those contributed by the government and stated at amounts revalued on January 1, 1982, and assets acquired from investment in kind, by donation or free of charge in other ways are stated at fair value as an acquisition cost. Expenditures after acquisition or completion that increase future economic benefit in excess of the most recently assessed capability level of the asset are capitalized; other expenditures are charged to expense as incurred. Borrowing costs in relation to the manufacture, purchase, construction or development of assets are charged to current operations.
 
Depreciation is computed by the declining-balance method (except for buildings, structures, underground access to cable tunnels, and concrete and steel telephone poles that are depreciated using the straight-line method) based on the following useful lives of the related units of property and equipment and the accumulated depreciation and impairment are directly deducted from the related assets.
 
     
    Useful Lives (Years)
 
Buildings
  5-60
Structures
  5-40
Machinery and equipment:
   
Underground access to cable tunnels, and concrete and steel telephone poles
  20-40
Machinery
  3-15
Other
  6-15
Vehicles
  3-10
Tools, furniture and fixtures
  2-20
 
When the expected future cash flow from use or disposal of the property and equipment is lower than the carrying amount due to obsolescence, physical damage and other, the carrying amount is adjusted to the recoverable amount (the higher of net sales price or value in use) and the difference is recognized as an impairment loss. The Company recorded loss on impairment of property and equipment totaling W1,555 million, W7,990 million and W20,676 million for the years ended December 31, 2006, 2007 and 2008, respectively. Meanwhile, when the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the reversed asset does not exceed the carrying amount before previous impairment as adjusted by depreciation. There was no reversal of impairment loss for the years ended December 31, 2006, 2007 and 2008.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
i.   Intangible Assets
 
Intangible assets are initially recognized at acquisition cost (purchase cost plus expenditures directly related to preparing the asset ready for use) and subsequently presented at amortized cost using the straight-line method, with amortization beginning when the asset is available for use. Meanwhile, rights to utilize buildings and facilities and copyrights are amortized over 30 or 50 years since the Company has contractual or lawful exclusive rights to them.
 
Intangible assets are amortized based on the following useful lives:
 
     
   
Useful lives (Years)
 
Research and development cost
  2-6
Goodwill and negative goodwill
  4-10
Software
  3-6
Industrial rights
  5-10
Frequency usage rights
  5.75 from the date
of service commencement or 13
Other intangible assets
  10-50
 
Research related costs are generally expensed as operating expenses. Development costs which meet certain requirements and from which future economic benefit is certain are capitalized as intangible assets and the amortization over the estimated useful lives is recorded as operating expenses. Development costs associated with new telecommunication businesses such as Integrated Customer Information System (ICIS) and Broadband Integrated Services Digital Network (B-ISDN) and software such as Integrated Logistics Information System, Information Superhighway and Enterprise Resource Planning (ERP) are accounted for as intangible assets.
 
The Company was elected as a WiBro business provider on January 20, 2005 and paid W125,800 million to the MIC in exchange for the usage right to frequency range of 2331.5~2358.5 Mhz obtained on March 30, 2005. The rights have a contractual life of 7 years from the grant date and are amortized over the remaining contractual life commencing from June 30, 2006 when commercial service was initiated.
 
On December 15, 2000, KTF acquired the license to provide third generation mobile services utilizing 2GHz frequency band (“IMT-2000 service”) for which a total payment of W1,300 billion is to be paid to KCC as a license fee. KTF paid W650 billion out of the total license fee on March 20, 2001 and the remaining balance of W650 billion is required to be paid including interest for five years from 2007 to 2011 of which W90 billion and W110 billion was paid in 2007 and 2008, respectively.
 
Future payment schedule of the license fees as of December 31, 2008 is as follows (in millions of Korean won):
 
         
Year Ending December 31,
     
 
2009
  W 130,000  
2010
    150,000  
2011
    170,000  
         
Total
  W 450,000  
         
 
The Company tests for impairment of intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount of the assets. When the recoverable amount (the higher of net sales price or value in use) of intangible assets is significantly lower than the carrying amount due to obsolescence, and other, the difference is recognized as an impairment loss. When the recoverable amount subsequently exceeds the carrying amount of the impaired asset, the excess is recorded as a reversal of impairment loss to the extent that the reversed asset does not exceed the carrying amount before the previous impairment as adjusted for amortization. The Company recorded


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
loss on impairment of intangible assets totaling W10,885 million, W9,178 million and W17,435 million for the years ended December 31, 2006, 2007 and 2008, respectively. There was no reversal of impairment loss for the years ended December 31, 2006, 2007 and 2008.
 
Goodwill, which represents the excess of the acquisition cost over the fair value of net identifiable assets acquired related to entities that are being consolidated, is amortized on a straight-line basis over a reasonable period. However, if the recoverable amount is significantly lower than the book value, an impairment loss on goodwill is charged against current earnings. Negative goodwill, which represents the excess of the fair value of net identifiable assets acquired over the acquisition cost, is recorded as a contra account (reduction) to intangible assets. For the years ended December 31, 2006, 2007 and 2008, the amortization of goodwill of W133,988 million, W138,405 million and W145,154 million, respectively, are included in operating expenses and the reversal of negative goodwill of W518 million, W518 million and W65 million, respectively, are included in non-operating revenues.
 
j.   Contributions for Construction and Others
 
Government subsidies and contributions for construction granted for the purpose of acquisition of certain assets are recorded as a deduction from the assets granted or other assets acquired for the temporary use of the assets granted. When the related assets are acquired, they are recorded as a deduction from the acquired assets and offset against the depreciation of the acquired assets over their useful lives. In addition, government subsidies and contributions for construction without any repayment obligation is offset against the related expenses for which they are intended to compensate, however, if there is no matching expense, they are recorded as operating or non-operating revenue depending on whether they are directly related to the Company’s principal operating activities. Government subsidies and contributions for construction with a repayment obligation are recorded as a liability.
 
k.   Present Value Discount for Assets and Liabilities
 
Receivables or payables from long-term installment transactions, long-term loans/borrowings or the other similar transactions are stated at present value which is determined by discounting total amounts receivable or payable in the future using the effective interest rate, if the nominal value is significantly different from the present value. The discount or premium resulting from the determination of present value should be reported in the balance sheet as a direct deduction from or addition to the nominal value of the related receivables or payables and the amortization by the effective interest rate method is included in the period income (loss).
 
l.   Translation of Assets and Liabilities Denominated in Foreign Currency
 
Transactions denominated in foreign currencies are recorded in Korean won translated at the exchange rate prevailing on the transaction date and the resulting gain (loss) from foreign currency transactions is included in non-operating revenues (expenses). Monetary assets and liabilities denominated in foreign currency are translated into Korean won at the Base Rates announced by Seoul Money Brokerage Services, Ltd. on the balance sheet dates, which were, for U.S. dollars, W929.6: USD 1, W938.2: USD 1 and W1,257.5: USD 1 at December 31, 2006, 2007 and 2008, respectively, and the resulting gain (loss) from foreign currency translation is included in non-operating revenues (expenses).
 
m.   Convertible Bonds
 
The proceeds from issuance of convertible bonds are allocated between the conversion right and the debt issued. When additional amount is paid upon maturity to guarantee certain yield rate, the redemption premium is recognized as an addition to the convertible bonds and the conversion right, which represents the difference between the issue price of the convertible bonds and the present value of normal bonds, is accounted for as capital surplus. The redemption premium, the conversion right and the expenses incurred for the issuance of the bonds are adjusted


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
to the bonds and amortized to interest expense using the effective interest rate method over the redemption period of the convertible bonds.
 
n.   Provisions for Severance Indemnities
 
In accordance with KT and its domestic subsidiaries’ policies, all employees with more than one year of service are entitled to receive lump-sum severance payments upon termination of their employment, based on their current rates of salary and length of service. The accrual for severance indemnities is computed as if all employees were to terminate at the balance sheet dates and amounted to W1,566,313 million and W1,708,640 million for the years ended December 31, 2007 and 2008, respectively.
 
The Company has insured a portion of its obligations for severance indemnities by making deposits, that will be directly paid to employees, with Samsung Life Insurance and other and records them as deposits for severance insurance deposits which is directly deducted from the accrued severance indemnities.
 
o.   Provisions
 
The Company recognizes a provision for a liability with uncertain timing or amount when (1) there is a present obligation of the Company arising from past events, (2) it is highly likely that an outflow of resources will be required to settle the obligation, and (3) the amount for the settlement of the obligation can be reliably measurable.
 
If there is a significant difference between the nominal value and present value of such provision, the provision is stated at the present value of the expenditures expected to be required to settle the obligation.
 
p.   Derivative Instruments
 
The Company records rights and obligations arising from derivative instruments in assets and liabilities, which are stated at fair value. Gains and losses that result from the changes in the fair value of derivative instruments are recognized in current earnings. However, for derivative instruments that cash flow hedge accounting applies to, the effective portion of the gain or loss on the derivatives instruments are recorded as gain (loss) on valuation of derivatives for cash flow hedge included in the accumulated other comprehensive income (loss).
 
q.   Share-based Payment
 
The Company’s share-based payment transactions are accounted for in accordance with SKAS No. 22 “Share-based Payment” which is effective from fiscal year beginning on or after December 31, 2006. As allowed in the transition clause of SKAS No. 22, for employee stock options granted before January 1, 2008, the Company accounts for them in accordance with Interpretation No. 39-35 “Accounting for Stock Options”.
 
(i)   Stock Options
 
The Company has granted stock options to its executive officers and directors prior to January 1, 2008, and for equity-settled stock options, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding credit to the stock options of the capital adjustments. When the options are exercised with the issuance of new shares, the difference between the exercise price plus the stock option cost recorded in the capital adjustments account and the par value of the new shares issued, is recorded as additional paid-in capital. In the event the Company grants stock options based on cash-settled share-based payment, the Company records compensation expenses which are allocated over the period in which the options vest with the corresponding liability recorded.
 
When stock options are forfeited because the specified vesting requirements are not satisfied, previously recognized compensation costs are reversed to earnings and the corresponding capital adjustments or liabilities are


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
reversed as well. When stock options expire unexercised, previously recognized compensation costs and corresponding capital adjustments are reversed to capital surplus.
 
(ii)   Other Share-based Payments
 
Other share-based payments granted on or after January 1, 2007 are measured as below:
 
For equity-settled share-based payment transactions, the Company measures the goods or services received, and the corresponding increase in equity (capital adjustments), directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or services received, the Company measures the value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.
 
For cash-settled share-based payment transactions, the Company measures the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the Company re-measures the fair value of the liability at each reporting date and at the date of settlement, with any changes in value recognized in profit or loss for the period.
 
For share-based payment transactions in which the terms of the arrangement provide either the Company or the supplier of goods or services with a choice of whether the Company settles the transaction in cash or by issuing equity instruments, the Company is required to account for that transaction, or the components of that transaction, as a cash-settled share-based payment transaction if, and to the extent that, the Company has incurred a liability to settle in cash (or other assets), or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.
 
r.   Accounting for Leases
 
A lease is classified as a finance lease or an operating lease depending on the extent of transfer to the Company of the risks and rewards incidental to ownership. If a lease meets any one of the following criteria, it is accounted for as a finance lease:
 
  •  The lease transfers ownership of the asset to the lessee by the end of the lease term;
 
  •  The lessee has the option to purchase the asset at a bargain price and it is certain that the option will be exercised;
 
  •  The lease term is for the major part (75% or more) of the economic life of the asset even if title is not transferred;
 
  •  At the date of lease commencement the present value of the minimum lease payments amounts to at least substantially all (90% or more) of the fair value of the leased asset; or
 
  •  The leased assets are of such a specialized nature that only the Company can use them without major modifications.
 
All other leases are treated as operating leases.
 
(i)   Lessees
 
For operating leases, lease payments excluding guaranteed residual value are recognized as an expense on a straight-line basis over the lease term and contingent rent is expensed as incurred. Finance leases are recognized as assets and liabilities at the lower of fair value of the leased property or the present value of the minimum lease payments discounted using the implicit interest rate of the lessor (or the Company’s incremental borrowing rate if the implicit interest rate is not practicable to determine). Any initial direct costs incurred by the Company are added to the amount recognized as an asset. The depreciation policy for depreciable leased assets is consistent with that for


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
the similar depreciable assets that are owned by the Company. Annual minimum lease payments excluding guaranteed residual value is allocated to interest expense, which is calculated using the effective interest rate, and finance lease repayment amount. Contingent rent relating to finance are charged as expenses in the periods in which they are incurred, however, if the amount is material it is allocated to principal and interest, respectively, over the remaining lease term.
 
(ii)   Lessors
 
For operating leases, lease payments on a lease contract are recognized as other revenues on a straight-line basis over the lease term. For finance leases, lessors are required to present finance lease assets as receivables in balance sheets, at an amount equal to the fair value of the leased property at the inception of lease and required to recognize the lease payments received as repayment of the finance lease receivables and interest income.
 
s.   Revenue Recognition
 
The Company’s service revenues, which include revenues derived from telephone services, internet services and data services, are recognized on a service-rendered basis. In connection with such services, KCC and other government entities have extensive authority to regulate the Company’s fees. KCC has responsibility for approving rates for local service and interconnection and broadband internet access services provided by the Company. As for other telecommunication services, the related rates are just required to be reported to KCC.
 
The Company recognizes sales on PCS handsets when these are delivered to the dealers. In addition, the Company’s construction revenue is recognized by reference to the percentage of completion of the contract which is calculated by the ratio of the actual contract costs incurred to date to the estimated total contract costs. As for subscribed construction-type contracts, the Company recognizes revenue using the percentage-of-completion method only for the subscribed portion.
 
Meanwhile, the Company recognizes sales revenues on a gross basis when the Company is the primary obligor in the transactions with customers and if the Company merely acts as an agent for the buyer or seller from whom it earns a commission, then the sales revenues are recognized on a net basis.
 
Total consideration for combined services is allocated to each service in proportion to its fair value and the allocated amount is recognized as revenue according to revenue recognition policy for the service.
 
t.   Income Taxes
 
When the Company recognizes deferred income tax assets or liabilities for the temporary differences between the carrying amount of an asset and liability and tax base, a deferred income tax liability for taxable temporary difference is fully recognized except to the extent in accordance with income tax related SKAS while a deferred tax asset for deductible temporary difference is recognized to the extent that it is almost certain that taxable profit will be available against which the deductible temporary difference can be utilized. Deferred income tax asset (liability) is classified as current or non-current asset (liability) depending on the classification of related asset (liability) in the balance sheet. Deferred income tax asset (liability) which does not relate to specific asset (liability) account in the balance sheet such as deferred income tax asset recognized for tax loss carryforwards is classified as current or non-current asset (liability) depending on the expected reversal period. Deferred income tax assets and liabilities in the same tax jurisdiction and in the same current or non-current classification are presented on a net basis. Current and deferred income tax expense are included in income tax expense in the statement of operations and additional income taxes or tax refunds for the prior periods are included in income tax expense for the current period when recognized. However, income taxes resulting from transactions or events, which were directly recognized in stockholders’ equity in current or prior periods, or business combinations are directly adjusted to equity account or goodwill (or negative goodwill).


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
u.   Use of Estimates
 
The Company’s management uses reasonable estimates and assumptions in preparing the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the Republic of Korea. The estimates and assumptions can change according to additional experiences, changes in circumstances, new information and other and may be different from actual results.
 
v.   Elimination of Inter-Company Unrealized Gain/Loss
 
Unrealized gains and losses included in the inventories, property and equipment and other which were acquired by transactions amongst KT and subsidiaries are fully eliminated using the gross margin ratio of the transactions and the gains and losses on disposal.
 
w.   Translation of Overseas Subsidiaries’ Financial Statements
 
For overseas subsidiaries whose financial statements are prepared in foreign currencies, assets and liabilities are translated at the exchange rate at the consolidated balance sheet date and statement of income items are translated at the average exchange rate for the respective fiscal period. Net translation adjustments are recorded as gain (loss) on translation of foreign operations included in the accumulated other comprehensive income.
 
x.   Changes in Consolidated Entities
 
For the year ended December 31, 2008, Nasmedia, Sofnics, JB Edu, KT New Business Fund No. 1 and KTDS are newly acquired in 2008 and included in the consolidation.
 
In addition, when a subsidiary is acquired during the year, it is presented in the consolidated statements of income as though it had been acquired at the beginning of the year, and its earning (loss) prior to acquisition is separately presented as a deductive (additive) line item in the consolidated statements of income.


F-30

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
y.   Adoption of New Accounting Standards and Reclassifications of Financial Statements
 
In 2007, the Company made adjustments to the 2006 consolidated financial statements to retrospectively apply the adoption of Statements of Korean Accounting Standards and reclassify certain accounts in prior periods to conform to current period’s presentation. Such reclassification did not have an effect on the net assets as of December 31, 2006 and net income of the Company for the year ended December 31, 2006. Additionally, the Company made an adjustment to the consolidated statements of cash flows due to the change of policy in 2008 and reclassified prior periods to be in conformity with current year presentation (in millions of Korean won):
 
                                 
    As Initially
 		    Adoption of
 		             
    Reported     SKASs     Reclassification     As Adjusted  
 
2006
                               
Current assets
  W 5,980,390     W 1,030     W —     W 5,981,420  
Non-current assets
    18,241,646       20,268       —       18,261,914  
                                 
Total assets
  W 24,222,036     W 21,298     W —     W 24,243,334  
                                 
Current liabilities
  W 5,422,088     W 1,027     W —     W 5,423,115  
Non-current liabilities
    8,102,644       20,271       —       8,122,915  
                                 
Total liabilities
    13,524,732       21,298       —       13,546,030  
                                 
Common stock
    1,560,998       —       —       1,560,998  
Capital surplus
    1,289,803       148,435       2,672       1,440,910  
Capital adjustments
    (3,820,817 )     (142,663 )     (2,672 )     (3,966,152 )
Accumulated other comprehensive income
    —       (5,772 )     —       (5,772 )
Retained earnings
    9,400,068       —       —       9,400,068  
Minority interest
    2,267,252       —       —       2,267,252  
                                 
Total equity
    10,697,304       —       —       10,697,304  
                                 
Total liabilities and equity
  W 24,222,036     W 21,298     W —     W 24,243,334  
                                 
Operating revenues
  W 17,756,156     W —     W 68,724     W 17,824,880  
Operating expenses
    (15,376,920 )     265       (64,849 )     (15,441,504 )
Operating income
    2,379,236       265       3,875       2,383,376  
Non-operating revenues
    654,235       (20,346 )     (68,724 )     565,165  
Non-operating expenses
    (1,033,708 )     6,164       64,849       (962,695 )
Income from continuing operations before income tax expense
    1,999,763       (13,917 )     —       1,985,846  
Income tax expense on continuing operations
    (490,046 )     13,921       —       (476,125 )
Income from continuing operations
    1,509,717       4       —       1,509,721  
Loss from discontinuing operations
    —       (4 )     —       (4 )
                                 
Net income
  W 1,509,717     W —     W —     W 1,509,717  
                                 
Cash flows from operating activities
  W 5,764,199     W —     W (50,623 )   W 5,713,576  
Cash flows from investing activities
    (3,061,868 )     —       953       (3,060,915 )
Cash flows from financing activities
    (2,416,834 )     —       49,670       (2,367,164 )
Effect of changes in consolidated entities
    (3,571 )     —       —       (3,571 )
                                 
Net increase in cash and cash equivalents
  W 281,926     W —     W —     W 281,926  
                                 
 
z.   Basis of Translating Consolidated Financial Statements
 
The consolidated financial statements are expressed in Korean won and, solely for the convenience of the reader, the consolidated financial statements as of and for the years ended December 31, 2008, have been translated


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
into U.S. dollars at the rate of W1,262.0 to USD1 at December 31, 2008, the noon buying rate in the City of New York for cable transfers in Korean won as certified for customs purposes by the Federal Reserve Bank of New York on the last business day of the year ended December 31, 2008. The translation should not be construed as a representation that any or all of the amounts shown could be converted into U.S. dollars at this or any other rate.
 
3.   RESTRICTED DEPOSITS
 
Details of restricted deposits as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                             
        2007     2008     Description
 
Short-term investment assets
      Time deposits     W 1,904     W 24,687     Guarantee deposits and others
Long-term financial instruments
    Checking account deposit       61       44     Checking account deposit and others
                         
Total
          W 1,965     W 24,731      
                         
 
4.   INVENTORIES
 
Inventory valuations as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
                                                 
    2007     2008  
          Lower of Cost
 		                Lower of Cost
 		       
          or Market
 		    Valuation
 		          or Market
 		    Valuation
 		 
    Cost     Value     Allowance     Cost     Value     Allowance  
 
Merchandise
  W 284,313     W 250,028     W (34,285 )   W 413,448     W 386,595     W (26,853 )
Supplies
    35,169       30,538       (4,631 )     27,008       25,547       (1,461 )
Other
    18,538       18,538       —       12,699       12,699       —  
                                                 
    W 338,020     W 299,104     W (38,916 )   W 453,155     W 424,841     W (28,314 )
                                                 
 
5.   LOANS
 
Loans as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
a.   Loans
 
                 
    2007     2008  
 
Factoring receivables
  W 5,459     W 9,074  
Allowance for doubtful accounts
    (27 )     (63 )
Loans
    173,840       256,010  
Deferred incidental expense (revenue) of loans
    (95 )     (88 )
Allowance for doubtful accounts
    (1,157 )     (2,773 )
Accounts receivable-loans
    315       994  
Allowance for doubtful accounts
    (2 )     (12 )
Loans for installment credit
    37,408       29,891  
Deferred incidental expense (revenue) of loans
    (10 )     (10 )
Allowance for doubtful accounts
    (1,472 )     (1,285 )
Accounts receivable-loans for installment credit
    1,915       1,155  
Allowance for doubtful accounts
    (229 )     (9 )
                 
Total — loans
  W 218,832     W 297,026  
                 
Total — allowance for doubtful accounts
  W (2,887 )   W (4,142 )
                 


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
b.   Long-term loans
 
                 
    2007     2008  
 
Factoring receivables
  W 6,463     W 2,770  
Allowance for doubtful accounts
    (32 )     (19 )
Loans
    89,818       207,647  
Deferred incidental expense (revenue) of loans
    (543 )     (2,876 )
Allowance for doubtful accounts
    (592 )     (4,760 )
Loans for installment credit
    50,489       49,936  
Deferred incidental expense (revenue) of loans
    768       334  
Allowance for doubtful accounts
    (2,199 )     (2,493 )
New technology financial investment assets
    2,000       1,000  
Allowance for doubtful accounts
    (205 )     (400 )
New technology financial loans
    —       2,368  
Allowance for doubtful accounts
    —       (62 )
                 
Total — long-term loans
  W 148,995     W 261,179  
                 
Total — allowance for doubtful accounts
  W (3,028 )   W (7,734 )
                 
 
6.   SECURITIES
 
Securities as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
a.   Short-term Investment assets
 
                 
    2007     2008  
 
Short-term financial instruments
  W 305,540     W 243,649  
Short-term loans
    104,057       43,456  
Beneficiary certificates
    46,085       39,696  
Available-for-sale securities (Equity securities)
    3,064       82,071  
Available-for-sale securities (Debt securities)
    1,419       2,171  
Held-to-maturity securities
    5       6,095  
                 
Total
  W 460,170     W 417,138  
                 


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Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
b.   Available-for-sale Securities
 
Equity securities
 
                                         
    2007  
    Percentage of
 		    Acquisition
 		    Fair Value or
 		    Book
 		    Unrealized Gains
 		 
    Ownership (%)     Cost     Net Book Value     Value     (Losses) (Note 1)  
 
Current assets:
                                       
Beneficiary certificates
          W 563     W 973     W 973     W 410  
Infravalley, Inc.
    3.8 %     200       2,091       2,091       1,891  
                                         
Sub total
            763       3,064       3,064       2,301  
                                         
Non-current assets:
                                       
Krtnet Corp. 
    7.4 %     1,954       4,122       4,122       2,168  
GaeaSoft Corp. 
    2.0 %     533       756       756       223  
Zakang Inc. 
    0.0 %     300       5       5       (295 )
Geotel Corp. 
    7.8 %     1,143       4,322       4,322       3,179  
PT.Mobile-8
    2.3 %     10,069       10,508       10,508       439  
Solid Technologies, Inc. 
    4.7 %     590       4,120       4,120       3,530  
EST Soft Corp. 
    14.2 %     1,650       5,062       5,062       3,412  
Ongamenet Co., Ltd. 
    11.4 %     1,061       4,831       4,831       3,645  
Cape Industries Ltd. 
    0.1 %     125       226       226       101  
Bixolon Co., Ltd. 
    0.0 %     11       9       9       (2 )
Sesil Corporation
    0.4 %     199       225       225       26  
Zmos Technology, Inc. (Note 2)
    8.6 %     1,872       506       1,872       —  
Shinhan Venture Capital Co., Ltd. (Note 2)
    0.0 %     1,800       900       900       —  
Korea Information Certificate Authority, Inc. (Note 2)
    9.3 %     2,000       1,891       2,000       —  
KM Credit Information Inc. (Note 2)
    6.4 %     1,202       —       —       —  
Korea Software Financial Cooperative (“KSFC”) (Note 2)
    1.1 %     1,160       1,315       1,160       —  
Digitalinside Co., Ltd. (Note 2)
    10.2 %     499       766       499       —  
Vacom, Wireless Inc. (Note 2)
    16.8 %     1,880       1,122       641       —  
CXP, Inc. (Note 2)
    12.1 %     1,200       8       50       —  
CEC Mobile (Note 2)
    16.7 %     4,456       —       —       —  
Korea Smart Card Co., Ltd. (Note 2)
    0.7 %     326       90       24       —  
Metrix Corporation Inc. (Note 2)
    2.0 %     200       25       14       —  
Wiz Communication Co., Ltd. (Note 2)
    18.4 %     490       823       490       —  
MIC2001-4TG Venture (Note 2)
    5.0 %     350       350       350       —  
Korea Telecommunications Operators Association (“KTOA”) (Note 2)
    9.9 %     689       689       689       —  
Prime Venture Capital Corp. (Note 2)
    2.7 %     1,000       194       —       —  
DirectMedia Co., Ltd. (Note 2)
    12.5 %     435       309       248       —  
Ncerti Co., Ltd. (Note 2)
    19.9 %     328       407       328       —  


F-34

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                         
    2007  
    Percentage of
 		    Acquisition
 		    Fair Value or
 		    Book
 		    Unrealized Gains
 		 
    Ownership (%)     Cost     Net Book Value     Value     (Losses) (Note 1)  
 
ICO Global Communication Ltd. (Note 2)
    0.2 %     617       —       —       —  
Softbank Korea Co., Ltd. (Note 2)
    6.7 %     1,406       959       959       —  
Binext CT Financial Cooperative (Note 2)
    15.0 %     1,500       1,454       1,500       —  
Entaz Co., Ltd. (Note 2)
    10.1 %     1,000       828       1,000       —  
Luxpia Co., Ltd. (Note 2)
    6.0 %     1,000       1,000       1,000       —  
Paramount Music Co., Ltd. (Note 2)
    48.9 %     1,000       368       1,000       —  
Neighbor Systems Co., Ltd. (Note 2)
    10.4 %     525       451       525       —  
Digital Multimedia Interactive Co., Ltd. (Note 2)
    8.0 %     495       229       495       —  
Beneficiary certificates
            14,730       14,325       14,325       (405 )
Others (Note 2)
            30,743       13,524       15,299       —  
                                         
Sub total
            90,538       76,719       79,554       16,021  
                                         
Total
          W 91,301     W 79,783     W 82,618     W 18,322  
                                         
 
                                         
    2008  
    Percentage of
 		    Acquisition
 		    Fair Value or
 		    Book
 		    Unrealized Gains
 		 
    Ownership (%)     Cost     Net Book Value     Value     (Losses) (Note 1)  
 
Current assets:
                                       
Beneficiary certificates
          W 82,000     W 82,071     W 82,071     W 71  
                                         
Non-current assets:
                                       
Krtnet Corp. 
    7.4 %     1,954       1,832       1,832       (122 )
GaeaSoft Corp. 
    2.0 %     533       282       282       (251 )
Zakang Inc. 
    0.0 %     300       1       1       (299 )
PT.Mobile-8
    2.3 %     10,069       2,322       2,322       (7,747 )
Solid Technologies, Inc. 
    4.7 %     590       1,602       1,602       1,012  
EST Soft Corp. 
    14.2 %     1,650       4,435       4,435       2,785  
Ongamenet Co., Ltd. 
    11.4 %     1,186       4,474       4,474       3,288  
Bixolon Co., Ltd. 
    0.0 %     11       7       7       (4 )
Sesil Corporation. 
    0.2 %     199       137       137       (62 )
Dalsvyaz Primorye
    0.3 %     688       3       3       (685 )
Zmos Technology, Inc. (Note 2)
    9.9 %     1,872       —       —       —  
Shinhan Venture Capital Co., Ltd. (Note 2)
    0.0 %     1,800       900       900       —  
Korea Information Certificate Authority, Inc. (Note 2)
    9.3 %     2,000       2,242       2,000       —  
KM Credit Information Inc. (Note 2)
    2.1 %     1,202       —       —       —  
Korea Software Financial Cooperative (“KSFC”) (Note 2)
    0.9 %     1,000       1,229       1,000       —  

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Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                         
    2008  
    Percentage of
 		    Acquisition
 		    Fair Value or
 		    Book
 		    Unrealized Gains
 		 
    Ownership (%)     Cost     Net Book Value     Value     (Losses) (Note 1)  
 
Digitalinside Co., Ltd. (Note 2)
    7.2 %     499       —       —       —  
Vacom, Wireless Inc. (Note 2)
    16.8 %     1,880       1,516       641       —  
CXP, Inc. (Note 2)
    12.1 %     1,200       1       50       —  
CEC Mobile (Note 2)
    16.7 %     4,456       —       —       —  
Wiz Communication Co., Ltd. (Note 2)
    7.5 %     200       609       200       —  
Korea Telecommunications Operators Association (“KTOA”) (Note 2)
    0.0 %     689       689       689       —  
Prime Venture Capital Corp. (Note 2)
    2.7 %     1,000       186       —       —  
ICO Global Communication Ltd. (Note 2)
    0.2 %     617       —       —       —  
Softbank Korea Co., Ltd. (Note 2)
    6.7 %     1,406       959       959       —  
Binext CT Financial Cooperative (Note 2)
    15.0 %     1,500       1,409       1,500       —  
Entaz Co., Ltd. (Note 2)
    8.7 %     1,000       919       1,000       —  
Luxpia Co., Ltd. (Note 2)
    6.0 %     1,000       1,000       1,000       —  
Neighbor Systems Co., Ltd. (Note 2)
    10.4 %     525       453       525       —  
Beneficiary certificates
            12,431       11,815       11,815       (616 )
Others (Note 2)
            50,097       28,267       32,543       —  
                                         
Sub total
            103,554       67,289       69,917       (2,701 )
                                         
Total
          W 185,554     W 149,360     W 151,988     W (2,630 )
                                         
 
 
     
(Note 1)
  The amounts are before adjustments for the tax effects and minority interests in consolidated subsidiaries.
(Note 2)
  Investments in equity securities above, which are recorded at book value of W31,043 million and W43,007 million for the years ended December 31, 2007 and 2008, respectively, do not have readily determinable fair values and therefore are stated at cost. In addition, if the estimated recoverable amount of the securities below their acquisition cost and such difference is not deemed recoverable, write-downs of the individual securities are recorded to reduce the carrying value.
 
For the year ended December 31, 2008, the Company disposed of its investments in Geotel Corp. and other investments and recognized gross gains and losses on disposal of available-for-sale securities amounting to W3,996 million and W250 million, respectively. As the estimated recoverable amount of the investment in Zmos Technology, Inc., Digitalinside Co., Ltd. and other investments fell below the acquisition cost and such difference is not deemed recoverable, the Company recognized an impairment loss amounting to W3,826 million for the year ended December 31, 2008.

F-36

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Debt securities
 
                                 
        2007  
            Amortized
 		    Fair
 		    Unrealized Gains
 		 
        Maturity   Cost     Value     (Losses) (Note)  
 
Current assets:
                               
Government and public bonds
  National and local governments   2008   W 929     W 929     W —  
Convertible bonds
  DreamWiz Inc.   2008     490       490       —  
                                 
Sub total
            1,419       1,419       —  
                                 
Non-current assets:
                               
Government and public bonds
  National and local governments   2009~2013     208       208       —  
Convertible bonds
  Borazon Co., Ltd.   2009     600       600       —  
    Neurons lnc.   2009     650       650       —  
    ImageClick Corporation.   2009     400       400       —  
Bonds with warrant
  Nexscien Co., Ltd.   2010     1,940       1,940       —  
                                 
Sub total
            3,798       3,798       —  
                                 
Total
          W 5,217     W 5,217     W —  
                                 
 
                                 
        2008  
            Amortized
 		    Fair
 		    Unrealized Gains
 		 
        Maturity   Cost     Value     (Losses) (Note)  
 
Current assets:
                               
Government and public bonds
  National and local governments   2009   W 121     W 121     W —  
Financial bonds of small and medium enterprise
  Industrial Bank of Korea   2009     1,000       1,000       —  
Convertible bonds
  Neurons, lnc.   2009     650       650       —  
    ImageClick Corporation.   2009     400       400       —  
                                 
Sub total
            2,171       2,171       —  
                                 
Non-current assets:
                               
Government and public bonds
  National and local governments   2010~2019     115       115       —  
Convertible bonds
  Inno GDN, Inc.    2011     2,800       2,800       —  
    Foosung Co., Ltd.    2011     2,000       1,820       (180 )
Bonds with warrant
  Samyoung connect Co., Ltd.    2010     92       92       —  
                                 
Sub total
            5,007       4,827       (180 )
                                 
Total
          W 7,178     W 6,998     W (180 )
                                 
 
 
(Note) The amounts are before adjustments for the tax effects and minority interests in consolidated subsidiaries.


F-37

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Changes in unrealized gains (losses)
 
                                 
    2007     2008  
    Equity
 		    Debt
 		    Equity
 		    Debt
 		 
    Securities     Securities     Securities     Securities  
 
Balance at beginning of the year
  W 15,449     W 519     W 18,322     W —  
Realized losses (gains) on disposal of securities, net
    (1,074 )     (519 )     (5,587 )     —  
Changes in unrealized gains (losses), net
    3,947       —       (15,365 )     (180 )
                                 
Balance at end of the year
  W 18,322     W —     W (2,630 )   W (180 )
                                 
 
The amounts are before adjustments for the tax effects and minority interests in consolidated subsidiaries.
 
d.   Held-to-maturity Securities
 
                         
        2007  
            Amortized
 		       
        Maturity   Cost     Book Value  
 
Current assets:
                       
Government and public bonds
  National and local governments   2008   W 5     W 5  
                         
Sub total
            5       5  
                         
Non-current assets:
                       
Government and public bonds
  National and local governments   2009~2012     84       84  
Subordinated bonds
  Shinhan Bank   2009     100       100  
Asset backed securities
  DCIF 1 Co., Ltd.   2009     60       60  
                         
Sub total
            244       244  
                         
Total
          W 249     W 249  
                         
 
                         
        2008  
            Amortized
 		       
        Maturity   Cost     Book Value  
 
Current assets:
                       
Government and public bonds
  National and local governments   2009   W 9     W 9  
Commercial paper
  IBK Capital Corporation   2009     1,030       1,030  
    Lotte Engineering & Construction Co., Ltd.   2009     4,956       4,956  
Subordinated bonds
  Shinhan Bank   2009     100       100  
                         
Sub total
            6,095       6,095  
                         
Non-current assets:
                       
Government and public bonds
  National and local governments   2011     77       77  
    New Generation Securitization                    
Asset backed securities
  Specialty Co., Ltd.   2010~2014     8,000       8,000  
                         
Sub total
            8,077       8,077  
                         
Total
          W 14,172     W 14,172  
                         


F-38

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
7.   EQUITY METHOD INVESTMENT SECURITIES
 
a.   Details of Equity Method Investment Securities
 
Details of investments in securities accounted for using the equity method as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
                                                 
    2007  
          Percentage of
 		                         
    Number of
 		    Ownership
 		    Acquisition
 		    Equity in Net
 		    Book
 		    Market
 		 
    Shares     (%)     Cost     Asset Value     Value     Value  
 
Korea Telephone Directory Co., Ltd. (“KTD”)
    1,360,000       34.0 %   W 6,800     W 8,085     W 8,085     W —  
Korea Information Technology Fund
    100       33.3 %     100,000       110,826       110,826       —  
KBSi Co., Ltd.
    952,000       32.4 %     4,760       3,408       3,408       —  
eNtoB Corp.
    880,000       27.5 %     5,000       6,725       7,039       —  
Korea Digital Satellite Broadcasting Co., Ltd. (“KDB”)
    22,706,000       23.0 %     195,976       3,036       24,892       —  
Sky Life Contents Fund
    45       22.5 %     4,500       4,997       4,997       —  
Kiwoom Investment Co. Ltd. (formerly, “Korea IT Venture Partners Inc”)
    1,800,000       20.2 %     9,000       7,147       7,147       —  
Goodmorning F Co., Ltd. (Note 3)
    114,000       19.0 %     254       1,151       1,151       —  
CURD (formerly, “Korea New Realty Development and Construction Co., Ltd.”) (Note 3)
    266,000       19.0 %     506       3,788       3,788       —  
Korea Information Data Corp. (“KID”) (Note 3)
    760,000       19.0 %     3,800       13,541       13,541       —  
Korea Information Service Corp. (“KIS”) (Note 3)
    570,000       19.0 %     2,850       10,792       10,792       —  
Korea Seoul Contact all Co., Ltd. (Note 3)
    45,600       19.0 %     228       271       271       —  
Korea Service and Communication Co., Ltd. (Note 3)
    45,600       19.0 %     228       274       274       —  
Korea Call Center Co., Ltd. (Note 3)
    45,600       19.0 %     228       266       266       —  
TMWorld Co., Ltd. (Note 3)
    45,600       19.0 %     228       294       294       —  
Ubiquitous Marketing Service and Communication Co., Ltd. (“UMS&C”) (Note 3)
    45,600       19.0 %     228       275       275       —  
Exdell Corporation (Note 3)
    38,000       19.0 %     190       177       177       —  
Information Technology Service Bukbu Corporation (Note 3)
    38,000       19.0 %     190       190       190       —  
Information Technology Solution Nambu Corporation (Note 3)
    38,000       19.0 %     190       190       190       —  
Information Technology Solution Seobu Corporation (Note 3)
    38,000       19.0 %     190       190       190       —  
Information Technology Solution Busan Corporation (Note 3)
    38,000       19.0 %     190       190       190       —  


F-39

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    2007  
          Percentage of
 		                         
    Number of
 		    Ownership
 		    Acquisition
 		    Equity in Net
 		    Book
 		    Market
 		 
    Shares     (%)     Cost     Asset Value     Value     Value  
 
Information Technology Solution Jungbu Corporation (Note 3)
    38,000       19.0 %     190       190       190       —  
Information Technology Solution Honam Corporation (Note 3)
    38,000       19.0 %     190       190       190       —  
Information Technology Solution Daegu Corporation (Note 3)
    38,000       19.0 %     190       190       190       —  
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”) (Note 3)
    200,000       17.9 %     5,000       316       3,016       —  
Korea Telecom Philippines, Inc. (“KTPI”)
    744,476       100.0 %     2,481       —       —       —  
Mongolian Telecommunications (“MTC”)
    10,348,111       40.0 %     3,450       10,020       10,020       41,491  
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”) (Note 4)
    50       50.0 %     5,000       5,011       5,011       —  
KTF-DoCoMo Mobile Investment Fund
    45       45.0 %     4,500       4,491       4,491       —  
Boston Film Fund (Note 4)
    800       39.0 %     8,000       7,149       7,149       —  
Harex InfoTech Inc.
    225,000       21.2 %     3,375       417       1,183       —  
Olive Nine Entertainment Co., Ltd. (Note 5)
    140,000       67.7 %     4,200       (629 )     659       —  
The Contents Entertainment (Note 5)
    30,500       50.8 %     1,754       158       1,578       —  
Olive Nine Creative Co., Ltd.
    40,000       42.9 %     200       218       218       —  
Tourtainment Inc.
    15,000       24.6 %     150       34       34       —  
Music City China Co., Ltd (Note 5)
    —       100.0 %     144       —       —       —  
Doremi Music Publishing Co., Ltd (Note 5)
    10,000       100.0 %     200       237       217       —  
Bluecord Corp. (Note 5)
    3,000,000       100.0 %     2,778       1,684       1,611       —  
Parangoyangi (Note 5)
    4,000,000       100.0 %     2,900       58       58       —  
Music City Media Co., Ltd. (Note 5)
    208,000       94.6 %     1,040       (527 )     —       —  
Dooristar Co., Ltd.
    980,000       49.0 %     1,500       230       112       —  
Oscar ent. Co., Ltd.
    7,865       49.0 %     650       417       417       —  
Netcom
    156       26.5 %     90       90       90       —  
TPS (Note 5)
    —       100.0 %     164       164       164       —  
ETN (Note 5)
    —       100.0 %     1       1       1       —  
                                                 
Total
                  W 383,683     W 205,922     W 234,582          
                                                 
 

F-40

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    2008  
          Percentage of
 		                         
    Number of
 		    Ownership
 		    Acquisition
 		    Equity in net
 		    Book
 		    Market
 		 
    Shares     (%)     Cost     Asset Value     Value     Value  
 
Company K Movie Asset Fund No. 1 (Notes 1 and 4)
    90       60.0 %   W 9,000     W 8,803     W 8,803     W —  
KT-Global New Media Fund (Note 1)
    600       50.0 %     6,000       5,817       5,817       —  
Korea Telephone Directory Co., Ltd. (“KTD”)
    1,360,000       34.0 %     6,800       8,358       8,358       —  
Metropol Property LLC (Note 1)
    —       34.0 %     1,739       434       1,776       —  
Korea Information Technology Fund
    100       33.3 %     100,000       110,909       110,909       —  
KBSi Co., Ltd. 
    952,000       32.4 %     4,760       4,679       4,679       —  
eNtoB Corp. (Note 2)
    970,000       30.3 %     6,050       8,187       8,740       —  
Korea Digital Satellite Broadcasting Co., Ltd. (“KDB”)
    22,706,000       23.3 %     195,976       22,000       32,928       —  
Sky Life Contents Fund
    45       22.5 %     4,500       3,737       3,737       —  
Everyshow (Note 1)
    300,000       21.3 %     1,500       1,226       1,226       —  
Kiwoom Investment Co., Ltd.(formerly, “Korea IT Venture Partners Inc.”)
    1,800,000       20.2 %     9,000       6,953       6,953       —  
Goodmorning F Co., Ltd. (Note 3)
    114,000       19.0 %     254       1,460       1,460       —  
CURD (formerly, “Korea New Realty Development and Construction Co., Ltd.”) (Note 3)
    266,000       19.0 %     506       8,369       8,369       —  
Korea Information Data Corp. (“KID”) (Note 3)
    760,000       19.0 %     3,800       13,666       13,666       —  
Korea Information Service Corp. (“KIS”) (Note 3)
    570,000       19.0 %     2,850       12,812       12,812       —  
Korea Seoul Contact all Co., Ltd. (Note 3)
    45,600       19.0 %     228       327       327       —  
Korea Service and Communication Co., Ltd. (Note 3)
    45,600       19.0 %     228       341       341       —  
Korea Call Center Co., Ltd. (Note 3)
    45,600       19.0 %     228       332       332       —  
TMWorld Co., Ltd. (Note 3)
    45,600       19.0 %     228       320       320       —  
Ubiquitous Marketing Service and Communication Co., Ltd. (“UMS&C”) (Note 3)
    45,600       19.0 %     228       293       293       —  
Exdell Corporation (Note 3)
    38,000       19.0 %     190       218       218       —  
Information Technology Service Bukbu Corporation (Note 3)
    38,000       19.0 %     190       225       225       —  
Information Technology Solution Nambu Corporation (Note 3)
    38,000       19.0 %     190       221       221       —  
Information Technology Solution Seobu Corporation (Note 3)
    38,000       19.0 %     190       222       222       —  
Information Technology Solution Busan Corporation (Note 3)
    38,000       19.0 %     190       246       246       —  
Information Technology Solution Jungbu Corporation (Note 3)
    38,000       19.0 %     190       295       295       —  

F-41

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    2008  
          Percentage of
 		                         
    Number of
 		    Ownership
 		    Acquisition
 		    Equity in net
 		    Book
 		    Market
 		 
    Shares     (%)     Cost     Asset Value     Value     Value  
 
Information Technology Solution Honam Corporation (Note 3)
    38,000       19.0 %     190       248       248       —  
Information Technology Solution Daegu Corporation (Note 3)
    38,000       19.0 %     190       218       218       —  
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”) (Note 3)
    200,000       17.9 %     5,000       41       41       —  
Wooridul Entertainment Investment Fund-1 (Note 1)
    1,600       20.0 %     1,600       1,529       1,529       —  
Mongolian Telecommunications (“MTC”)
    10,348,111       40.0 %     3,450       13,289       13,289       12,806  
KTC Media Contents Investment Fund No. 1 (Notes 1 and 5)
    45       81.8 %     4,500       4,510       4,510       —  
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”) (Note 4)
    50       50.0 %     5,000       5,038       5,038       —  
KTF-DoCoMo Mobile Investment Fund
    45       45.0 %     4,500       4,439       4,439       —  
Boston Film Fund (Note 4)
    800       39.0 %     8,000       4,281       4,281       —  
Harex InfoTech Inc. 
    225,000       21.2 %     3,375       248       631       —  
U-Mobile (Notes 1 and 3)
    62,601,493       16.5 %     96,700       33,102       82,663       —  
Shinhan-KTF Mobilecard Co., Ltd. (Note 1)
    199,999       50.0 %     1,000       708       708       —  
Olive Nine Entertainment Co., Ltd. (Note 5)
    140,000       67.7 %     4,200       (1,074 )     —       —  
The Contents Entertainment (Note 5)
    30,500       50.8 %     1,754       3       950       —  
Olive Nine Creative Co., Ltd. 
    40,000       42.9 %     200       150       150       —  
Music City China Co., Ltd. (Note 5)
    —       100.0 %     144       —       —       —  
Doremi Music Publishing Co., Ltd. (Note 5)
    10,000       100.0 %     200       (7 )     —       —  
Parangoyangi (Note 5)
    4,000,000       100.0 %     2,900       (303 )     —       —  
Music City Media Co., Ltd. (Note 5)
    208,000       94.6 %     1,040       (688 )     —       —  
Dooristar Co., Ltd. 
    980,000       49.0 %     1,500       (398 )     —       —  
Oscar ent. Co., Ltd. 
    7,865       49.0 %     650       384       384       —  
D&G Star Co., Ltd. (Note 5)
    52,000       70.3 %     260       190       190       —  
Paramount Music Co., Ltd. 
    7,848       48.9 %     1,000       313       313       —  
Onestone Communication Co., Ltd. (Notes 5 and 6)
    100,000       100.0 %     1,159       263       206       —  
Netcom
    156       26.5 %     90       80       80       —  
TPS (Note 5)
    —       100.0 %     164       205       205       —  
ETN (Note 5)
    —       100.0 %     1       1       1       —  
                                                 
Total
                  W 503,782     W 287,220     W 353,347          
                                                 

F-42

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
     
(Note 1)
  In 2008, the Company acquired 60.0% ownership interest of Company K Movie Asset Fund No. 1 for W9,000 million, 50.0% ownership interest of KT-Global New Media Fund for W6,000 million, 34.0% ownership interest of Metropol Property LLC for W1,739 million, 21.3% ownership interest of Everyshow for W1,500 million, 20.0% ownership interest of Wooridul Entertainment Investment Fund-1 for W1,600 million, 81.8% ownership interest of KTC Media Contents Investment Fund No. 1 for W4,500 million, 16.5% ownership interest of U-Mobile for W96,700 million and 50.0% ownership interest of Shinhan-KTF Mobilecard Co., Ltd. for W1,000 million, respectively.
(Note 2)
  The Company’s ownership interest in eNtoB Corp. increased from 27.5% to 30.3% as of December 31, 2008 due to the additional acquisition of ownership interest.
(Note 3)
  Although the Company’s ownership in these companies is less than 20%, the Company has significant influence over these companies through the participation in these companies’ various management decisions. As a result, the Company accounts for these investments using the equity method.
(Note 4)
  The Company is the largest stockholder of these companies with more than 30% ownership interest. However, since the Company has no control over these companies, these investments are accounted for using the equity method.
(Note 5)
  The unlisted company whose total assets as of December 31 of the prior year are less than W7,000 million is excluded from the consolidation.
(Note 6)
  Nasmedia is newly included in the consolidation in 2008 and its investment in Onestone Communication Co., Ltd. is accounted for using the equity method.


F-43

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
b.   Changes in Carrying Amount Resulting from the Equity Method
 
Changes in carrying amount resulting from the equity method of accounting for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                         
    2007  
          Equity in
 		    Increase
 		             
          Income
 		    (Decrease) in
 		    Other
 		       
    January 1,
 		    (Loss)
 		    Equity of
 		    Increase
 		    December 31,
 		 
    2007     (Note 4)     Associates     (Decrease)     2007  
 
KTD (Note 1)
  W 7,867     W 219     W (1 )   W —     W 8,085  
Korea Information Technology Fund
    101,609       7,802       1,647       (232 )     110,826  
KBSi Co., Ltd. 
    2,810       598       —       —       3,408  
eNtoB Corp. (Note 1)
    5,112       720       7       1,200       7,039  
KDB (Note 1)
    16,455       7,676       761       —       24,892  
Sky Life Contents Fund
    5,050       (53 )     —       —       4,997  
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc”) (Note 1)
    9,204       (1,668 )     160       (549 )     7,147  
Goodmorning F Co., Ltd. 
    826       324       1       —       1,151  
CURD (formerly, “KNRDC”)
    2,375       1,413       —       —       3,788  
KID
    12,230       1,463       —       (152 )     13,541  
KIS
    8,382       2,524       —       (114 )     10,792  
Korea Seoul Contact all Co., Ltd. 
    228       43       —       —       271  
Korea Service and Communication Co., Ltd. 
    228       46       —       —       274  
Korea Call Center Co., Ltd. 
    228       38       —       —       266  
TMWorld Co., Ltd. 
    228       66       —       —       294  
UMS&C
    228       47       —       —       275  
Exdell Corporation (Note 1)
    —       (13 )     —       190       177  
Information Technology Service Bukbu Corporation (Note 1)
    —       —       —       190       190  
Information Technology Solution Nambu Corporation (Note 1)
    —       —       —       190       190  
Information Technology Solution Seobu Corporation (Note 1)
    —       —       —       190       190  
Information Technology Solution Busan Corporation (Note 1)
    —       —       —       190       190  
Information Technology Solution Jungbu Corporation (Note 1)
    —       —       —       190       190  
Information Technology Solution Honam Corporation (Note 1)
    —       —       —       190       190  
Information Technology Solution Daegu Corporation (Note 1)
    —       —       —       190       190  
MOS facilities Co., Ltd. (“Mostech Co., Ltd.”) (Note 1)
    4,186       (1,170 )     —       —       3,016  
Pivotec Co., Ltd. 
    6,299       38       (3,359 )     (2,978 )     —  
MTC (Note 1)
    9,321       1,233       52       (586 )     10,020  
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”) (Note 1)
    5,025       (14 )     —       —       5,011  
KTF-DoCoMo Mobile Investment Fund (Note 1)
    —       (9 )     —       4,500       4,491  
Boston Film Fund (Note 1)
    8,014       (865 )     —       —       7,149  
Harex InfoTech Inc. 
    1,902       (719 )     —       —       1,183  
Olive Nine Entertainment Co., Ltd. 
    833       (1,071 )     —       897       659  
The Contents Entertainment
    2,133       (555 )     —       —       1,578  
Olive Nine Creative Co., Ltd. 
    249       (31 )     —       —       218  
Tourtainment, Inc. 
    134       (100 )     —       —       34  
Music City China Co., Ltd. (Notes 1 and 3)
    —       —       —       —       —  
Doremi Music Publishing Co., Ltd. (Note 1)
    —       —       —       217       217  
Bluecord Corp. (Note 1)
    —       —       —       1,611       1,611  
Parangoyangi (Note 1)
    —       —       —       58       58  
Music City Media Co,, Ltd. (Notes 1 and 3)
    —       —       —       —       —  
Dooristar Co., Ltd. (Note 1)
    —       —       —       112       112  
Oscar Ent. Co., Ltd. (Note 1)
    —       —       —       417       417  
Netcom
    —       —       —       90       90  
TPS
    —       —       —       164       164  
ETN
    —       —       —       1       1  
                                         
Total
  W 211,156     W 17,982     W (732 )   W 6,176     W 234,582  
                                         


F-44

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                         
    2008  
          Equity in
 		    Increase
 		             
          Income
 		    (Decrease) in
 		    Other
 		       
    January 1,
 		    (Loss)
 		    Equity of
 		    Increase
 		    December 31,
 		 
    2008     (Note 4)     Associates     (Decrease)     2008  
 
Company K Movie Asset Fund No. 1
  W —     W (197 )   W —     W 9,000     W 8,803  
KT-Global New Media Fund (Note 1)
    —       (183 )     —       6,000       5,817  
KTD (Note 1)
    8,085       273       —       —       8,358  
Metropol Property LLC (Note 1)
    —       (12 )     49       1,739       1,776  
Korea Information Technology Fund
    110,826       2,506       (1,696 )     (727 )     110,909  
KBSi Co., Ltd. 
    3,408       1,271       —       —       4,679  
eNtoB Corp. (Note 1)
    7,039       655       (4 )     1,050       8,740  
KDB (Note 1)
    24,892       1,527       6,183       326       32,928  
Sky Life Contents Fund
    4,997       (1,260 )     —       —       3,737  
Everyshow
    —       (274 )     —       1,500       1,226  
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc.”)(Note 1)
    7,147       64       (258 )     —       6,953  
Goodmorning F Co., Ltd. 
    1,151       314       (5 )     —       1,460  
CURD (formerly, “KNRDC”)
    3,788       4,631       (50 )     —       8,369  
KID
    13,541       353       —       (228 )     13,666  
KIS (Note 1)
    10,792       2,191       —       (171 )     12,812  
Korea Seoul Contact all Co., Ltd. 
    271       56       —       —       327  
Korea Service and Communication Co., Ltd. 
    274       67       —       —       341  
Korea Call Center Co., Ltd. 
    266       66       —       —       332  
TMWorld Co., Ltd. 
    294       26       —       —       320  
UMS&C
    275       18       —       —       293  
Exdell Corporation (Note 1)
    177       41       —       —       218  
Information Technology Service Bukbu Corporation
    190       35       —       —       225  
Information Technology Solution Nambu Corporation
    190       31       —       —       221  
Information Technology Solution Seobu Corporation (Note 1)
    190       32       —       —       222  
Information Technology Solution Busan Corporation
    190       56       —       —       246  
Information Technology Solution Jungbu Corporation
    190       105       —       —       295  
Information Technology Solution Honam Corporation
    190       58       —       —       248  
Information Technology Solution Daegu Corporation
    190       28       —       —       218  
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”) (Notes 1 and 2)
    3,016       (1,047 )     —       (1,928 )     41  
Wooridul Entertainment Investment Fund-1 (Note 1)
    —       (71 )     —       1,600       1,529  
MTC (Note 1)
    10,020       1,520       2,397       (648 )     13,289  
KTC Media Contents Investment Fund No. 1 (Note 1)
    —       10       —       4,500       4,510  
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”)
    5,011       27       —       —       5,038  
KTF-DoCoMo Mobile Investment Fund
    4,491       (52 )     —       —       4,439  
Boston Film Fund
    7,149       (2,868 )     —       —       4,281  
Harex InfoTech Inc. 
    1,183       (552 )     —       —       631  
U-Mobile
    —       (19,699 )     5,662       96,700       82,663  
Shinhan-KTF Mobilecard Co., Ltd. 
    —       (292 )     —       1,000       708  
Olive Nine Entertainment Co., Ltd. (Note 3)
    659       (659 )     —       —       —  
The Contents Entertainment
    1,578       (628 )     —       —       950  
Olive Nine Creative Co., Ltd. 
    218       (68 )     —       —       150  
Tourtainment Inc. (Note 5)
    34       (5 )     —       (29 )     —  
Music City China Co., Ltd. (Notes 1 and 3)
    —       —       —       —       —  
Doremi Music Publishing Co,, Ltd. (Notes 1 and 3)
    217       (217 )     —       —       —  
Bluecord Corp. (Notes 1 and 3)
    1,611       109       —       (1,720 )     —  
PARANGOYANGI (Notes 1 and 3)
    58       (58 )     —       —       —  
Music City Media Co., Ltd. (Notes 1 and 3)
    —       —       —       —       —  
Dooristar Co., Ltd. (Notes 1 and 3)
    112       (112 )     —       —       —  
Oscar ent. Co., Ltd. (Note 1)
    417       (33 )     —       —       384  
D&G Star Co., Ltd. (Notes 1 and 2)
    —       (42 )     —       232       190  
Paramount Music Co., Ltd. (Note 2)
    —       —       —       313       313  
Onestone Communication Co., Ltd. (Notes 1 and 2)
    —       (25 )     —       231       206  
Netcom
    90       (32 )     —       22       80  
TPS
    164       —       —       41       205  
ETN
    1       —       —       —       1  
                                         
Total
  W 234,582     W (12,316 )   W 12,278     W 118,803     W 353,347  
                                         


F-45

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
     
(Note 1)
  These securities were accounted for using the equity method based on unaudited financial statements as of and for the year ended December 31, 2008 as the audited financial statements on these companies could not be obtained by the Company’s year-end closing. In order to verify the reliability of such unaudited financial statements, the Company has performed the following procedures and found no significant exceptions:
   
i) Obtain the unaudited financial statements signed by the investee’s chief executive officer and statutory auditor.
   
ii) Identify whether major transactions or accounting events, including those disclosed to public by the investee, which were acknowledged by the Company are properly reflected in the unaudited financial statements.
   
iii) Identify major accounting issues under discussion between the investee and its external auditors and the investee’s plan to resolve such issues.
   
iv) Analyze the effect of potential difference between the unaudited and audited financial statements.
(Note 2)
  For the year ended December 31, 2008, the Company recognized impairment loss on investment difference totaling W2,654 million due to the decline in the recoverable amount of MOS facilities Co., Ltd. (formerly, Mostech Co., Ltd.) and other three equity method investments.
(Note 3)
  The Company discontinued the equity method of accounting since the book values of the investments in Olive Nine Entertainment Co., Ltd. and other six equity method investments are below zero due to accumulated deficit.
(Note 4)
  Equity income (loss) until the date of acquisition from the newly consolidated entities in 2008 was excluded. Meanwhile, in accordance with the SKAS No. 24 “Preparation and Presentation of Financial Statements II (Financial Industry)”, equity income amounting to W9 million recognized by KT Capital is reclassified as operating revenue.
(Note 5)
  As the Company lost significant influence on investment in equity securities of Tourtainment Inc. during the year ended December 31, 2008, such securities were transferred to available-for-sale securities.
 
c.   Changes in Investment Difference
 
Changes in investment differences from equity method investment securities for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                                         
    2007     2008  
    January 1,
 		                      January 1,
 		                Impairment
 		    December 31,
 		 
Affiliate
  2007     Increase     Amortization     Other     2008     Increase     Amortization     Loss     2008  
 
Metropol Property LLC
  W —     W —     W —     W —     W —     W 1,491     W (149 )   W —     W 1,342  
eNtoB Corp. 
    —       346       (32 )     —       314       316       (77 )     —       553  
KDB
    33,413       —       (11,557 )     —       21,856       —       (10,928 )     —       10,928  
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”)
    3,471       —       (771 )     —       2,700       —       (772 )     (1,928 )     —  
Harex InfoTech Inc. 
    1,149       —       (383 )     —       766       —       (383 )     —       383  
U-Mobile
                                    —       58,307       (8,746 )     —       49,561  
OliveNine Entertainment
    1,932       —       (644 )     —       1,288       —       (644 )     —       644  
The Contents Entertainment
    1,876       —       (456 )     —       1,420       —       (473 )     —       947  
Doremi Music Publishing Co., Ltd. 
    —       —       —       (23 )     (23 )     —       8       —       (15 )
D&G Star Co., Ltd. 
    —       —       —       —       —       28       —       (28 )     —  
Paramount Music Co., Ltd. 
    —       —       —       —       —       687       —       (687 )     —  
                                                                         
Total
  W 41,841     W 346     W (13,843 )   W (23 )   W 28,321     W 60,829     W (22,164 )   W (2,643 )   W 64,343  
                                                                         


F-46

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
d.   Elimination of Unrealized Gains (Losses)
 
Unrealized gains (losses) arising from intercompany transactions, which are eliminated, as of December 31, 2008 are nil.
 
e.   Cumulative Changes in the Company’s Equity in Net Asset Value of The Investee’s Not Recognized
 
Cumulative changes in the Company’s equity in net asset value of the investees not recognized due to the discontinuance of the equity method of accounting as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                 
    2007     2008  
 
Olive Nine Entertainment Co., Ltd. 
  W —     W (1,074 )
Doremi Music Publishing Co., Ltd. 
    —       (7 )
Parangoyangi
    —       (303 )
Music City Media Co., Ltd. 
    (527 )     (688 )
Dooristar Co., Ltd. 
    —       (398 )
                 
Total
  W (527 )   W (2,470 )
                 
 
f.   Condensed Financial Information of the Investees
 
Condensed financial information of the investees in which investments are accounted for using the equity method of accounting as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                 
    2007  
                      Net
 		 
    Total
 		    Total
 		          Income
 		 
    Assets     Liabilities     Revenue     (Loss)  
 
KTD
  W 62,967     W 39,190     W 43,570     W 643  
Korea Information Technology Fund
    332,476       —       33,644       22,712  
KBSi Co., Ltd. 
    18,429       7,904       26,227       1,845  
eNtoB Corp. 
    64,311       39,728       563,278       3,014  
KDB
    513,708       341,515       387,393       38,199  
Sky Life Contents Fund
    22,716       505       469       (236 )
Kiwoom Investment Co., Ltd. (formerly, “Korea IT Venture Partners Inc”)
    35,609       173       3,979       (7,690 )
Goodmorning F Co., Ltd. 
    16,988       10,927       56,842       1,707  
CURD (formerly, “KNRDC”)
    46,034       26,100       62,074       7,435  
KID
    99,632       28,363       194,977       7,862  
KIS
    82,373       25,571       143,024       13,409  
Korea Seoul Contact all Co., Ltd. 
    4,989       3,565       37,876       224  
Korea Service and Communication Co., Ltd. 
    4,150       2,708       31,015       243  
Korea Call Center Co., Ltd. 
    4,070       2,671       27,523       199  
TMworld Co., Ltd. 
    3,799       2,371       26,995       348  
UMS&C
    4,255       2,808       26,691       247  
Exdell Corporation
    1,020       90       200       (70 )
Information Technology Service Bukbu Corporation
    1,000       —       —       —  
Information Technology Solution Nambu Corporation
    1,000       —       —       —  
Information Technology Solution Seobu Corporation
    1,000       —       —       —  
Information Technology Solution Busan Corporation
    1,000       —       —       —  


F-47

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                 
    2007  
                      Net
 		 
    Total
 		    Total
 		          Income
 		 
    Assets     Liabilities     Revenue     (Loss)  
 
Information Technology Solution Jungbu Corporation
    1,000       —       —       —  
Information Technology Solution Honam Corporation
    1,000       —       —       —  
Information Technology Solution Daegu Corporation
    1,000       —       —       —  
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”)
    7,501       5,735       19,879       (2,222 )
KTPI
    208       112,751       20       (13,481 )
MTC
    32,149       7,100       28,229       3,081  
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”)
    10,133       112       —       8  
KTF-DoCoMo Mobile Investment Fund
    10,083       104       —       (20 )
Boston Film Fund
    18,832       513       1,319       (2,215 )
Harex InfoTech Inc. 
    3,544       1,573       5,626       (1,589 )
Olive Nine Entertainment Co., Ltd. 
    770       1,702       1,284       630  
The Contents Entertainment
    1,275       964       3,046       193  
Olive Nine Creative Co., Ltd. 
    675       165       2       (70 )
Tourtainment, Inc. 
    219       79       157       (404 )
Doremi Music Publishing Co., Ltd. 
    251       14       179       (32 )
Bluecord Corp. 
    5,003       3,323       1,685       (690 )
Parangoyangi
    856       798       2,789       (279 )
Music City Media Co., Ltd. 
    556       1,114       1,322       92  
Dooristar Co., Ltd. 
    998       529       533       (218 )
Oscar ent. Co., Ltd. 
    1,129       278       1,606       250  
 
                                 
    2008  
                      Net
 		 
    Total
 		    Total
 		          Income
 		 
    Assets     Liabilities     Revenue     (Loss)  
 
Company K Movie Asset Fund No. 1
  W 14,671     W —     W —     W (329 )
KT-Global New Media Fund
    11,654       19       —       (365 )
KTD
    62,779       38,198       44,325       804  
Metropol Property LLC
    1,310       33       847       403  
Korea Information Technology Fund
    332,724       —       19,742       7,518  
KBSi Co., Ltd. 
    21,638       7,188       31,526       3,926  
eNtoB Corp. 
    79,327       52,189       756,983       2,635  
KDB
    508,039       287,103       386,958       31,225  
Sky Life Contents Fund
    16,798       189       795       (5,602 )
Everyshow
    6,301       538       1,359       (1,287 )
Kiwoom Investment Co., Ltd.(formerly, “Korea IT Venture Partners Inc”)
    34,651       177       6,146       316  
Goodmorning F Co., Ltd. 
    12,476       4,791       54,851       1,654  
CURD (formerly, “KNRDC”)
    83,655       39,607       67,241       24,374  
KID
    103,117       31,191       211,410       2,020  
KIS
    94,355       26,921       149,293       11,654  
Korea Seoul Contact all Co., Ltd. 
    6,420       4,700       43,581       296  
Korea Service and Communication Co., Ltd. 
    4,860       3,064       31,584       354  

F-48

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                 
    2008  
                      Net
 		 
    Total
 		    Total
 		          Income
 		 
    Assets     Liabilities     Revenue     (Loss)  
 
Korea Call Center Co., Ltd. 
    4,893       3,144       29,851       349  
TMworld Co., Ltd. 
    4,487       2,803       30,386       257  
UMS&C
    4,737       3,196       31,121       94  
Exdell Corporation
    2,331       1,186       11,280       215  
Information Technology Service Bukbu Corporation
    4,802       3,619       11,802       183  
Information Technology Solution Nambu Corporation
    5,593       4,430       13,954       162  
Information Technology Solution Seobu Corporation
    4,782       3,612       12,430       170  
Information Technology Solution Busan Corporation
    5,095       3,799       11,182       296  
Information Technology Solution Jungbu Corporation
    5,600       4,045       12,569       555  
Information Technology Solution Honam Corporation
    4,872       3,567       11,907       305  
Information Technology Solution Daegu Corporation
    3,324       2,175       6,690       148  
MOS facilities Co., Ltd. (formerly, “Mostech Co., Ltd.”)
    6,892       6,661       21,135       (1,535 )
Wooridul Entertainment Investment Fund-1
    7,594       1       68       (407 )
MTC
    40,992       7,769       28,167       3,799  
KTC Media Contents Investment Fund No. 1
    5,591       79       91       12  
KTF-CJ Music Contents Investment Fund (formerly, “Centurion Music 1”)
    10,126       50       621       (10 )
KTF-DoCoMo Mobile Investment Fund
    10,378       515       416       (116 )
Boston Film Fund
    11,482       513       345       (7,408 )
Harex InfoTech Inc. 
    2,252       1,082       2,798       (801 )
U-Mobile
    307,425       106,809       27,314       (66,379 )
Shinhan-KTF Mobilecard Co., Ltd. 
    1,509       93       34       (584 )
Olive Nine Entertainment Co., Ltd. 
    251       1,837       1,384       (653 )
The Contents Entertainment
    752       747       1,937       (305 )
Olive Nine Creative Co., Ltd. 
    548       198       53       (160 )
Doremi Music Publishing Co., Ltd. 
    17       24       39       26  
Parangoyangi
    408       711       572       (355 )
Music City Media Co., Ltd. 
    464       1,089       639       19  
Dooristar Co., Ltd. 
    243       586       24       182  
Oscar ent. Co., Ltd. 
    895       213       807       (82 )
D&G Star Co., Ltd. 
    235       815       879       (632 )
Onestone Communication Co., Ltd. 
    397       133       —       (38 )

F-49

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
8.   PROPERTY AND EQUIPMENT
 
Changes in property and equipment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                         
    2007  
          Acquisition Cost
 		                               
          (Including
 		                               
    January 1,
 		    Capital
 		          Depreciation
 		    Impairment
 		    Others
 		    December 31,
 		 
    2007     Expenditures)     Disposal     (Note 1)     Loss     (Note 2)     2007  
 
Land (Note 3)
  W 1,208,244     W 1,424     W (3,471 )   W —     W —     W 48,982     W 1,255,179  
Buildings (Note 3)
    3,245,655       3,398       (10,744 )     (138,362 )     —       152,090       3,252,037  
Structures
    246,597       122       (1,642 )     (19,657 )     —       20,010       245,430  
Machinery
    9,508,929       65,188       (149,797 )     (2,767,946 )     (4,931 )     2,850,166       9,501,609  
Vehicles
    13,830       990       (3,581 )     (4,667 )     —       3,255       9,827  
Others
    551,991       258,167       (23,896 )     (295,255 )     (3,059 )     127,028       614,976  
Construction- in-progress
    392,183       3,306,356       (209 )     —       —       (3,289,386 )     408,944  
                                                         
    W 15,167,429     W 3,635,645     W (193,340 )   W (3,225,887 )   W (7,990 )   W (87,855 )   W 15,288,002  
                                                         
 
                                                         
    2008  
          Acquisition Cost
 		                               
          (Including
 		                               
    January 1,
 		    Capital
 		          Depreciation
 		    Impairment
 		    Others
 		    December 31,
 		 
    2008     Expenditures)     Disposal     (Note 1)     Loss     (Note 2)     2008  
 
Land (Note 3)
  W 1,255,179     W 225     W (6,175 )   W —     W —     W 40,001     W 1,289,230  
Buildings (Note 3)
    3,252,037       38,787       (26,905 )     (146,589 )     —       298,587       3,415,917  
Structures
    245,430       482       (8,188 )     (19,079 )     —       11,031       229,676  
Machinery
    9,501,609       67,543       (83,732 )     (2,778,108 )     (20,521 )     2,686,282       9,374,073  
Vehicles
    9,827       33,161       (670 )     (9,328 )     —       1,616       34,606  
Others
    614,976       134,534       (20,592 )     (311,187 )     (155 )     132,126       549,702  
Construction- in-progress
    408,944       3,087,737       (20 )     —       —       (3,201,234 )     295,427  
                                                         
    W 15,288,002     W 3,362,469     W (145,282 )   W (3,264,291 )   W (20,676 )   W (31,591 )   W 15,188,631  
                                                         
 
 
     
(Note 1)
  Depreciation until the date of acquisition of the newly consolidated entities in 2007 was excluded.
(Note 2)
  Others mainly consist of the transfers from construction-in-progress to machinery, increase in contribution for construction, increase due to changes in consolidated entities and reclassifications.
(Note 3)
  Certain portion of lands and buildings were pledged as collateral relating to short-term and long-term borrowings and certain lease contracts. The maximum pledged amount as of December 31, 2008 was W65,726 million.


F-50

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
9.   CONTRIBUTION FOR CONSTRUCTION
 
Changes in contribution for construction which was used in the acquisition of property and equipment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                         
    2007  
    January 1,
 		                      December 31,
 		 
    2007     Increase     Decrease     Transfer     2007  
 
Buildings
  W 2,732     W —     W (1,337 )   W 911     W 2,306  
Structures
    1,402       —       (170 )     285       1,517  
Machinery
    98,371       —       (43,037 )     55,977       111,311  
Others
    1,490       —       (1,038 )     1,085       1,537  
Construction-in-progress
    70,163       76,625       —       (58,258 )     88,530  
                                         
Total
  W 174,158     W 76,625     W (45,582 )   W —     W 205,201  
                                         
 
                                         
    2008  
    January 1,
 		                      December 31,
 		 
    2008     Increase     Decrease     Transfer     2008  
 
Buildings
  W 2,306     W —     W (221 )   W 103     W 2,188  
Structures
    1,517       —       (175 )     165       1,507  
Machinery
    111,311       —       (45,196 )     53,196       119,311  
Others
    1,537       —       (1,370 )     1,619       1,786  
Construction-in-progress
    88,530       74,228       —       (55,083 )     107,675  
                                         
Total
  W 205,201     W 74,228     W (46,962 )   W —     W 232,467  
                                         
 
10.   INTANGIBLE ASSETS
 
Changes in intangible assets for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                 
    2007  
                Reversal
 		                   
    January 1,
 		          (Amortization)
 		    Impairment
 		          December 31,
 		 
    2007     Increase     (Note)     Loss     Others     2007  
 
Goodwill
  W 488,650     W —     W (138,405 )   W —     W 21,255     W 371,500  
Negative goodwill
    (518 )     —       518       —       —       —  
Frequency usage rights
    1,040,878       —       (115,417 )     —       1,320       926,781  
Development costs
    208,625       113,902       (115,370 )     (324 )     1,327       208,160  
Industrial rights
    7,918       3,196       (1,764 )     —       6       9,356  
Software
    105,198       31,451       (32,807 )     (1,216 )     1,653       104,279  
Others
    108,840       40,446       (26,860 )     (7,417 )     238       115,247  
                                                 
Total
  W 1,959,591     W 188,995     W (430,105 )   W (8,957 )   W 25,799     W 1,735,323  
                                                 
 


F-51

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    2008  
    January 1,
 		          Reversal
 		    Impairment
 		          December 31,
 		 
    2008     Increase     (Amortization)     Loss     Others     2008  
 
Goodwill
  W 371,500     W —     W (145,154 )   W (16,078 )   W 18,126     W 228,394  
Negative goodwill
    —       —       65       —       (65 )     —  
Frequency usage rights
    926,781       1,005       (115,649 )     —       —       812,137  
Development costs
    208,160       100,118       (114,345 )     —       (140 )     193,793  
Industrial rights
    9,356       2,324       (1,825 )     —       348       10,203  
Software
    104,279       37,298       (36,436 )     (322 )     1,328       106,147  
Others
    115,247       49,027       (25,135 )     (1,035 )     (14,540 )     123,564  
                                                 
Total
  W 1,735,323     W 189,772     W (438,479 )   W (17,435 )   W 5,057     W 1,474,238  
                                                 
 
(Note) Amortization until the date of acquisition of the newly consolidated entities in 2007 was excluded.
 
The Company’s research and ordinary development expenses amounted to W291,010 million and W283,147 million for the years ended December 31, 2007 and 2008, respectively.
 
Details of goodwill and negative goodwill as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                 
    2007  
    January 1,
 		          Reversal
 		    December 31,
 		 
    2007     Increase     (Amortization)     2007  
 
KTF
  W 455,397     W —     W (130,113 )   W 325,284  
Sidus FNH
    15,498       —       (3,875 )     11,623  
Oilve Nine
    17,755       —       (3,551 )     14,204  
KTFT
    (518 )     —       518       —  
KT FDS
    —       5,772       (866 )     4,906  
KTF Music (formerly, “Bluecord Technology Co., Ltd.”)
    —       11,206       —       11,206  
East Telecom
    —       4,277       —       4,277  
                                 
Total
  W 488,132     W 21,255     W (137,887 )   W 371,500  
                                 
 
                                         
    2008  
    January 1,
 		          Reversal
 		    Impairment
 		    December 31,
 		 
    2008     Increase     (Amortization)     Loss     2008  
 
KTF
  W 325,284     W —     W (130,114 )   W —     W 195,170  
Sidus FNH
    11,623       —       (3,874 )     (5,425 )     2,324  
Oilve Nine
    14,204       —       (3,551 )     (10,653 )     —  
KT FDS
    4,906       —       (1,154 )     —       3,752  
KTF Music (formerly, “Bluecord Technology Co., Ltd.”)
    11,206       —       (2,241 )     —       8,965  
East Telecom
    4,277       1,508       (1,157 )     —       4,628  
Nasmedia
    —       14,436       (2,654 )     —       11,782  
Sofnics
    —       (65 )     65       —       —  
JB Edu
    —       2,182       (409 )     —       1,773  
                                         
Total
  W 371,500     W 18,061     W (145,089 )   W (16,078 )   W 228,394  
                                         

F-52

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
11.   PRESENT VALUE OF ASSETS AND LIABILITIES
 
Assets and liabilities measured at present value as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                 
    2007  
    Discount
 		  Collection
 		  Nominal
 		    Present
 		       
Accounts
  Rate (%)   Period   Value     Value     Discount  
 
Accounts receivable — trade
  5.33~7.04   2008   W 302,946     W 299,466     W 3,480  
Accounts receivable — other
  5.38~8.85   2008     18,738       17,718       1,020  
Long-term accounts receivable — trade
  5.33~7.04   2009~2025     126,955       99,504       27,451  
Long-term accounts receivable — other
  5.38~8.85   2009~2011     38,438       36,171       2,267  
Accounts payable — other
  9.93   2008     110,000       108,920       1,080  
Current portion of long-term bonds and borrowings
  4.23~7.45   2008     1,020,464       1,020,444       20  
Long-term accounts payable — other
  9.93   2009~2011     456,972       413,260       43,712  
Long-term borrowings
  7.35   2009~2015     4,256       3,126       1,130  
 
                                 
    2008  
    Discount
 		  Collection
 		  Nominal
 		    Present
 		       
Accounts
  Rate (%)   Period   Value     Value     Discount  
 
Accounts receivable — trade
  5.23~7.9   2009   W 553,806     W 537,973     W 15,833  
Accounts receivable — other
  5.23~8.85   2009     32,831       31,204       1,627  
Long-term accounts receivable — trade
  5.23~7.9   2010~2025     335,044       287,706       47,338  
Long-term accounts receivable — other
  5.23~8.85   2010~2011     17,144       16,466       678  
Accounts payable — trade
  5.91~10.36   2009     15,178       13,417       1,761  
Accounts payable — other
  5.23~5.83   2009     134,200       132,757       1,443  
Long-term accounts payable — trade
  5.91~10.36   2010~2018     23,583       16,856       6,727  
Long-term accounts payable — other
  6.78~9.93   2010~2011     323,292       300,430       22,862  
Long-term borrowings
  5.23~8.85   2010~2015     3,564       2,693       871  


F-53

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
12.   LONG-TERM DEBT
 
a.   Bonds
 
Bonds as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won and thousand of foreign currencies):
 
                                             
    2007  
                                Interest Rate
 		 
Company
  Type   Issue Date     Amount     Maturity     Repayment Method     per Annum  
 
    MTNP notes (Note 1)     6/24/2004       W562,920
(USD 600,000 		)     6/24/2014       Payable in full at maturity       5.88 %
    MTNP notes (Note 1)     9/7/2004       W93,820
(USD100,000 		)     9/7/2034       Payable in full at maturity       6.50 %
    MTNP notes (Note 1)     7/15/2005       W375,280
(USD 400,000 		)     7/15/2015       Payable in full at maturity       4.88 %
    MTNP notes (Note 1)     5/3/2006       W187,640
(USD 200,000 		)     5/3/2016       Payable in full at maturity       5.88 %
    Euro bonds     4/11/2007       W187,640
(USD 200,000 		)     4/11/2012       Payable in full at maturity       5.13 %
    The 130th Public bond     1/19/2001       W50,000       1/19/2008       Payable in full at maturity       7.28 %
    The 132nd Public bond     2/9/2001       70,000       2/9/2011       Payable in full at maturity       7.68 %
    The 133rd Public bond     2/12/2001       50,000       2/12/2008       Payable in full at maturity       6.78 %
    The 138th Public bond     2/28/2001       100,000       2/28/2008       Payable in full at maturity       7.45 %
    The 154th Public bond     7/31/2002       220,000       7/31/2009       Payable in full at maturity       6.70 %
    The 156th Public bond     9/30/2002       180,000       9/30/2009       Payable in full at maturity       6.35 %
KT
  The 158th Public bond     4/30/2003       220,000       4/30/2008       Payable in full at maturity       5.29 %
    The 159th Public bond     10/27/2003       300,000       10/27/2013       Payable in full at maturity       5.39 %
    The 160th Public bond     11/24/2003       200,000       11/24/2010       Payable in full at maturity       5.45 %
    The 161st Public bond     12/23/2003       230,000       12/23/2010       Payable in full at maturity       5.61 %
    The 162nd Public bond     2/27/2004       320,000       2/27/2011       Payable in full at maturity       5.52 %
    The 163rd Public bond     3/30/2004       170,000       3/30/2014       Payable in full at maturity       5.51 %
    The 164th Public bond     6/21/2004       260,000       6/21/2011       Payable in full at maturity       5.22 %
    The 165-1st Public bond     8/26/2004       130,000       8/26/2011       Payable in full at maturity       4.22 %
    The 165-2nd Public bond     8/26/2004       140,000       8/26/2014       Payable in full at maturity       4.44 %
    The 166-1st Public bond     3/21/2005       220,000       3/21/2010       Payable in full at maturity       4.37 %
    The 166-2nd Public bond     3/21/2005       100,000       3/21/2012       Payable in full at maturity       4.57 %
    The 167-1st Public bond     4/20/2005       100,000       4/20/2012       Payable in full at maturity       4.59 %
    The 167-2nd Public bond     4/20/2005       100,000       4/20/2015       Payable in full at maturity       4.84 %
    The 168-1st Public bond     6/21/2005       240,000       6/21/2012       Payable in full at maturity       4.43 %
    The 168-2nd Public bond     6/21/2005       90,000       6/21/2015       Payable in full at maturity       4.66 %
    The 169th Public bond     4/3/2007       140,000       4/3/2012       Payable in full at maturity       5.01 %
                                             
KTP
  Private bond     5/3/2006       8,333       3/3/2009       Payable in installments       6.32 %
    Private bond     12/15/2006       9,300       12/15/2008       Payable in full at maturity       6.25 %
                                             
KTN
  The 18th Private bond     3/31/2005       5,000       3/31/2008       Payable in full at maturity       5.29 %
    Public bond     4/17/2007       10,000       4/17/2010       Payable in full at maturity       5.29 %
                                             
    The 44th Public bond     2/19/2004       360,000       2/19/2009       Payable in full at maturity       5.66 %
    The 45th Public bond     3/15/2004       320,000       3/15/2008       Payable in full at maturity       5.24 %
KTF
  The 47-1st Public bond     7/12/2004       230,000       7/13/2009       Payable in full at maturity       4.95 %
    The 47-2nd Public bond     7/12/2004       70,000       7/12/2011       Payable in full at maturity       5.32 %
    The 48th Public bond     2/15/2005       200,000       2/15/2010       Payable in full at maturity       5.31 %
                                             
    The 16th Private bond     1/4/2005       750       1/4/2008       Payable in installments       4.39 %
    The 19-1st Public bond     5/10/2005       40,000       5/10/2008       Payable in full at maturity       4.23 %
    The 19-2nd Public bond     5/10/2005       10,000       5/10/2010       Payable in full at maturity       4.69 %
KTR
  The 21-1~5th Private bond     6/15/2005       4,000       6/15/2008       Payable in installments       4.58 %
    The 22nd Private bond     8/31/2005       2,500       8/31/2008       Payable in installments       4.95 %


F-54

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                             
    2007  
                                Interest Rate
 		 
Company
  Type   Issue Date     Amount     Maturity     Repayment Method     per Annum  
 
    The 23rd Public bond     9/14/2005       30,000       9/14/2008       Payable in full at maturity       5.02 %
    The 10th Public bond     6/18/2007       40,000       6/18/2010       Payable in full at maturity       5.70 %
    The 11th Private bond     12/6/2007       20,000       12/6/2010       Payable in full at maturity       6.85 %
                                             
    The 1st Private bond     3/16/2007       30,000       3/16/2010       Payable in full at maturity       5.42 %
    The 2nd Private bond     4/16/2007       20,000       4/16/2010       Payable in full at maturity       5.56 %
    The 3rd Private bond     4/19/2007       20,000       4/19/2008       Payable in full at maturity       5.59 %
    The 4th Public bond     5/30/2007       40,000       5/30/2010       Payable in full at maturity       5.70 %
    The 5th Private bond     6/29/2007       20,000       6/29/2010       Payable in full at maturity       5.67 %
    The 6-1st Public bond     8/3/2007       20,000       8/3/2009       Payable in full at maturity       5.64 %
KT Capital
  The 6-2nd Public bond     8/3/2007       30,000       8/3/2010       Payable in full at maturity       5.72 %
    The 7-1st Public bond     8/31/2007       30,000       8/31/2009       Payable in full at maturity       5.99 %
    The 7-2nd Public bond     8/31/2007       20,000       8/31/2010       Payable in full at maturity       6.05 %
    The 8th Private bond     9/28/2007       30,000       9/28/2010       Payable in full at maturity       6.26 %
    The 9-1st Public bond     10/18/2007       30,000       10/18/2009       Payable in full at maturity       6.37 %
    The 9-2nd Public bond     10/18/2007       20,000       10/18/2010       Payable in full at maturity       6.44 %
    The 10th Public bond     11/12/2007       50,000       11/12/2008       Payable in full at maturity       6.26 %
    The 11th Public bond     12/27/2007       20,000       12/27/2010       Payable in full at maturity       CD(91D ) +
1.39%
                                             
Olive Nine
  The 5th Private CB (Note 2)     2/17/2006       3,000       2/17/2009       Payable in full at maturity       10.00 %
                                             
KTF Music (formerly, “Bluecord Technology”)
  The 2nd Private bond with  warrant (Note 3)     9/2/2005       2,100       9/2/2008       Payable in full at maturity       7.11 %
                                             
      Total   W 6,782,283                                  
Less current portion
        (910,316 )                                
                                             
Long-term portion
        5,871,967                                  
Conversion right adjustment
        (277 )                                
Repayment premium
        695                                  
Discount on bonds
        (29,558 )                                
                                             
      Net   W 5,842,827                                  
                                             

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Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                             
    2008  
                                Interest Rate
 		 
Company
  Type   Issue Date     Amount     Maturity     Repayment Method     per Annum  
 
    MTNP notes (Note 1)     6/24/2004       W754,500
(USD 600,000 		)     6/24/2014       Payable in full at maturity       5.88 %
    MTNP notes (Note 1)     9/7/2004       W125,750
(USD 100,000 		)     9/7/2034       Payable in full at maturity       6.50 %
    MTNP notes (Note 1)     7/15/2005       W503,000
(USD 400,000 		)     7/15/2015       Payable in full at maturity       4.88 %
    MTNP notes (Note 1)     5/3/2006       W251,500
(USD 200,000 		)     5/3/2016       Payable in full at maturity       5.88 %
    Euro bonds     4/11/2007       W251,500
(USD 200,000 		)     4/11/2012       Payable in full at maturity       5.13 %
    FR notes     9/11/2008       W251,500
(USD 200,000 		)     9/11/2013       Payable in full at maturity       4.32 %
    The 132nd Public bond     2/9/2001       W70,000       2/9/2011       Payable in full at maturity       7.68 %
    The 154th Public bond     7/31/2002       220,000       7/31/2009       Payable in full at maturity       6.70 %
    The 156th Public bond     9/30/2002       180,000       9/30/2009       Payable in full at maturity       6.35 %
    The 159th Public bond     10/27/2003       300,000       10/27/2013       Payable in full at maturity       5.39 %
    The 160th Public bond     11/24/2003       200,000       11/24/2010       Payable in full at maturity       5.45 %
    The 161st Public bond     12/23/2003       230,000       12/23/2010       Payable in full at maturity       5.61 %
    The 162nd Public bond     2/27/2004       320,000       2/27/2011       Payable in full at maturity       5.52 %
    The 163rd Public bond     3/30/2004       170,000       3/30/2014       Payable in full at maturity       5.51 %
KT
  The 164th Public bond     6/21/2004       260,000       6/21/2011       Payable in full at maturity       5.22 %
    The 165-1st Public bond     8/26/2004       130,000       8/26/2011       Payable in full at maturity       4.22 %
    The 165-2nd Public bond     8/26/2004       140,000       8/26/2014       Payable in full at maturity       4.44 %
    The 166-1st Public bond     3/21/2005       220,000       3/21/2010       Payable in full at maturity       4.37 %
    The 166-2nd Public bond     3/21/2005       100,000       3/21/2012       Payable in full at maturity       4.57 %
    The 167-1st Public bond     4/20/2005       100,000       4/20/2012       Payable in full at maturity       4.59 %
    The 167-2nd Public bond     4/20/2005       100,000       4/20/2015       Payable in full at maturity       4.84 %
    The 168-1st Public bond     6/21/2005       240,000       6/21/2012       Payable in full at maturity       4.43 %
    The 168-2nd Public bond     6/21/2005       90,000       6/21/2015       Payable in full at maturity       4.66 %
    The 169th Public bond     4/3/2007       140,000       4/3/2012       Payable in full at maturity       5.01 %
    The 170th Public bond     1/11/2008       W174,236
(JPY 12,500,000 		)     1/11/2011       Payable in full at maturity       1.45 %
    The 171st Public bond     2/28/2008       100,000       2/28/2013       Payable in full at maturity       5.41 %
    The 172-1st Public bond     3/31/2008       W62,875
(USD 50,000 		)     3/31/2011       Payable in full at maturity       4.20 %
    The 172-2nd Public bond     3/31/2008       W138,325
(USD 110,000 		)     3/31/2012       Payable in full at maturity       4.30 %
    The 173-1st Public bond     8/6/2008       W100,000       8/6/2013       Payable in full at maturity       6.49 %
    The 173-2nd Public bond     8/6/2008       100,000       8/6/2018       Payable in full at maturity       6.62 %
    The 174-1st Public bond     12/19/2008       100,000       12/19/2010       Payable in full at maturity       5.34 %
    The 174-2nd Public bond     12/19/2008       130,000       12/19/2011       Payable in full at maturity       5.56 %
                                             
KTP
  The 4th Private bond     5/3/2006       1,667       3/3/2009       Payable in installments       6.66 %
                                             
KTN
  Public bond     4/17/2007       10,000       4/17/2010       Payable in full at maturity       5.29 %
    Public bond     7/24/2008       5,000       7/24/2011       Payable in full at maturity       6.82 %
                                             
    The 44th Public bond     2/19/2004       360,000       2/19/2009       Payable in full at maturity       5.66 %
    The 47-1st Public bond     7/12/2004       230,000       7/13/2009       Payable in full at maturity       4.95 %
KTF
  The 47-2nd Public bond     7/12/2004       70,000       7/12/2011       Payable in full at maturity       5.32 %
    The 48th Public bond     2/15/2005       200,000       2/15/2010       Payable in full at maturity       5.31 %
                                             
    The 49th Public bond     2/25/2008       W220,063
(USD 175,000 		)     2/25/2011       Payable in full at maturity       3.66 %
    The 50th Public bond     4/28/2008       W97,572
(JPY 7,000,000 		)     4/28/2011       Payable in full at maturity       2.48 %
    The 51-1st Public bond     6/20/2008       W119,463
(USD 95,000 		)     6/20/2011       Payable in full at maturity       3.13 %
KTF
  The 51-2nd Public bond     6/20/2008       W70,000       6/20/2013       Payable in full at maturity       6.41 %
    The 52-1st Public bond     8/4/2008       100,000       8/4/2011       Payable in full at maturity       6.20 %
    The 52-2nd Public bond     8/4/2008       100,000       8/4/2013       Payable in full at maturity       6.64 %
    The 53-1st Public bond     12/1/2008       20,000       12/1/2010       Payable in full at maturity       8.23 %


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Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                             
    2008  
                                Interest Rate
 		 
Company
  Type   Issue Date     Amount     Maturity     Repayment Method     per Annum  
 
    The 53-2nd Public bond     12/1/2008       180,000       12/1/2011       Payable in full at maturity       8.36 %
                                             
    Public bond (the 19-2nd)     5/10/2005       10,000       5/10/2010       Payable in full at maturity       4.69 %
    The 10th Public bond     6/18/2007       40,000       6/18/2010       Payable in full at maturity       5.70 %
    The 11th Private bond     12/6/2007       20,000       12/6/2010       Payable in full at maturity       6.85 %
KTR
  The 12th Public bond     5/23/2008       20,000       5/23/2011       Payable in full at maturity       6.39 %
    The 13-1st Public bond     10/2/2008       20,000       10/2/2009       Payable in full at maturity       8.05 %
    The 13-2nd Public bond     10/2/2008       10,000       4/2/2010       Payable in full at maturity       8.30 %
                                             
    The 1st Private bond     3/16/2007       30,000       3/16/2010       Payable in full at maturity       5.80 %
    The 2nd Private bond     4/16/2007       20,000       4/16/2010       Payable in full at maturity       5.94 %
    The 4th Public bond     5/30/2007       40,000       5/30/2010       Payable in full at maturity       5.70 %
    The 5th Private bond     6/29/2007       20,000       6/29/2010       Payable in full at maturity       5.67 %
    The 6-1st Public bond     8/3/2007       20,000       8/3/2009       Payable in full at maturity       5.64 %
    The 6-2nd Public bond     8/3/2007       30,000       8/3/2010       Payable in full at maturity       5.72 %
    The 7-1st Public bond     8/31/2007       30,000       8/31/2009       Payable in full at maturity       5.99 %
    The 7-2nd Public bond     8/31/2007       20,000       8/31/2010       Payable in full at maturity       6.05 %
    The 8th Private bond     9/28/2007       30,000       9/28/2010       Payable in full at maturity       6.26 %
    The 9-1st Public bond     10/18/2007       30,000       10/18/2009       Payable in full at maturity       6.37 %
    The 9-2nd Public bond     10/18/2007       20,000       10/18/2010       Payable in full at maturity       6.44 %
    The 11th Public bond     12/27/2007       20,000       12/27/2010       Payable in full at maturity       CD(91D ) +
1.39%
    The 12-1st Public bond     1/23/2008       30,000       1/23/2009       Payable in full at maturity       7.50 %
    The 12-2nd Public bond     1/23/2008       30,000       7/23/2009       Payable in full at maturity       7.60 %
KT Capital
  The 13-1st Public bond     2/21/2008       30,000       2/21/2010       Payable in full at maturity       6.33 %
    The 13-2nd Public bond     2/21/2008       30,000       2/21/2011       Payable in full at maturity       6.48 %
    The 14-1st Public bond     3/28/2008       10,000       3/28/2010       Payable in full at maturity       6.37 %
    The 14-2nd Public bond     3/28/2008       10,000       3/28/2011       Payable in full at maturity       6.47 %
    The 15th Private bond     4/21/2008       20,000       4/21/2010       Payable in full at maturity       MOR(3M )+
1.28%
    The 16-1st Public bond     4/30/2008       60,000       1/30/2010       Payable in full at maturity       6.33 %
    The 16-2nd Public bond     4/30/2008       10,000       4/30/2011       Payable in full at maturity       6.46 %
    The 17-1st Public bond     5/30/2008       30,000       11/30/2009       Payable in full at maturity       6.71 %
    The 17-2nd Public bond     5/30/2008       20,000       11/30/2009       Payable in full at maturity       6.66 %
    The 17-3rd Public bond     5/30/2008       50,000       5/30/2013       Payable in full at maturity       7.14 %
    The 18-1st Public bond     6/23/2008       30,000       12/23/2009       Payable in full at maturity       7.00 %
    The 18-2nd Public bond     6/23/2008       40,000       6/23/2010       Payable in full at maturity       7.12 %
    The 18-3rd Public bond     6/23/2008       20,000       6/23/2011       Payable in full at maturity       7.22 %
    The 18-4th Public bond     6/23/2008       10,000       6/23/2013       Payable in full at maturity       7.55 %
                                             
    The 19-1st Public bond     9/11/2008       40,000       9/11/2009       Payable in full at maturity       7.68 %
    The 19-2nd Public bond     9/11/2008       10,000       3/11/2010       Payable in full at maturity       7.80 %
    The 19-3rd Public bond     9/11/2008       20,000       9/11/2010       Payable in full at maturity       7.93 %
KT Capital
  The 19-4th Public bond     9/11/2008       10,000       9/11/2010       Payable in full at maturity       CD(91D )+
2.10%
    The 20th Public bond     10/27/2008       10,000       10/27/2009       Payable in full at maturity       8.98 %
    The 21st Public bond     11/26/2008       30,000       11/26/2009       Payable in full at maturity       9.10 %
                                             
      Total             W9,016,951                          
Less current portion
                (1,311,667 )                        
                                             
Long-term portion
                7,705,284                          
Discount on bonds
                (42,621 )                        
                                             
      Net             W7,662,663                          
                                             
 
 
(Note 1)   As of December 31, 2008, the Company has issued notes in the amount of USD 1,300 million with fixed interest rates under Medium Term Note Program (“MTNP”) registered in the Singapore Stock Exchange, which allows issuance of notes up to USD 2,000 million and the unused balance under the program is USD 700 million.

F-57

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(Note 2)   Details of convertible bonds without guarantee are as follows :
 
                 
Issued amount (in Korean won)
    :       W4,000 million  
Stated interest rate (%)
    :       3 %
Guaranteed yield rate (%)
    :       10 %
Conversion price (in Korean won)
    :       W1,584 per share  
Convertible period
    :       February 17, 2007~February 16, 2009  
Number of total convertible shares
    :       2,525,252 shares  
Converted shares
    :       631,313 shares  
Unconverted shares
    :       1,893,939 shares  
 
On January 7, 2008, above convertible notes were fully converted to 1,893,939 of common shares at W1,584 per share.
 
(Note 3)   Details of bonds with warrants are as follows :
 
                 
Issued amount (in Korean won)
    :       W3,000 million  
Stated interest rate(%)
    :       7.11 %
Exercise price (in Korean won)
    :       W4,518 per share  
Exercise period
    :       September 3, 2006~August 2, 2008  
Number of total exercisable shares
    :       664,010 shares  
Exercised shares
    :       —  
Unexercised shares
    :       664,010 shares  
Others
    :       Subject to request by the holders, certain portion of the bonds are early redeemable before maturity; up to 10 % of issued amount at one year after 1st anniversary of issuance and 20% of issued amount at the interest payment date after 2nd anniversary of issuance. W900 million of the issued amount was early redeemed through December 31, 2008.
 
Above bonds are to be repaid in full in 2009 and the remaining balance of W2,100 million was reclassified as current liabilities as of December 31, 2008.
 
b.   Long-term Borrowings in Korean Won
 
Long-term borrowings in Korean won as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                 
    2007     2008  
    Maturity
 		    Interest Rate
 		          Maturity
 		    Interest Rate
 		       
    Date     per Annum     Amount     Date     per Annum     Amount  
 
Informatization Promotion Fund
    2008~2012       4.72~5.39 %     W47,365       2009~2013       4.86~6.28 %     W35,869  
Inter-Korean Cooperation Fund
    2026       2.00 %     5,665       2026       2.00 %     6,415  
Facility and working capital loans
    2008~2015       6.02~7.60 %     82,356       2009~2015       5.00~8.12 %     79,611  
General purpose loans
    2009~2010       5.74~6.19 %     52,132       2009~2011       5.74~7.01 %     74,034  
Commercial papers
    2008       6.33~6.45 %     30,000       2011       6.55~6.71 %     30,000  
                                                 
Total
                    217,518                       225,929  
Less current portion
                    (105,453 )                     (78,245 )
                                                 
Long-term portion
                    112,065                       147,684  
Less present value discount
                    (1,130 )                     (871 )
                                                 
Net
                    W110,935                       W146,813  
                                                 


F-58

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Above Informatization Promotion Funds are repayable in installments for three years after two year grace period and Inter-Korean Cooperation Fund is repayable in installments for thirteen years after seven year grace period.
 
c.   Long-term Borrowings in Foreign Currency
 
Long-term borrowings in foreign currency as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):
 
                                 
    2007  
                Amount  
    Maturity
 		    Interest Rate
 		    Foreign
 		    Korean Won
 		 
    Date     per Annum (%)     Currencies     Equivalent  
 
New Telephone Company, Inc. 
    2008       Libor+3.50       RUB 16,364       W942  
New Telephone Company, Inc. 
    2009       Libor+3.50       RUB 32,728       1,883  
KT Capital
    2008~2010       Libor+0.99       USD 23,000       21,579  
                                 
Total
                    RUB 49,092
USD 23,000 		      24,404  
                                 
Less current portion
                    (RUB 16,364 )
(USD 4,000) 		    (4,695 )
                                 
Net
                    RUB 32,728
USD 19,000 		      W19,709  
                                 
 
                                         
    2008  
                Amount  
    Maturity
 		    Interest Rate
 		    Foreign
 		    Korean Won
 		       
Company
  Date     per Annum (%)     Currencies     Equivalent        
 
KTSC
    2013       Libor+1.70       USD 28,800       W36,216          
KTF
    2010~2011       4.87~5.77       USD 100,000       125,750          
KT Capital
    2010       Libor+0.99       USD 19,000       23,893          
NTC
    2010       Libor+3.50       RUB 29,380       1,260          
              14.00       RUB 2,877       123          
East Telecom
    2011       16.50       SUM 890,000       810          
                                         
Total
                    USD147,800
RUB 32,257
SUM 890,000 		      188,052          
                                         
Less current portion
                    (USD 40,400 )     (50,803 )        
                                         
Net
                    USD 107,400
RUB 32,257
SUM 890,000 		      W137,249          
                                         


F-59

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
d.   Repayment Schedule
 
Repayment schedule of the Company’s long-term debt as of December 31, 2008 is as follows (in millions of Korean won):
 
                                                 
    Bonds                    
Year Ending
 		  In Local
 		    In Foreign
 		          Borrowings in
 		    Borrowings in
 		       
December 31,
  Currency     Currency     Sub-total     Local Currency     Foreign Currency     Total  
 
2009
  W 1,311,667     W —     W 1,311,667       W78,245     W 50,803     W 1,440,715  
2010
    1,490,000       —       1,490,000       63,710       78,594       1,632,304  
2011
    1,255,000       774,209       2,029,209       68,789       46,583       2,144,581  
2012
    580,000       389,825       969,825       5,238       8,048       983,111  
2013
    730,000       251,500       981,500       1,519       4,024       987,043  
Thereafter
    600,000       1,634,750       2,234,750       8,428       —       2,243,178  
                                                 
Total
    W5,966,667       W3,050,284       W9,016,951       W225,929       W188,052       W9,430,932  
                                                 
 
13.   PROVISIONS
 
Changes in provisions for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                 
    2007  
    January 1,
 		    Increase
 		    Decrease           December 31,
 		 
    2007     (Note 7)     Reversal     Use     Other, Net     2007  
 
Current portion:
                                               
Litigation (Note 1)
    W4,991       W34,269       W(4,970 )     W(1,441 )     W—       W32,849  
KT members points (Note 2)
    1,402       1,600       —       (1,251 )     —       1,751  
Let’s 010 call bonus points (Note 5)
    497       —       —       (535 )     4,370       4,332  
Sales warranty (Note 3)
    3,505       10,549       —       (8,642 )     —       5,412  
Others
    305       2,902       (12 )     (122 )     —       3,073  
                                                 
Sub total
    10,700       49,320       (4,982 )     (11,991 )     4,370       47,417  
                                                 
Non-current portion:
                                               
Call bonus points (Note 4)
    72,693       —       (44,097 )     (8,509 )     —       20,087  
Let’s 010 call bonus points (Note 5)
    17,758       —       (829 )     (5,492 )     (6,800 )     4,637  
Others
    1,617       133       (1,037 )     (17 )     —       696  
                                                 
Sub total
    92,068       133       (45,963 )     (14,018 )     (6,800 )     25,420  
                                                 
Total
    W102,768       W49,453       W(50,945 )     W(26,009 )     W(2,430 )     W72,837  
                                                 
 


F-60

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                 
    2008  
    January 1,
 		          Decrease     Other,
 		    December 31,
 		 
    2008     Increase     Reversal     Use     Net     2008  
 
Current portion:
                                               
Litigation (Note 1)
    W32,849       W18,748       W(1 )     W(32,024 )     W—       W19,572  
KT members points (Note 2)
    1,751       257       (1,045 )     (282 )     —       681  
KT points (Note 4)
    —       —       —       (5,414 )     10,188       4,774  
Let’s 010 call bonus points (Note 5)
    4,332       —       —       (4,493 )     5,665       5,504  
Sales warranty (Note 3)
    5,412       8,623       —       (8,736 )     —       5,299  
Others
    3,073       5,908       (7 )     (5,989 )     —       2,985  
                                                 
Sub total
    47,417       33,536       (1,053 )     (56,938 )     15,853       38,815  
                                                 
Non-current portion:
                                               
KT points (Note 4)
    20,087       —       (2,800 )     —       (10,188 )     7,099  
Let’s 010 call bonus points (Note 5)
    4,637       6,137       —       —       (5,665 )     5,109  
Asset retirement obligation (Note 6)
    —       20,382       —       —       51,151       71,533  
Others
    696       925       (216 )     —       —       1,405  
                                                 
Sub total
    25,420       27,444       (3,016 )     —       35,298       85,146  
                                                 
Total
    W72,837       W60,980       W(4,069 )     W(56,938 )     W51,151       W123,961  
                                                 
 
 
(Note 1)  The amount recognized as litigation provision represents the estimate of payments required to settle the obligation.
 
(Note 2)  The Company recorded provisions for the KT members’ points, for VIP customers of the fixed-line or mobile telephone users who are entitled to receive certain goods and other benefits with W25,000 per person.
 
(Note 3)  KTFT, a subsidiary, recorded sales warranty provisions based on the estimated warranty cost for the products sold. Sales warranty provisions are calculated in proportion to cost of goods sold based on the historical defect experiences.
 
(Note 4)  The amount recognized as call bonus points represents the estimate of payments for KT points which are provided to fixed-line customers based on the usage of the services. Once certain criteria are met, customers are entitled to receive certain goods and other benefits from the Company. Such provision is reviewed at each balance sheet date and adjusted to reflect the current best estimate when new estimates are necessary as a result of changes in circumstances, which were used as the bases for such estimates, or an acquisition of new information or additional experience on the usage rate, the expiration of points and others.
 
(Note 5)  The Company recorded provision for the Let’s 010 (KT-PCS) call bonus points provided to its PCS subscribers who are entitled to receive certain goods and other benefits from the Company.
 
(Note 6)  When the Company is responsible for restoration of leased facility after termination of the lease contract, the present value of expected future expenditure for the restoration is recorded as a liability.
 
(Note 7)  Amount until the date of acquisition of the newly consolidated entities in 2007 was excluded.

F-61

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
14.   LEASE
 
a.   Lessees
 
Property and equipment acquired through lease arrangements with GE Capital and others as of December 31, 2007 and 2008 are as follows:
 
i)   Finance Lease
 
Property and equipment acquired through finance lease arrangements with GE Capital as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                 
    2007     2008  
 
Acquisition cost
  W 66,965     W 67,208  
Accumulated depreciation
    (44,482 )     (53,596 )
                 
Net balance
  W 22,483     W 13,612  
                 
Depreciation
  W 14,742     W 8,852  
                 
 
Annual future lease payments of such leases as of December 31, 2008 are as follows (in millions of Korean won):
 
         
Year Ending December 31,
  Lease Payment  
 
2009
  W 11,038  
2010~2013
    7,588  
         
Total
    18,626  
Less amounts representing interest
    (1,139 )
         
Principal amount
    17,487  
Less current portion
    (10,185 )
         
Net
  W 7,302  
         
 
ii)   Operating Lease
 
Annual future lease payments of operating lease arrangements with HP Financial Co., Ltd. and others as of December 31, 2008 are as follows (in millions of Korean won):
 
         
Year Ending December 31,
  Lease Payment  
 
2009
  W 1,040  
2010
    184  
         
Total
  W 1,224  
         


F-62

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
b.   Lessors
 
i)   Finance Lease
 
The present values of minimum lease payments and gross investments in the leased assets provided by the Company as of December 31, 2008 are as follows (in millions of Korean won):
 
         
Year Ending December 31,
  Lease Payment  
 
2009
  W 185,312  
2010~2013
    290,552  
Thereafter
    5,608  
         
Total
    481,472  
Less amounts representing interest
    (3,722 )
         
Principal amount
    477,750  
Less current portion
    (183,309 )
         
Net
  W 294,441  
         
 
ii)   Operating Lease
 
Annual future lease receipts from operating lease arrangements to be recognized by the Company as of December 31, 2008 are as follows (in millions of Korean won):
 
         
Year Ending December 31,
  Lease Payment  
 
2009
  W 36,556  
2010~2013
    27,218  
         
Total
  W 63,774  
         
 
15.   REFUNDABLE DEPOSITS FOR TELEPHONE INSTALLATION
 
Through September 15, 1998, the Company received deposits for telephone installation in accordance with the Korea Public Telecommunication Business Law. Such deposits (which are reflected as a liability) are to be refunded without interest to the telephone subscribers upon termination of service.
 
Beginning on September 15, 1998, the Company allowed customers to choose between alternative plans for basic telephone service. Under such plans, customers were permitted the option to either place fully refundable deposits or pay a reduced non-refundable service initiation fee. Effective April 15, 2001, all new customers are required to pay a non-refundable service initiation fee.


F-63

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
16.   ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES
 
Significant assets and liabilities denominated in foreign currencies (excluding those held by overseas subsidiaries) as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won and thousands of foreign currencies):
 
                                 
    2007     2008  
          Korean
 		          Korean
 		 
    Foreign
 		    Won
 		    Foreign
 		    Won
 		 
    Currencies     Equivalent     Currencies     Equivalent  
 
Assets:
                               
Cash and cash equivalents
    USD 18,346     W 17,211       USD 26,124     W 32,851  
      JPY 12,067       101       JPY 20,278       282  
Short-term investment assets
    USD 15,327       14,380       USD 15,327       19,273  
Accounts receivable — trade
    USD 168,404       157,996       USD 164,536       206,905  
      JPY 6,898       57       JPY 178,880       2,493  
      SDR 19,033       28,187       SDR 17,623       34,301  
      EUR 286       395       EUR 486       864  
Loans
    USD 23,000       21,579       USD 49,000       61,618  
Accounts receivable — other
    USD 506       476       USD 2,975       3,741  
      —       —       JPY 2,139       30  
Guarantee deposits
    USD 557       523       USD 557       700  
Deposits provided
    USD 24       22       USD 10       12  
                                 
      USD 226,164               USD 258,529          
      JPY 18,965               JPY 201,297          
      SDR 19,033               SDR 17,623          
Total assets
    EUR 286     W 240,927       EUR 486     W 363,070  
                                 
Liabilities:
                               
Accounts payable — trade
    USD 158,782     W 148,969       USD 135,049     W 169,824  
      JPY 107,080       892       JPY 134,945       1,882  
      SDR 16,350       24,213       SDR 12,413       24,160  
      EUR 123       170       EUR 468       831  
      AUD 112       92       AUD 17       15  
Accounts payable — other
    USD 18,180       17,057       USD 2,227       2,800  
      JPY 507,945       4,233       —       —  
      GBP 194       363       GBP 1       2  
      KWD 4       13       —       —  
      EUR 540       745       EUR 25       44  
      —       —       CNY 6       1  
      —       —       HKD 17       3  
      USD 25,067       23,517       USD 2,601       3,271  
Short-term borrowings
    JPY 267,296       2,227       JPY 58,587       817  
Withholdings
    USD 39       37       USD 215       271  
Accrued expenses
    USD 524       492       USD 1,470       1,849  
      EUR 15       21       EUR 15       26  
Current portion of bonds and long-term borrowings
    —       —       USD 6,400       8,048  
Key money deposits
    —       —       USD 14       18  
Bonds and long-term borrowings
    USD 1,523,000       1,428,879       USD 2,271,400       2,856,286  
      —       —       JPY 19,500,000       271,808  
                                 
      USD 1,725,592               USD 2,419,376          
      SDR 16,350               SDR 12,413          
      EUR 678               EUR 508          
      AUD 112               AUD 17          
      JPY 882,321               JPY 19,693,532          
      GBP 194               GBP 1          
      KWD 4               —          
      —               CNY 6          
Total liabilities
    —     W 1,651,920       HKD 17     W 3,341,956  
                                 


F-64

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
17.   TRANSACTIONS AND BALANCES WITH RELATED PARTIES
 
KT and subsidiaries have engaged in various business transactions amongst themselves and equity method investees. The transactions include providing PCS network capacities, system and network integration service, public telephone maintenance service, 114 call center operation service and other.
 
KT’s significant account balances with related parties as of December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
                     
Related Party
 
Account
  2007     2008  
 
Subsidiary:
                   
KTF
  Receivables   W 47,850     W 52,750  
    Payables     188,701       172,700  
    Key money deposits received     23,988       21,392  
KTH
  Receivables     777       1,320  
    Accrued expenses     12,943       12,046  
KTN
  Receivables     7,351       5,413  
    Payables     45,508       42,912  
KTL
  Receivables     681       99  
    Payables     20,408       24,188  
KTFT
  Receivables     629       2,496  
    Payables     13,010       11,117  
KTC
  Receivables     1,844       2,010  
    Payables     15,298       19,403  
KTR
  Receivables     1,077       60  
    Payables     58,912       56,128  
KTP
  Receivables     776       1,225  
    Payables     50       1,474  
KT Capital
  Receivables     4       1  
    Payables     3,823       42,074  
KTDS
  Receivables     —       5  
    Payables     —       27,864  
Others
  Receivables     3,933       3,275  
    Payables     8,379       4,203  
Equity method investee:
                   
KDB
  Receivables     6,944       6,453  
    Payables     7,682       7,308  
KID
  Receivables     1,074       1,269  
    Payables     15,763       14,700  
CURD (formerly, “KNRDC”)
  Receivables     33       1  
    Payables     11,486       4,415  
KIS
  Receivables     18       570  
    Payables     12,211       8,514  
Goodmorning F Co., Ltd. 
  Payables     8,267       7,266  
eNtoB Corp. 
  Payables     17,198       10,585  
Korea Seoul Contact all Co., Ltd. 
  Payables     3,482       4,829  
Korea Service and Communication Co., Ltd. 
  Payables     2,768       3,247  
Korea Call Center Co., Ltd. 
  Payables     2,395       3,231  
TMworld Co., Ltd. 
  Payables     2,364       3,217  
UMS&C
  Payables     2,582       3,075  
Information Technology Service Bukbu Corporation
  Payables     —       3,854  
Information Technology Solution Nambu Corporation
  Payables     —       4,606  
Information Technology Solution Seobu Corporation
  Payables     —       3,777  
Information Technology Solution Busan Corporation
  Payables     —       4,321  
Information Technology Solution Jungbu Corporation
  Payables     —       4,310  
Information Technology Solution Honam Corporation
  Payables     —       3,713  
Information Technology Solution Daegu Corporation
  Payables     —       2,567  
Other
  Receivables     14       738  
    Payables     1,110       3,289  
                     
Total
  Receivables   W 73,005     W 77,685  
                     
    Payables   W 478,328     W 536,325  
                     


F-65

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Significant transactions between KT and its related parties for the years ended December 31, 2006, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
                                 
Related Party
 
Transactions
 
Account
  2006     2007     2008  
 
Subsidiary:
                               
KTF
  Leased line charges and other   Operating revenue   W 424,512     W 451,668     W 443,880  
    Purchase of PCS networks and other   Operating expense     730,399       761,299       756,002  
KTH
  Leased line charges and other   Operating revenue     3,493       5,071       10,935  
    Commission and other   Operating expense     41,020       46,510       45,396  
KTN
  Leased line charges and other   Operating revenue     39,644       38,663       38,970  
    Cost of system integration (“SI”), network
integration business and other 		  Operating expense     172,716       147,994       178,408  
KTL
  Leased line charges and other   Operating revenue     10,605       1,710       1,311  
    Commissions and other   Operating expense     98,277       86,188       79,428  
KTFT
  Telecommunication revenue and other   Operating revenue     1,175       3,327       2,347  
    Cost of goods sold and other   Operating expense     86,720       88,443       52,847  
KTC
  Telecommunication revenue and other   Operating revenue     976       1,027       1,912  
    Commissions and other   Operating expense     28,004       24,226       22,573  
KTR
  Telecommunication revenue and other   Operating revenue     2,549       2,600       2,232  
    Commissions and other   Operating expense     34,394       42,991       44,917  
KTP
  Telecommunication revenue and other   Operating revenue     21,531       12,655       10,716  
    Commissions and other   Operating expense     1,681       1,071       946  
KT Capital
  Telecommunication revenue and other   Operating revenue     —       45       87  
    Interest expense of lease and other   Operating expense     —       88       2,129  
KTDS
  Telecommunication revenue and other   Operating revenue     —       —       3,106  
    Commissions and other   Operating expense     —       —       55,101  
Other
  Telecommunication revenue and other   Operating revenue     2,925       11,043       12,815  
    Commissions and other   Operating expense     7,323       23,722       26,116  
Equity method investee:
                               
KDB
  SI revenue and other   Operating revenue     89,520       86,363       77,414  
    Commission and other   Operating expense     5,591       5,497       1,822  
KID
  Rent and other   Operating revenue     12,666       12,419       14,051  
    Commission and other   Operating expense     111,425       95,117       91,034  
Goodmorning F Co., Ltd. 
  Telecommunication revenue and other   Operating revenue     449       494       487  
    Commission and other   Operating expense     50,677       47,789       42,830  
CURD (formerly, “KNRDC”)
  Telecommunication revenue and other   Operating revenue     649       773       459  
    Commission and other   Operating expense     58,035       38,773       23,008  
KIS
  Telecommunication revenue and other   Operating revenue     17,610       18,064       17,298  
    Commission and other   Operating expense     75,806       68,892       50,403  
eNtoB Corp. 
  Commission and other   Operating expense     132,655       129,802       110,753  
MOS facilities (formerly, “Mostech”)
  Telecommunication revenue and other   Operating revenue     —       207       342  
    Commission and other   Operating expense     —       13,387       8,107  
Korea Seoul Contact all Co., Ltd. 
  Commission and other   Operating expense     —       37,184       41,426  
Korea Service and Communication Co., Ltd. 
  Commission and other   Operating expense     —       30,428       30,761  
Korea Call Center Co., Ltd. 
  Commission and other   Operating expense     —       27,460       28,965  
TMworld Co., Ltd. 
  Commission and other   Operating expense     —       26,983       29,478  
UMS&C
  Commission and other   Operating expense     —       26,434       29,921  
Information Technology Service Bukbu Corporation
  Commission and other   Operating expense     —       —       11,802  
Information Technology Solution Nambu Corporation
  Commission and other   Operating expense     —       —       13,954  
Information Technology Solution Seobu Corporation
  Commission and other   Operating expense     —       —       12,430  
Information Technology Solution Busan Corporation
  Commission and other   Operating expense     —       —       11,282  
Information Technology Solution Jungbu Corporation
  Commission and other   Operating expense     —       —       12,569  
Information Technology Solution Honam Corporation
  Commission and other   Operating expense     —       —       11,907  
Information Technology Solution Daegu Corporation
  Commission and other   Operating expense     —       —       6,690  
Other
  Telecommunication revenue and other   Operating revenue     582       3,020       8,218  
    Commission and other   Operating expense     35,986       2,261       16,413  
                                 
Total
      Revenues   W 628,886     W 649,149     W 646,580  
                                 
        Expenses   W 1,670,709     W 1,772,539     W 1,849,418  
                                 


F-66

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Compensation to KT’s key management personnel for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                             
    2006     2007     2008    
Description
 
Benefits
  W 20,878     W 19,397     W 20,203     Salaries, bonuses and other allowances, retirement benefits, medical benefits and other
Share-based payments
    227       1,047       1,420     Other share-based payments and others
                             
Total
  W 21,105     W 20,444     W 21,623      
                             
 
KT considers its management of vice president or higher, who have the authority and responsibility for planning, operation and control and are in charge of business or division unit, and non-permanent directors as key management personnel.
 
Significant account balances amongst subsidiaries as of December 31, 2007 and 2008 are as follows (in millions of Korea won):
 
                             
Creditor
  Debtor    
Account
  2007     2008  
 
KTFT
    KTF    
Accounts receivable — trade
  W 92,269     W 59,902  
KTR
    KTP    
Long-term accounts receivable — trade and others
   

31,303 		     

29,164 		 
Other
                35,066       68,261  
                             
Total
              W 158,638     W 157,327  
                             
 
Significant transactions amongst subsidiaries for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korea won):
 
                             
Seller
  Purchaser  
2006
    2007     2008  
 
KTFT
  KTF   W 218,924     W 358,150     W 304,361  
KTF
  KTF M&S     —       137,602       398,556  
Other
        90,291       163,213       412,795  
                             
Total
      W 309,215     W 658,965     W 1,115,712  
                             
 
As of December 31, 2008, the Company has provided guarantees for related parties as follows (in millions of Korean won):
 
                 
Guarantor
  Guarantee   Description   Amount  
 
KTN
  KTR  
Guarantee for loan
  W 10,352  
KTF Music
  Music City Media  
Joint liability on guarantee for borrowings
    61  
Olive Nine
  Olive Nine Entertainment  
Joint liability on guarantee for borrowings
    34  
                 
Total
          W 10,447  
                 
 
18.   COMMON STOCK AND CAPITAL SURPLUS
 
As of December 31, 2008, the Company’s number of shares authorized are 1,000,000,000 shares with par value of W5,000 per share.


F-67

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of December 31, 2007 and 2008, the number of shares issued by the Company are 275,202,400 shares and 273,535,700 shares, respectively, and the common stock amounted to W1,560,998 million. As allowed by the Securities Exchange Law, the Company retired 36,997,259 and 38,663,959 treasury shares by charges against retained earnings through December 31, 2007 and 2008, respectively. Therefore, the common stock amount differs from the amount resulting from multiplying the number of shares issued by W5,000 par value of common stock.
 
19.   RETAINED EARNINGS RESTRICTED IN USE
 
Retained earnings appropriated to the legal reserve cannot be used as cash dividends under the applicable laws and regulations. The Korean Commercial Code requires the Company to appropriate an amount equal to at least 10% of the cash dividend amount to a legal reserve at the end of the year for each accounting period until the reserve equals 50% of stated capital. The legal reserve may be used to reduce a deficit or may be transferred to capital.
 
In accordance with the relevant tax laws, the Company is allowed to appropriate a reserve for technology and human resource development to recognize certain tax deductible benefits through the early recognition of future expenditures for tax purposes. This reserve used for its original purpose and the remaining balance after use are restored to retained earnings and may be used for dividends in accordance with the relevant tax laws.
 
20. COMPREHENSIVE INCOME
 
Comprehensive income for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                 
Description
  2007     2008  
 
Net income
  W 1,170,978     W 513,290  
Cumulative effect of changes in accounting policies
    —       3,852  
Other comprehensive income (loss):
               
Gain on translation of foreign operations
    55       13,559  
Loss on translation of foreign operations (Tax effect: W5,005 million for 2007 and (W3,632) million for 2008)
    22,136       11,779  
Unrealized gain on available-for-sale securities (Tax effect: W1,189 million for 2007 and W2,988 million for 2008)
    4,164       (8,939 )
Unrealized loss on available-for-sale securities (Tax effect: W1,872 million for 2008)
    —       (7,545 )
Increase in equity of associates (Tax effect: (W2,789) million for 2007 and W3,779 million for 2008)
    (714 )     9,954  
Decrease in equity of associates (Tax effect: (W4,942) million for 2007 and (W6,517) million for 2008)
    3,762       961  
Gain on valuation of derivatives for cash flow hedge (Tax effect: (W768) million for 2007 (W2,288) million for 2008)
    2,024       9,374  
Loss on valuation of derivatives for cash flow hedge (Tax effect: W4,989 million for 2008)
    —       (18,370 )
                 
Comprehensive income
  W 1,202,405     W 527,915  
                 
Attributable to : Equity holders of the parent
  W 1,082,829     W 462,258  
Minority interest
    119,576       65,657  
                 
    W 1,202,405     W 527,915  
                 


F-68

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
21.   SHARE-BASED PAYMENTS
 
KT granted stock options to its executive officers and directors through 2006 in accordance with the stock option plan approved by its board of directors of which details are as follows:
 
                     
    1st Grant   2nd Grant   3rd Grant   4th Grant   5th Grant
 
Grant date
  Dec. 26, 2002   Sep. 16, 2003   Dec. 12, 2003   Feb. 4, 2005   Apr. 28, 2005
Grantee
  Executives   Outside directors   Executives   Executives   Executives
Number of basic allocated shares upon grant
  460,000   36,400   80,000   50,800   45,700
Number of additional shares related to business performance upon grant
  220,000   —   40,000   20,000   20,000
Number of shares expected to be exercised upon grant
  562,958   36,400   106,141   60,792   55,692
Number of settled or forfeited shares
  191,326   33,400   106,141   10,800   65,700
Number of allocated shares as of December 31, 2008
  300,415   3,000   —   40,000   —
Number of additional shares related to business performance as of December 31, 2008
  71,217   —   —   3,153   —
Number of shares expected to be exercised
  371,632   3,000   —   43,153   —
Fair value (in Korean won)
  W22,364   W12,443   W10,926   W12,322   W10,530
Total compensation cost
                   
(in millions of Korean won)
  W8,311   W38   W—   W531   W—
Exercise price (in Korean won)
  W70,000   W57,000   W65,000   W54,600   W50,400
Exercise period
  Dec.27, 2004   Sep.17, 2005   Dec.13, 2005   Feb. 5, 2007   Apr. 29, 2007
    ~Dec. 26, 2009   ~Sep.16, 2010   ~Dec.12, 2010   ~Feb. 4, 2012   ~Apr. 28, 2012
Valuation method
  Fair value
method 		  Fair value
method 		  Fair value
method 		  Fair value
method 		  Fair value
method
 
Upon exercise, the Company can elect one of the following settlement methods; an issuance of new shares, a provision of treasury stock or cash settlement (cash and provision of treasury stock) subject to its circumstances.
 
KT adopted the fair value method to measure compensation costs based on the following valuation assumptions and methods are as follows:
 
                     
    1st Grant   2nd Grant   3rd Grant   4th Grant   5th Grant
 
Risk free interest rate
  5.46%   4.45%   5.09%   4.43%   4.07%
Expected duration
  4.5 years to   4.5 years   4.5 years to   4.5 years to   4.5 years to
    5.5 years       5.5 years   5.5 years   5.5 years
Expected volatility
  49.07%   34.49%   31.26%   33.41%   33.51%
    ~ 49.90%       ~ 33.90%   ~ 42.13%   ~ 35.92%
Expected dividend yield ratio
  1.10%   1.57%   1.57%   5.86%   5.86%


F-69

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Of total compensation costs calculated using the fair value method, the compensation costs recognized through December 31, 2008 are as follows (in millions of Korean won):
 
                                                 
    1st Grant     2nd Grant     3rd Grant     4th Grant     5th Grant     Total  
 
Total compensation costs before adjustment
  W 10,602     W 453     W 1,160     W 749     W 586     W 13,550  
Total compensation costs cancelled
    (2,291 )     (415 )     (1,160 )     (218 )     (586 )     (4,670 )
                                                 
Total compensation costs after adjustment
    8,311       38       —       531       —       8,880  
Compensation costs recognized in prior years
    (8,311 )     (38 )     —       (531 )     —       (8,880 )
                                                 
Compensation costs to be reflected in current year
    —       —       —       —       —       —  
Compensation costs recognized in current year
    —       —       —       —       —       —  
                                                 
Compensation costs to be recognized after current year
  W —     W —     W —     W —     W —     W —  
                                                 
 
Details of stock grants to directors including chief executive officer after January 1, 2007 are as follows:
 
         
    1st Grant   2nd Grant
 
Grant date
  March 29, 2007   March 27, 2008
Grantee
  Registered directors   Registered directors
Estimated number of shares granted upon grant
  23,925 shares   29,481 shares
    Service condition: one year            Service condition: one year
    Non-market performance condition:   Non-market performance condition:
Vesting Conditions
  achievement of performance   achievement of performance
Fair value per option (in Korean won)
  W42,706   W48,160
Total compensation costs (in Korean won)
  W1,022 million   W1,420 million
Estimated exercise date
  March 29, 2008   March 27, 2009
Valuation method
  Fair value method   Fair value method
 
Above compensation costs were calculated based on the fair value method and charged to current operations for the year ended December 31, 2008 as follows (in millions of Korean won):
 
                 
    1st Grant     2nd Grant  
 
Total compensation costs
  W 1,022     W 1,420  
Compensation costs recognized in prior years
    (1,022 )     —  
                 
Compensation costs to be reflected in current year
    —       1,420  
Compensation costs recognized in current year
    —       (1,420 )
                 
Compensation costs to be recognized after current year
  W —     W —  
                 


F-70

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
22.   TREASURY STOCK
 
Changes in KT’s treasury stock for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won except for share data):
 
                                                                                 
    2007  
    January 1, 2007     Increase     Disposal     Retirement     December 31, 2007  
    Number of
 		          Number of
 		          Number of
 		          Number of
 		          Number of
 		       
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount  
 
Direct purchase by the Securities and Exchange Act
    70,273,052     W 3,733,861       4,425,000     W 196,329       (16,645 )   W (884 )     (4,425,000 )   W (196,329 )     70,256,407     W 3,732,977  
Indirect purchase through trust agreement and other
    1,259,170       92,711       —       —       —       —       —       —       1,259,170       92,711  
                                                                                 
      71,532,222     W 3,826,572       4,425,000     W 196,329       (16,645 )   W (884 )     (4,425,000 )   W (196,329 )     71,515,577     W 3,825,688  
                                                                                 
 
                                                                                 
    2008  
    January 1, 2008     Increase     Disposal     Retirement     December 31, 2008  
    Number of
 		          Number of
 		          Number of
 		          Number of
 		          Number of
 		       
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount  
 
Direct purchase by the Securities and Exchange Act
    70,256,407     W 3,732,977       1,666,700     W 73,807       (15,173 )   W (807 )     (1,666,700 )   W (73,807 )     70,241,234     W 3,732,170  
Indirect purchase through trust agreement and other
    1,259,170       92,711       —       —       —       —       —       —       1,259,170       92,711  
                                                                                 
      71,515,577     W 3,825,688       1,666,700     W 73,807       (15,173 )   W (807 )     (1,666,700 )   W (73,807 )     71,500,404     W 3,824,881  
                                                                                 
 
Above treasury stocks are expected to be used for the stock compensation to the Company’s directors and employees, swap with KTF stocks in the expected merger with KTF and other purposes.
 
23.   OPERATING REVENUES
 
Operating revenues for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Internet services
  W 2,471,086     W 2,497,897     W 2,678,513  
Data communication services
    1,284,213       1,270,607       1,335,728  
Telephone services
    5,817,000       5,592,349       5,199,711  
PCS services
    5,510,319       5,874,610       6,261,045  
PCS handsets sales
    1,888,978       2,323,828       2,867,216  
Other
    853,284       1,100,791       1,302,330  
                         
Total
  W 17,824,880     W 18,660,082     W 19,644,543  
                         


F-71

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
24.   CONSTRUCTION CONTRACTS
 
Details of construction contracts as of December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                                 
    2006  
    Beginning Contract
 		    Increase
 		    Recognized as
 		    Ending Contract
 		 
    Balance     (Decrease)     Revenue (Note)     Balance  
 
Jungja Dong, Suwon
  W 48,657     W —     W (21,499 )   W 27,158  
Sungsu Dong, Seoul
    140,000       11,081       (34,114 )     116,967  
Bugae Dong, Incheon
    191,713       —       (7,534 )     184,179  
Gaya Dong, Busan
    11,055       (36 )     (11,019 )     —  
                                 
Total
  W 391,425     W 11,045     W (74,166 )   W 328,304  
                                 
 
                                 
    2007  
    Beginning Contract
 		          Recognized as
 		    Ending Contract
 		 
    Balance     Increase     Revenue (Note)     Balance  
 
Jungja Dong, Suwon
  W 27,158     W 37     W (26,916 )   W 279  
Sungsu Dong, Seoul
    116,967       1,600       (54,731 )     63,836  
Bugae Dong, Incheon
    184,179       6,260       (33,347 )     157,092  
                                 
Total
  W 328,304     W 7,897     W (114,994 )   W 221,207  
                                 
 
                                 
    2008  
    Beginning Contract
 		          Recognized as
 		    Ending Contract
 		 
    Balance     Increase     Revenue (Note)     Balance  
 
Jungja Dong, Suwon
  W 279     W —     W (279 )   W —  
Sungsu Dong, Seoul
    63,836       —       (50,308 )     13,528  
Bugae Dong, Incheon
    157,092       —       (78,220 )     78,872  
Sungsu dong, Seoul (factory building)
    —       64,689       (212 )     64,477  
                                 
Total
  W 221,207     W 64,689     W (129,019 )   W 156,877  
                                 
 
 
(Note) These revenues are classified as other in operating revenues.


F-72

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
25.   OPERATING EXPENSES
 
Operating expenses for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Salaries and wages
  W 2,224,598     W 2,242,295     W 2,281,587  
Share-based payment
    531       1,251       1,922  
Provision for severance indemnities
    240,843       360,476       362,342  
Employee welfare
    527,062       528,902       567,878  
Travel
    42,057       38,568       31,725  
Communications
    65,825       76,983       58,981  
Electric and water charges
    227,262       245,231       248,848  
Taxes and dues
    197,196       195,874       200,287  
Supplies
    37,199       37,765       37,541  
Publications
    5,773       6,281       5,215  
Rent
    219,825       226,327       249,827  
Depreciation
    3,185,193       3,193,591       3,214,325  
Amortization
    371,616       408,611       415,393  
Repairs
    414,428       288,715       207,332  
Maintenance
    290,590       322,364       373,006  
Automobile maintenance
    29,307       30,637       20,337  
Insurance
    20,496       23,157       30,003  
Commissions
    1,042,180       1,147,640       1,489,471  
Advertising
    232,202       274,450       221,779  
Education and training
    39,092       31,331       29,432  
Praise and reward
    10,894       11,168       12,707  
Research
    225,321       238,722       235,508  
Development
    56,424       52,288       47,639  
Interconnection charges
    1,177,896       1,200,373       1,234,474  
Cost of services
    606,440       776,782       525,527  
International settlement payment
    203,339       216,962       263,464  
Cost of goods sold
    1,682,009       1,911,897       2,367,211  
Promotion
    561,186       749,029       1,079,580  
Sales commission
    1,348,156       1,902,106       2,129,674  
Provision for doubtful accounts
    111,285       71,502       150,583  
Other
    99,009       145,747       163,380  
                         
Sub-total
    15,495,234       16,957,025       18,256,978  
Less : transfer to other accounts
    (53,730 )     (42,284 )     (40,197 )
                         
    W 15,441,504     W 16,914,741     W 18,216,781  
                         


F-73

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
26.   INCOME TAX EXPENSE
 
Components of income tax expense for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Current income tax expense (including additional income taxes and tax refunds)
  W 399,097     W 402,254     W 294,620  
Changes in deferred income tax assets and liabilities related to temporary differences (including tax loss and credits carryforwards) (Note)
    77,275       (45,506 )     (126,811 )
Income tax expense directly reflected in stockholders’ equity
    (247 )     51       50  
                         
Income tax expense
  W 476,125     W 356,799     W 167,859  
                         
 
 
(Note) Changes in deferred income tax assets and liabilities related to temporary differences (in millions of Korean won):
 
                 
    2007     2008  
 
Ending deferred income tax assets
  W 349,058     W 482,721  
Beginning deferred income tax assets
    (305,856 )     (349,058 )
Changes in deferred income tax assets (liabilities) directly added to (deducted from) stockholders’ equity
    2,304       (3,000 )
Other
    —       (3,852 )
                 
Changes in deferred income tax assets
  W 45,506     W 126,811  
                 
 
An explanation of the relationship between income tax expense and income from continuing operations before income tax expense for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won) :
 
                         
    2006     2007     2008  
 
Income from continuing operations before income tax expense
  W 1,985,846     W 1,447,763     W 681,149  
                         
Income tax expense at statutory income tax rate (For 2006 and 2007: Less than W100 million: 14.3% Over W100 million: 27.5% For 2008: Less than W200 million: 12.1% Over W200 million: 27.5%)
    546,108       398,123       187,285  
Differences (Note)
    (69,983 )     (41,324 )     (19,426 )
                         
Income tax expense on continuing operations
  W 476,125     W 356,799     W 167,859  
                         
Effective tax rates
    23.98 %     24.64 %     24.64 %
                         
(Note) Differences:
                       
Non-temporary difference
  W 79,895     W 18,704     W 25,412  
Changes in deferred income tax assets (liabilities) unrecognized related to equity method investment securities
    24,918       37,987       91,072  
Tax credit
    (160,875 )     (121,159 )     (203,070 )
Additional income tax and tax refund for prior years
    (13,921 )     30,545       (4,377 )
Tax rate changes
    —       —       72,839  
Other
    —       (7,401 )     (1,302 )
                         
    W (69,983 )   W (41,324 )   W (19,426 )
                         


F-74

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Changes in temporary differences, including tax loss and credits carryforwards, and deferred income tax assets (liabilities) for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                         
    2007  
          Final Tax Return
 		                      Deferred Income Tax Assets
 		 
          Amount
 		                December 31,
 		    (Liabilities)  
    January 1, 2007     (Note 1)     Increase     Decrease     2007     Current     Non-Current  
 
(Deductible temporary differences)
                                                       
Allowance for doubtful accounts
  W 490,318     W 419,703     W —     W (61,625 )   W 358,078     W 92,990     W 5,480  
Inventories
    42,972       42,256       —       (7,277 )     34,979       9,619       —  
Derivative instruments
    158,962       158,746       5,975       —       164,721       45,298       —  
Available-for-sale securities
    18,941       19,009       —       (5,727 )     13,282       —       3,653  
Equity method investment securities
    1,301,777       1,301,777       118,542       (19,496 )     1,400,823       —       385,226  
Contribution for construction
    176,404       176,404       29,204       —       205,608       —       56,542  
Accrued expenses
    238,753       246,775       51,146       —       297,921       81,928       —  
Provisions
    102,768       113,234       —       (29,315 )     83,919       19,275       3,802  
Provision for severance indemnities
    772,554       775,962       232,432       —       1,008,394       —       277,309  
Refundable deposits for telephone installation
    56,851       56,851       —       (2,851 )     54,000       —       14,850  
Other
    19,173       111,793       37,789       —       149,582       (19,583 )     60,720  
                                                         
Sub total
    3,379,473     W 3,422,510     W 475,088     W (126,291 )     3,771,307       229,527       807,582  
                                                         
Not recognized as deferred income tax assets (Note 2)
    (1,417,575 )                             (1,559,920 )     (3,320 )     (425,659 )
                                                         
Recognized as deferred income tax assets
    1,961,898                               2,211,387       226,207       381,923  
Tax rate (Note 3)
    27.5 %                             27.5 %                
                                                         
Deferred income tax assets
    539,522                               608,130       226,207       381,923  
                                                         
 


F-75

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                         
    2007  
          Final Tax
 		                               
          Return
 		                      Deferred Income Tax Assets
 		 
    January 1,
 		    Amount
 		                December 31,
 		    (Liabilities)  
    2007     (Note 1)     Increase     Decrease     2007     Current     Non-Current  
 
(Taxable temporary differences)
                                                       
Accrued interest income
    (5,305 )   W (5,589 )   W (527 )   W —       (6,116 )     (1,682 )     —  
Equity method investment securities
    (82,043 )     (82,043 )     (40,026 )     —       (122,069 )     —       (33,569 )
Depreciation
    (96,013 )     (98,339 )     —       60,105       (38,234 )     —       (10,515 )
Deposits for severance indemnities
    (746,828 )     (749,807 )     (220,946 )     —       (970,753 )     —       (266,956 )
Derivatives instruments
    —       —       (2,792 )     —       (2,792 )     —       (768 )
Reserve for technology and human resource development
    (320,000 )     (320,000 )     —       106,667       (213,333 )     —       (58,667 )
                                                         
Sub total
    (1,250,189 )   W (1,255,778 )   W (264,291 )   W 166,772       (1,353,297 )     (1,682 )     (370,475 )
                                                         
Not recognized as deferred income tax liabilities (Note 2)
    82,043                               122,069       —       33,569  
                                                         
Recognized as deferred income tax liabilities
    (1,168,146 )                             (1,231,228 )     (1,682 )     (336,906 )
Tax rate (Note 3)
    27.5 %                             27.5 %                
                                                         
Deferred income tax liabilities
    (321,240 )                             (338,588 )     (1,682 )     (336,906 )
                                                         
(Tax loss carryforwards)
                                                       
Total loss carryforwards
    70,143                               67,377       —       18,529  
Not recognized as deferred income tax assets (Note 4)
    —                               (38,428 )     —       (10,568 )
                                                         
Recognized as deferred income tax assets
    70,143                               28,949       —       7,961  
Tax rate (Note 3)
    27.5 %                             27.5 %                
                                                         
Deferred income tax assets
    19,289                               7,961       —       7,961  
                                                         
(Tax credit carryforwards)
                                                       
Total tax credit
    101,695                               111,456       —       111,456  
Not recognized as deferred income tax assets
    (16,905 )                             (22,991 )     —       (22,991 )
                                                         
Recognized as deferred income tax assets
    84,790                               88,465       35,000       36,555  
                                                         
Deferred income tax assets
    68,285                               71,555       35,000       36,555  
                                                         
Deferred income tax assets, net
  W 305,856                             W 349,058     W 259,525     W 89,533  
                                                         
 

F-76

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                         
    2008  
          Final Tax Return
 		                      Deferred Income Tax Assets
 		 
          Amount
 		                December 31,
 		    (Liabilities)  
    January 1, 2008     (Note 1)     Increase     Decrease     2008     Current     Non-Current  
 
(Deductible temporary differences)
                                                       
Allowance for doubtful accounts
  W 358,078     W 457,474     W 253,716     W (213,518 )   W 497,672     W 113,861     W 5,994  
Inventories
    34,979       137,182       20,435       (137,225 )     20,392       628       3,915  
Derivative instruments
    164,721       38,474       11,729       (22,701 )     27,502       6,655       —  
Available-for-sale securities
    13,282       24,462       15,105       (230 )     39,337       —       8,840  
Equity method investment securities
    1,400,823       1,532,097       239,810       (7,022 )     1,764,885       —       388,275  
Contribution for construction
    205,608       205,610       27,496       —       233,106       —       51,283  
Accrued expenses
    297,921       149,058       212,483       (138,951 )     222,590       53,825       —  
Provisions
    83,919       88,036       139,193       (44,673 )     182,556       35,845       7,577  
Provision for severance indemnities
    1,008,394       1,019,900       151,580       (19,177 )     1,152,303       —       253,508  
Refundable deposits for telephone installation
    54,000       54,000       —       (3,068 )     50,932       —       11,205  
Other
    149,582       275,449       983,596       (118,633 )     1,140,412       56,751       199,485  
                                                         
Sub total
    3,771,307     W 3,981,742     W 2,055,143     W (705,198 )     5,331,687       267,565       930,082  
                                                         
Not recognized as deferred income tax assets (Note 2)
    (1,559,920 )                             (1,861,675 )     (16,330 )     (395,012 )
                                                         
Recognized as deferred income tax assets
    2,211,387                               3,470,012       251,235       535,070  
Tax rate (Note 3)
    27.5 %                             24.2%, 22%                  
                                                         
Deferred income tax assets
    608,130                               786,305       251,235       535,070  
                                                         

F-77

Table of Contents

 
KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                                                         
    2008  
          Final Tax
 		                               
          Return
 		                      Deferred Income Tax Assets
 		 
    January 1,
 		    Amount
 		                December 31,
 		    (Liabilities)  
    2008     (Note 1)     Increase     Decrease     2008     Current     Non-Current  
 
(Taxable temporary differences)
                                                       
Accrued interest income
  W (6,116 )   W (8,750 )   W (5,959 )   W 3,057     W (11,652 )   W (2,674 )   W (124 )
Equity method investment securities
    (122,069 )     (229,851 )     (82,002 )     2,517       (309,336 )     —       (68,055 )
Depreciation
    (38,234 )     (31,906 )     —       8,311       (23,595 )     —       (5,191 )
Deposits for severance indemnities
    (970,753 )     (980,981 )     (136,824 )     5,959       (1,111,846 )     —       (244,640 )
Derivative instruments
    (2,792 )     (9,126 )     (497,413 )     22       (506,517 )     (40,974 )     (74,184 )
Reserve for technology and human resource development
    (213,333 )     (213,333 )     —       106,666       (106,667 )     (25,813 )     —  
                                                         
Sub total
    (1,353,297 )   W (1,473,947 )   W (722,198 )   W 126,532       (2,069,613 )     (69,461 )     (392,194 )
                                                         
Not recognized as deferred income tax liabilities (Note 2)
    122,069                               119,892       —       26,377  
                                                         
Recognized as deferred income tax liabilities
    (1,231,228 )                             (1,949,721 )     (69,461 )     (365,817 )
Tax rate (Note 3)
    27.5 %                             24.2%, 22%                  
                                                         
Deferred income tax liabilities
    (338,588 )                             (435,278 )     (69,461 )     (365,817 )
                                                         
(Tax loss carryforwards)
                                                       
Total loss carryforwards
    67,377                               223,560       —       49,183  
Not recognized as deferred income tax assets (Note 4)
    (38,428 )                             (220,869 )     —       (48,591 )
                                                         
Recognized as deferred income tax assets
    28,949                               2,691       —       592  
Tax rate (Note 3)
    27.5 %                             24.2%, 22%                  
                                                         
Deferred income tax assets
    7,961                               592       —       592  
                                                         
(Tax credit carryforwards)
                                                       
Total tax credit
    111,456                               153,193       75,116       78,077  
Not recognized as deferred income tax assets
    (22,991 )                             (22,091 )     (6,949 )     (15,142 )
                                                         
Recognized as deferred income tax assets
    88,465                               131,102       68,167       62,935  
                                                         
Deferred income tax assets
    71,555                               131,102       68,167       62,935  
                                                         
Deferred income tax assets, net
  W 349,058                             W 482,721     W 249,941     W 232,780  
                                                         
 
 
(Note 1) Tax effects from true-up for prior year tax return arising from temporary difference and non-temporary differences were adjusted in deferred income tax assets and current earnings, respectively. Changes in temporary difference resulting from tax investigation in the current period were adjusted in final tax return amount.
 
(Note 2) The Company did not recognize deferred income tax assets of W381,489 million related to the tax effects of deductible temporary differences from equity in losses since it was not almost certain that the Company would be able to realize the related tax benefits in the foreseeable future. The Company also did not recognize deferred income tax liabilities totaling W26,377 million since it is almost certain that the differences will not reverse in the foreseeable future given that the Company is able to control the timing of reversal of the temporary difference and the investees have not declared dividends in the past 5 years. Meanwhile, certain subsidiaries including KTR did not recognize deferred income tax assets amounting to W29,853 million which resulted from the tax effects of deductible temporary differences of W128,473 million in excess of taxable differences and future taxable income.
 
(Note 3) Tax rate is the enacted marginal tax rate which is expected to apply to taxable income in the periods in which the deferred income tax liability or asset is expected to be settled or realized.
 
(Note 4) Certain subsidiaries including TSC did not recognize deferred income tax assets amounting to W48,591 million which resulted from the tax effects of tax loss carryforwards of W220,869 million


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
in excess of taxable differences and future taxable income. Meanwhile, the tax loss carryforwards will be expired through 2013.
 
Deferred income tax assets (liabilities) and income tax benefits (expenses) added to (deducted from) stockholders’ equity as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                 
    2007     2008  
          Deferred Income
 		          Deferred Income
 		 
    Income Tax
 		    Tax Assets
 		    Income Tax
 		    Tax Assets
 		 
    Expense     (Liabilities)     Expense     (Liabilities)  
 
Gain on disposal of treasury stock (capital surplus)
  W (196 )   W —     W (144 )   W —  
Other capital adjustment
    —       (5,956 )     —       (4,147 )
Gain on translation of foreign operations
    —       —       —       —  
Loss on translation of foreign operations
    —       5,005       —       1,373  
Gain on valuation of available-for-sale securities
    —       (3,218 )     —       (230 )
Loss on valuation of available-for-sale securities
    —       —       —       1,872  
Gain on valuation of derivatives for cash flow hedge
    —       (768 )     —       (3,056 )
Loss on valuation of derivatives for cash flow hedge
    —       —       —       4,989  
Increase in equity of associates
    —       (3,791 )     —       (12 )
Decrease in equity of associates
    —       7,688       —       1,171  
                                 
Total
  W (196 )   W (1,040 )   W (144 )   W 1,960  
                                 
 
27.   INCOME FROM DISCONTINUING OPERATIONS
 
Korea Telecom Venture Fund No. 1 (the “Fund”) and KTPI were excluded from the consolidation as of December 31, 2007. The Fund and KTPI’s net income (loss) for the years ended December 31, 2006 and 2007 were reclassified into income (loss) from discounting operations as follows (in millions of Korean won):
 
                                                 
    2006     2007  
    Fund No. 1     KTPI     Total     Fund No. 1     KTPI     Total  
 
Operating and non-operating income (loss) from discontinuing operations
  W (1,945 )   W 1,941     W (4 )   W 388     W (38,727 )   W (38,339 )
Reversal of cumulative loss from discontinuing operations (Note 1)
    —       —       —       —       112,543       112,543  
                                                 
Income (loss) from discontinuing operations (Note 2)
  W (1,945 )   W 1,941     W (4 )   W 388     W 73,816     W 74,204  
                                                 
 
 
(Note 1)  Since future outflows of economic resources from the cumulative loss totaling W112,543 million of KTPI are not expected, the cumulative loss was reversed as income.
 
(Note 2)  There were no tax effects for income (loss) from discontinuing operations.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
28.   INCOME PER SHARE
 
The Company’s net income per share for the years ended December 31, 2006, 2007 and 2008 is computed as follows (in millions of Korean won, except for per share data):
 
a.   Basic Income Per Share From Continuing Operations
 
                         
    2006     2007     2008  
 
Net income from continuing operations
  W 1,291,515     W 982,093     W 449,810  
Weighted average number of common stock outstanding
    209,894,649       206,599,294       202,891,015  
                         
Basic income per share from continuing operations (in Korean won)
  W 6,153     W 4,754     W 2,217  
                         
 
b.   Basic Income Per Share From Discontinuing Operations
 
                         
    2006     2007     2008  
 
Net income from discontinuing operations
  W 348     W 74,134     W —  
Weighted average number of common stock outstanding
    209,894,649       206,599,294       202,891,015  
                         
Basic income per share from discontinuing operations (in Korean won)
  W 2     W 358     W —  
                         
 
c.   Basic Net Income Per Share
 
                         
    2006     2007     2008  
 
Net income
  W 1,291,863     W 1,056,227     W 449,810  
Weighted average number of common stock outstanding
    209,894,649       206,599,294       202,891,015  
                         
Basic net income per share (in Korean won)
  W 6,155     W 5,112     W 2,217  
                         
 
d.   Diluted Income Per Share From Continuing Operations
 
                         
    2006     2007     2008  
 
Net income from continuing operations
  W 1,291,515     W 982,093     W 449,810  
Interest on exchangeable bonds
    52       —       —  
                         
Adjusted income from continuing operations
    1,291,567       982,093       449,810  
Weighted average number of common stock outstanding
    209,894,649       206,599,294       202,891,015  
Number of shares with dilutive effects
    254,949       —       —  
                         
Diluted income per share from continuing operations (in Korean won)
  W 6,146     W 4,754     W 2,217  
                         


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
e.   Diluted Income Per Share From Discontinuing Operations
 
                         
    2006     2007     2008  
 
Net income from discontinuing operations
  W 348     W 74,134     W —  
                         
Adjusted income from discontinuing operations
    348       74,134       —  
Weighted average number of common stock outstanding
    209,894,649       206,599,294       202,891,015  
Number of shares with dilutive effects
    254,949       —       —  
                         
Diluted income (loss) per share from discontinuing operations (in Korean won)
  W 2     W 358     W —  
                         
 
f.   Diluted Net Income Per Share
 
                         
    2006     2007     2008  
 
Net income
  W 1,291,863     W 1,056,227     W 449,810  
Interest on exchangeable bonds
    52       —       —  
                         
Adjusted net income
    1,291,915       1,056,227       449,810  
Weighted average number of common stock outstanding
    209,894,649       206,599,294       202,891,015  
Number of shares with dilutive effects
    254,949       —       —  
                         
Diluted net income per share (in Korean won)
  W 6,148     W 5,112     W 2,217  
                         
 
Meanwhile, basic net income per share is computed on the basis of the weighted-average number of common shares outstanding which is adjusted to include the number of common shares outstanding at the beginning of the years (208,095,178 shares and 203,686,823 shares as of January 1, 2007 and 2008, respectively) and treasury stock acquired for the years ended December 31, 2007 and 2008 (1,495,884 shares and 795,808 shares for the years ended December 31, 2007 and 2008, respectively).
 
For the purpose of calculating diluted income per share, interest expense for exchangeable bonds multiplied by (1-marginal tax rate) and all dilutive potential common stock were added to net income attributable to common stock holders and the weighted average number of shares outstanding, respectively. Diluted income per share is calculated by dividing adjusted income by the weighted average number of common stock and all dilutive potential common stock. Share-based payments have no dilutive effect and are excluded from the calculation of diluted income per share.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
(Note) Potential common stock as of December 31, 2007 and 2008 are as follows:
 
                                 
                    Common Shares to be Issued  
    Par Value   Issue Date   Maturity Date  
Exercisable Period
  2007     2008  
 
Stock option
  (Note 1)   December 26,
2002 		  December 26,
2009 		  Increase in the number of exercisable shares by 1/3 every year after two years from grant date     371,632       371,632  
Stock option
  (Note 2)   September 16,
2003 		  September 16,
2010 		  From 2 years after grant date till maturity date     3,000       3,000  
Stock option
  (Note 3)   February 4,
2005 		  February 4,
2012 		  Increase in the number of exercisable shares by 1/3 every year after two years from grant date     43,153       43,153  
Other share-based payments
 
(Note 4) 		 
March 29, 2007 		 
March 27, 2008 		 
On maturity date, subject to the resolution of board of directors 		    23,925       —  
Other share-based payments
 
(Note 4) 		 
March 27, 2008 		 
March 27, 2009 		 
On maturity date, subject to the resolution of board of directors 		    —       29,481  
                                 
Total
                    441,710       447,266  
                                 
 
 
(Note 1) Exercise price of W70,000 per common stock.
 
(Note 2) Exercise price of W57,000 per common stock.
 
(Note 3) Exercise price of W54,600 per common stock.
 
(Note 4) Shares to be given subject to performance
 
29.   INSURANCE
 
As of December 31, 2008, certain assets are insured with Samsung Fire and Marine Insurance Co., Ltd. and other insurance companies as follows (in millions of Korean won):
 
             
   
Risk Covered
  Coverage  
 
Finance lease receivables
  Movables package   W 219,740  
Inventories
  Theft and fire     70,000  
Buildings
  Fire and other     1,404,341  
Structures
  Property package     59,728  
Machinery
  Property package and other     1,400,511  
Vessel (vehicles)
  Vessel and other     68,094  
Others
  Fire and other     138,352  
             
Total
      W 3,360,766  
             


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
30.   DIVIDENDS
 
Details of KT’s dividends for common stocks for the years ended December 31, 2006, 2007 and 2008 are as follows (in Korean won except for share data):
 
a.   Dividends
 
                         
    2006     2007     2008  
 
Dividends per share (dividend ratio)
  W 2,000 (40 %)   W 2,000 (40 %)   W 1,120 (22.4 %)
Number of shares outstanding (Note)
    208,095,178       203,686,823       202,035,296  
                         
Dividends
  W 416,190,356,000     W 407,373,646,000     W 226,279,531,520  
                         
 
 
(Note)  71,532,222 shares, 71,515,577 shares and 71,500,404 shares of treasury stock as of December 31, 2006, 2007 and 2008, respectively, are excluded.
 
b.   Dividend Payout Ratios
 
                         
    2006     2007     2008  
 
Dividends
  W 416,190,356,000     W 407,373,646,000     W 226,279,531,520  
Net income
(Attributable to equity holders of the parent)
    1,291,863,401,102       1,056,227,165,634       449,809,735,316  
                         
Payout ratio
    32.22 %     38.57 %     50.31 %
                         
 
c.   Dividend Yield Ratios
 
                         
    2006     2007     2008  
 
Dividends per share
  W 2,000     W 2,000     W 1,120  
Stock price at the end of the year
    46,500       48,900       37,500  
                         
Dividend yield ratio
    4.30 %     4.09 %     2.99 %
                         


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
31.   STATEMENTS OF CASH FLOWS
 
The statements of cash flows have been presented using the indirect method. Significant non-cash transactions for the years ended December 31, 2006, 2007 and 2008 are detailed as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Construction in progress transferred to property and equipment and other accounts
  W 3,291,167     W 3,122,246     W 3,080,337  
Conversion of convertible notes
    14,812       —       —  
Transferred to newly included subsidiary’s net income or loss before acquisition:
                       
Share-based payment
    —       12       —  
Provision for severance indemnities
    —       1,003       —  
Depreciation
    —       2,010       —  
Amortization
    —       431       —  
Bad debt
    —       1,712       —  
Foreign currency translation gains
    —       92       —  
Gain on disposal of property and equipment
    —       77       —  
Gain on disposal of available-for-sale securities
    —       185       —  
Gain on disposal of trading securities
    —       42       —  
Equity in income of associates
    —       35       —  
Other bad debt
    —       934       —  
Loss on disposal of available-for-sale securities
    —       225       —  
Equity in loss of associates
    —       2,139       —  
Loss on disposal of property
    —       171       —  
Impairment loss on investment assets
    —       6,716       —  
Impairment loss on intangible assets
    —       221       —  
 
32.   COMMITMENTS AND CONTINGENCIES
 
a.   Legal Matters
 
On May 25, 2005, the Fair Trade Commission (“FTC”) imposed a fine of W116,168 million to the Company related to local telephone services and leased line services for internet cafes. On September 14, 2005, the FTC imposed an additional fine of W24,258 million to the Company related to domestic and international long-distance services. The Company expensed these fines for the year ended December 31, 2005. As of December 31, 2008, the Company has appealed certain portion of the fine imposed by the FTC amounting to W113,048 million to the Supreme Court. However, the final result of this appeal cannot be presently determined.
 
The Company is also in various litigations as a defendant in other cases as of December 31, 2008. The Company accrued W19,572 million as provisions related to the litigation as of December 31, 2008. However, the final results of these litigations cannot be presently determined.
 
b.   Commitments with Financial Institutions
 
As of December 31, 2008, major commitments with local financial institutions are as follows (in millions of Korean won and thousands of foreign currencies)
 


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
             
Commitment
  Amount    
Related Companies
 
Bank overdraft
  W 1,071,000     KT, KTF, KTR, TSC, KT Capital and KTDS
Commercial paper issuance
    248,000     KT, TSC and KT Capital
Collateralized loan on accounts receivable — trade
    615,000     KT and KTDS
Note discount
    10,000     KTL
Local credit agreements
    910,000     KTF
Corporate bonds
    20,000     TSC
General loans
    5,000     TSC
Letters of credit
    USD 106,638     KT, KTSC, KTR and KT Capital
Working capital loans
    USD 2,000     KTSC
Collection for foreign currency denominated checks
    USD 1,000     KT
Guarantee agreements in foreign currency
    USD 75     KTSC
Total
  W 2,879,000      
      USD 109,713      
             
 
                         
Guarantee
 
Financial institution
  Limit     Used Amount    
Related Companies
 
Performance guarantee
  Korea Eximbank     USD 2,175       USD 2,175     KT
for construction
  Korea Eximbank     SAR 735       SAR 735     KT
    Korea Software Financial Cooperative and others   W 271,930     W 271,930     KT, KTN, KTSC, KT Capital, Nasmedia, KT FDS and KTF M Hows
                         
General guarantee
  Korea Exchange Bank     USD 1,000       USD 30     KT
    Korea Exchange Bank and Korea Eximbank   W 1,513     W 1,413     KT and KTN
                         
Foreign currency guarantee for International financing
  Kookmin Bank     USD 25,000       USD 25,000     KT
                         
Foreign currency payment guarantee
  Kookmin Bank     USD 7,735       USD 7,735     KT
                         
Warranty performance guarantee agreements
  Seoul Guarantee Insurance   W 3,689     W 3,689     KT, KT FDS, KTF M Hows and Nasmedia
                         
 
Loss on sale of accounts receivable from the transfer of those receivables amounted to W582 million for the year ended December 31, 2008, and accounts receivable sold but not matured as of December 31, 2008 are W1,218 million.
 
c.   Stockholders’ Agreement between KT and NTT DoCoMo
 
In December 2005, KTF and NTT DoCoMo Inc. (“DoCoMo”) entered into a strategic alliance. As part of this strategic alliance, DoCoMo acquired a 10% equity interest in KTF (20,176,309 shares). In addition, on December 26, 2005, KT and DoCoMo entered into a shareholders’ agreement related to shares of KTF. Under the shareholders’ agreement, DoCoMo has the right to put its 20,176,309 shares for the acquisition amount plus interests to KT if an agreed target network coverage for W-CDMA service within Korea is not met by December 31, 2008. However, as of August 3, 2007, KTF reached the target network coverage mentioned above, and the right of DoCoMo to put its shares to KT has been now extinguished.

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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
d.   Put and Call Combination Contract with Woori Investment & Securities Co., Ltd.
 
On December 27, 2005, the Company and JPMorgan Chase Bank, N.A. entered into a “Put and Call Combination” contract based on the shares of Korea Digital Satellite Broadcasting (“KDB”), an equity method investee, and the contract expired on December 26, 2008.
 
On December 26, 2008, the Company and Woori Investment & Securities Co., Ltd. which acquired KDB shares from JP Morgan Whitefriars Inc. entered into a “Put and Call Combination” contract based on the shares of KDB. Under this contract, during the period from December 26, 2009 to December 26, 2011, KT has the option to acquire 9,200,000 shares of KDB that were purchased by Woori Investment & Securities Co., Ltd. on December 26, 2008, and Woori Investment & Securities Co., Ltd. has the option to exercise the put option on such KDB shares to KT on December 26, 2011. The exercise price under the contract for both KT and Woori Investment & Securities Co., Ltd. is W46,000 million.
 
e.   Payment of a Handset Subsidy to PCS or WiBro Users
 
According to the provisions of the Telecommunications Business Law (“TBL”), the Company has provided a onetime handset subsidy to eligible mobile phone users, who have subscribed to the Company’s service or any other mobile carriers for 18 consecutive months, within the next two years from March 27, 2006 to March 26, 2008.
 
Above handset subsidy program was terminated effective March 27, 2008, however the Company currently provides a variety of handset subsidy programs to PCS or WiBro subscribers according to its operation policy and sets forth the programs in details in the service agreement. The handset subsidy provided by the Company is expensed as incurred.
 
33.   DERIVATIVES
 
For the years ended December 31, 2006, 2007 and 2008, the Company entered into various derivatives contracts with financial institutions. Details of these derivative contracts are as follows:
 
         
Type of Transaction
 
Financial Institution
 
Description
 
Interest rate swap
  Merrill Lynch and others   Exchange fixed interest rate for variable interest rate for a specified period
Currency swap
  Merrill Lynch and others   Exchange foreign currency cash flow for local currency cash flow local currency cash flow for a specified period
Combined interest rate currency swap
  Merrill Lynch and others   Exchange foreign currency fixed (variable) swaps interest rate for local currency variable (fixed) interest
Currency forward
  Kookmin Bank and others   Exchange a specified currency at the agreed exchange rate at a specified date
Put Option
  PT. Mobile-8   A contract giving the right to sell an underlying security at a specified price


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The assets and liabilities relating to outstanding contracts as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):
 
                                 
    2007  
    Fair Value  
          Assets
 		    Assets
 		    Liabilities
 		 
Type of Transaction
  Contract Amount     (Current)     (Non-Current)     (Current)  
 
Interest rate swap
  W 486,540
USD 100,000 		    W 493     W —     W 3,944  
                                 
Currency swap (Note)
    USD 220,000       —       1,710       2,833  
Combined interest rate currency swap
    USD 715,165       105       —       125,548  
Currency forward
    JPY 325,000       98       —       —  
Put Option
    —       —       1,971       —  
                                 
    W 486,540                          
      USD 1,035,165                          
Total
    JPY 325,000     W 696     W 3,681     W 132,325  
                                 
 
                                         
    2008  
    Fair Value  
          Assets
 		    Assets
 		    Liabilities
 		    Liabilities
 		 
Type of Transaction
  Contract Amount     (Current)     (Non-Current)     (Current)     (Non-Current)  
 
Interest rate swap
  W 307,240
USD 100,000 		    W —     W —     W 13,610     W 2,031  
                                         
Currency swap (Note)
    USD 220,000       14,793       57,334       —       —  
Combined interest rate currency swap (Note)
    USD 1,430,000                                  
      JPY 19,500,000       172,376       245,355       —       —  
Currency forward
    USD 35,201                                  
      JPY 20,000       —       —       9       4,746  
Put Option
    —       14,540       —       —       —  
                                         
    W 307,240                                  
      USD 1,785,201                                  
Total
    JPY 19,520,000     W 201,709     W 302,689     W 13,619     W 6,777  
                                         


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
(Note) Details of the foreign currency swap contracts to which cash flow hedge accounting is applied as of December 31, 2007 and 2008 are as follows (in millions of Korean won and thousands of foreign currencies):
 
                                 
                  Fair Value — Assets
 		 
            Contract
 		    (Non-Current)  
Type of Transaction
  Contract Date   Maturity Date   Amount     2007     2008  
 
Currency swap
  April 4, 2007   April 11, 2012     USD 150,000     W 1,710     W 57,046  
(Notes 1 and 2)
  October 6, 2008   April 11, 2012     USD 50,000       —       288  
                                 
Combined interest
  January 4, 2008   January 11, 2011     JPY 12,500,000       —       62,636  
rate currency swap
  February 12, 2008   February 25, 2011     USD 70,000       —       20,210  
(Note 2)
  February 13, 2008   February 25, 2011     USD 35,000       —       10,066  
    February 13, 2008   February 25, 2011     USD 30,000       —       8,500  
    February 14, 2008   February 25, 2011     USD 20,000       —       5,831  
    February 14, 2008   February 25, 2011     USD 20,000       —       5,893  
    March 3, 2008   December 13, 2010     USD 70,000       —       20,744  
    March 20, 2008   March 31, 2011     USD 50,000       —       11,917  
    March 20, 2008   March 31, 2012     USD 110,000       —       27,043  
    April 18, 2008   April 28, 2011     JPY 4,000,000       —       15,914  
    April 21, 2008   April 28, 2011     JPY 3,000,000       —       12,370  
    June 11, 2008   June 20, 2011     USD 50,000       —       8,790  
    June 11, 2008   June 20, 2011     USD 15,000       —       2,666  
    June 13, 2008   June 20, 2011     USD 30,000       —       4,807  
    July 1, 2008   April 2, 2011     USD 30,000       —       5,181  
    September 2, 2008   September 11, 2013     USD 200,000       —       22,787  
                                 
              USD 930,000                  
Total
            JPY 19,500,000     W 1,710     W 302,689  
                                 
 
 
(Note 1)  Among financial institutions with which the Company entered into foreign currency swap contracts totaling USD 200 million in 2007, Lehman Brothers Holdings, Inc. (“Lehman”) filed for Chapter 11 bankruptcy with the United States Bankruptcy Court during the third quarter of 2008. Lehman’s bankruptcy filing caused the Company to discontinue its cash flow hedge accounting for foreign exchange swap contracts with Lehman totaling USD 50 million and accordingly the related derivative asset balance amounting to W9,891 million was adjusted to the fair value and reclassified into accounts receivable — other while the difference between the carrying amount and the fair value was expensed as incurred. However, the Company concluded that the occurrence of the related forecasted transaction is still expected to be probable and W1,382 million of unrealized derivative gain included in accumulated other comprehensive income as of December 31, 2008 will be reclassified into current operations in the periods in which the hedged forecasted transactions affect earnings.
 
 
(Note 2)  Above foreign currency swap contracts are to hedge the risk of variability in future cash flows from foreign currency bonds and as of December 31, 2008, the gain and loss on valuation of the swap contract amounting to W11,136 million and W13,710 million, net of income tax effect, are included in accumulated other comprehensive income and for the year ended December 31, 2008, and the gain on valuation of the swap contract totaling W322,560 million is recognized in current operations as a result of foreign currency translation loss from foreign currency bonds. In applying cash flow hedge accounting, the Company hedges its exposures to cash flow fluctuation until September 11, 2013. Approximately


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
W3,433 million of net derivative gain included in accumulated other comprehensive income at December 31, 2008 is expected to be reclassified into current operations within 12 months from that date.
 
The valuation gains and losses on the derivative contracts for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                 
    2006  
    Valuation Gain     Valuation Loss  
    For
 		    For
 		          For
 		    For
 		       
Type of Transaction
  Trading     Hedging     Total     Trading     Hedging     Total  
 
Interest rate swap
  W 8,654     W —     W 8,654     W 1,435     W —     W 1,435  
Currency swap
    —       —       —       4,855       —       4,855  
Combined interest rate currency swap
    —       —       —       80,412       —       80,412  
Currency futures
    —       —       —       13       —       13  
                                                 
Total
  W 8,654     W —     W 8,654     W 86,715     W —     W 86,715  
                                                 
 
                                                         
    2007  
                Valuation
 		 
                Gain
 
    Valuation Gain     Valuation Loss     (Note 2)  
    For
 		    For
 		          For
 		    For
 		          For
 		 
Type of Transaction
  Trading     Hedging     Total     Trading     Hedging     Total     Hedging  
 
Interest rate swap
  W 1,973     W —     W 1,973     W 10,823     W —     W 10,823     W —  
Currency swap
    —       2,280       2,280       4,719       —       4,719       2,792  
Combined interest rate currency swap
    35,313       —       35,313       —       —       —       —  
Currency forwards
    98       —       98       —       —       —       —  
Put Option
    476       —       476       —       —       —       —  
                                                         
Total
  W 37,860     W 2,280     W 40,140     W 15,542     W —     W 15,542     W 2,792  
                                                         
 
                                                         
    2008  
                Valuation
 		 
                Gain
 
    Valuation Gain     Valuation Loss (Note 1)     (Note 2)  
    For
 		    For
 		          For
 		    For
 		          For
 		 
Type of Transaction
  Trading     Hedging     Total     Trading     Hedging     Total     Hedging  
 
Interest rate swap
  W —     W —     W —     W 10,798     W —     W 10,798     W —  
Currency swap
    17,626       54,905       72,531       —       97       97       11,708  
Combined interest rate currency swap
    297,925       267,655       565,580       —       —       —       (22,146 )
Currency forwards
    —       —       —       6,088       —       6,088       —  
Put Option
    12,569       —       12,569       —       —       —       —  
                                                         
Total
  W 328,120     W 322,560     W 650,680     W 16,886     W 97     W 16,983     W (10,438 )
                                                         
 
 
(Note 1)  In accordance with the SKAS No. 24 “Preparation and Presentation of Financial Statements II (Financial Industry)”, the loss on valuation of currency forwards amounting to W4,746 million and loss on valuation of interest rate swap amounting to W1,301 million recognized in KT Capital are classified as operating expense.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
(Note 2)  The amounts are before adjustment of deferred income tax, which shall be directly reflected to equity, and are included in equity.
 
34.   SEGMENT INFORMATION
 
The Company has two operating segments, fixed-line telecommunication services and PCS services. Fixed-line telecommunication services include telephone services, internet services, data communication services and leased line services. PCS services include IMT-2000 services and handset sales while submarine cable construction and maintenance and intercommunication system management are both included in the other segment.
 
Details of each segment for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                 
    2006  
    Fixed-Line
 		                               
    Telecom
 		                            Consolidated
 		 
    Services     PCS Services     Other     Sub-Total     Elimination     Amount  
 
Total sales
  W 11,856,009     W 6,507,350     W 1,443,772     W 19,807,131     W (1,982,251 )   W 17,824,880  
Internal sales
    (506,655 )     (719,384 )     (756,212 )     (1,982,251 )     1,982,251       —  
                                                 
Net sales
  W 11,349,354     W 5,787,966     W 687,560     W 17,824,880     W —     W 17,824,880  
                                                 
Operating income
  W 1,756,228     W 668,747     W 54,274     W 2,479,249     W (95,873 )   W 2,383,376  
                                                 
Total assets
  W 17,962,333     W 8,068,028     W 1,648,946     W 27,679,307     W (3,435,973 )   W 24,243,334  
                                                 
 
                                                 
    2007  
    Fixed-Line
 		                               
    Telecom
 		                            Consolidated
 		 
    Services     PCS Services     Other     Sub-Total     Elimination     Amount  
 
Total sales
  W 11,936,381     W 7,293,321     W 1,839,503     W 21,069,205     W (2,409,123 )   W 18,660,082  
Internal sales
    (491,440 )     (719,384 )     (1,198,299 )     (2,409,123 )     2,409,123       —  
                                                 
Net sales
  W 11,444,941     W 6,573,937     W 641,204     W 18,660,082     W —     W 18,660,082  
                                                 
Operating income
  W 1,433,722     W 440,900     W 74,173     W 1,948,795     W (203,454 )   W 1,745,341  
                                                 
Total assets
  W 17,950,064     W 7,460,705     W 2,382,708     W 27,793,477     W (3,666,592 )   W 24,126,885  
                                                 
 
                                                 
    2008  
    Fixed-Line
 		                               
    Telecom
 		                            Consolidated
 		 
    Services     PCS Services     Other     Sub-Total     Elimination     Amount  
 
Total sales
  W 11,784,835     W 8,346,220     W 2,426,572     W 22,557,627     W (2,913,084 )   W 19,644,543  
Internal sales
    (538,965 )     (1,166,162 )     (1,207,957 )     (2,913,084 )     2,913,084       —  
                                                 
Net sales
  W 11,245,870     W 7,180,058     W 1,218,615     W 19,644,543     W —     W 19,644,543  
                                                 
Operating income
  W 1,113,389     W 454,381     W 23,823     W 1,591,593     W (163,831 )   W 1,427,762  
                                                 
Total assets
  W 18,684,922     W 8,056,122     W 3,179,646     W 29,920,690     W (3,782,086 )   W 26,138,604  
                                                 


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Assets and liabilities by industry as of December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                 
    2007     2008  
                Consolidated
 		                Consolidated
 		 
    Non-Financial     Financial     Amount     Non-Financial     Financial     Amount  
 
Assets:
                                               
Current assets
                                               
Quick assets
  W 5,072,971     W 270,724     W 5,343,695     W 6,105,052     W 543,933     W 6,648,985  
Inventories
    299,104       —       299,104       424,841       —       424,841  
                                                 
Sub-total
    5,372,075       270,724       5,642,799       6,529,893       543,933       7,073,826  
                                                 
Non-current assets
                                               
Investments
    458,048       12,147       470,195       510,807       35,193       546,000  
Property and equipment
    15,211,550       76,452       15,288,002       15,142,938       45,693       15,188,631  
Intangible assets
    1,735,295       28       1,735,323       1,474,099       139       1,474,238  
Other
    727,044       263,522       990,566       1,342,091       513,818       1,855,909  
                                                 
Sub-total
    18,131,937       352,149       18,484,086       18,469,935       594,843       19,064,778  
                                                 
Total assets
  W 23,504,012     W 622,873     W 24,126,885     W 24,999,828     W 1,138,776     W 26,138,604  
                                                 
Liabilities:
                                               
Current liabilities
  W 4,914,796     W 163,825     W 5,078,621     W 4,787,070     W 453,958     W 5,241,028  
Non-current liabilities
    7,544,424       366,074       7,910,498       9,173,005       636,673       9,809,678  
                                                 
Total liabilities
  W 12,459,220     W 529,899     W 12,989,119     W 13,960,075     W 1,090,631     W 15,050,706  
                                                 
 
Results of operations by industry for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
                                                 
    2007     2008  
                Consolidated
 		                Consolidated
 		 
    Non-Financial     Financial     Amount     Non-Financial     Financial     Amount  
 
Operating revenues
  W 18,630,403     W 29,679     W 18,660,082     W 19,536,181     W 108,362     W 19,644,543  
Operating expenses
    16,898,066       16,675       16,914,741       18,111,907       104,874       18,216,781  
                                                 
Operating income
    1,732,337       13,004       1,745,341       1,424,274       3,488       1,427,762  
Non-operating revenues
    486,628       1,354       487,982       1,053,885       22       1,053,907  
Non-operating expenses
    772,507       13,053       785,560       1,800,449       71       1,800,520  
                                                 
Income from continuing operations before income tax expense
    1,446,458       1,305       1,447,763       677,710       3,439       681,149  
Income tax expense on continuing operations
    356,454       345       356,799       166,419       1,440       167,859  
Newly included subsidiary’s net loss before acquisition
    5,810       —       5,810       —       —       —  
                                                 
Income from continuing operations
    1,095,814       960       1,096,774       511,291       1,999       513,290  
Income from discontinuing operations
    74,204       —       74,204       —       —       —  
                                                 
Net income
  W 1,170,018     W 960     W 1,170,978     W 511,291     W 1,999     W 513,290  
                                                 


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
35.   VALUE ADDED INFORMATION
 
Value added information included in operating expenses for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Salaries and wages
  W 2,224,598     W 2,242,295     W 2,281,587  
Share-based payment
    531       1,239       1,922  
Severance indemnities
    240,843       359,473       362,342  
Employee welfare
    527,062       528,902       567,878  
Rent
    219,825       226,327       249,827  
Depreciation
    3,228,293       3,225,887       3,264,291  
Amortization
    389,710       430,623       438,544  
Taxes and dues
    197,196       195,874       200,287  
                         
Total
  W 7,028,058     W 7,210,620     W 7,366,678  
                         
 
36.   EMPLOYEE WELFARE
 
Employee welfare through various plans spent by the Company for the years ended December 31, 2007 and 2008 totaled W528,902 million and W567,878 million, respectively.
 
Meanwhile, the Company donates cash to Employee Welfare Foundation each year. The related expenses recognized for the years ended December 31, 2007 and 2008 amounted to W84,500 million and W74,300 million, respectively.
 
37.   SUBSEQUENT EVENT
 
a.   Merger with KTF
 
On March 27, 2009, the shareholders meeting of the Company approved the merger agreement with KTF. The Company completed merger with KTF on June 1, 2009.
 
i)   Purpose of Merger
 
Through the merger, the Company expects to grow as a global competitive company by actively responding to a fixed-mobile convergence environment, increasing management efficiency and maximizing synergy effects.
 
ii)   Appraisal rights of Shareholders
 
Pursuant to Article 522-3 of the Korean Commercial Code, and Article 191 of the Korean Securities and Exchange Act, stockholders dissenting to the merger exercised the appraisal rights from March 27, 2009 through April 16, 2009. As a result, the Company purchased those 451,038 shares for W17,381 million on May 15, 2009.
 
iii)  Merger Ratio
 
In the merger, each holder of one outstanding share of KTF common stock received 0.7192335 common shares of KT Corporation common stock.
 
iv)   Accounting Treatment
 
As this is a merger between parent and subsidiary, the Company will account for the merger using the carrying amounts in its consolidated financial statements.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
b.   Foreign Currency Exchangeable Bonds
 
On January 20, 2009, the Company entered into the Purchase Agreement with NTT DoCoMo, Inc. to issue exchangeable bonds denominated in U.S. dollars as follows (in millions of Korean won, thousands of USD):
 
     
Total issue amount :
  W344,409 (USD 253,261)
Shares to be exchanged :
  KT common stocks or KT ADRs
Exchange price per share (in Korean won) :
  W40,743
Period of exercise :
  June 2, 2009 through May 26, 2014
Maturity date of bond :
  May 26, 2014
Interest rate at maturity :
  2.024%
Interest payment method :
  Payable twice a year in arrears (every six months)
Repayment method :
  Lump-sum payment on maturity date
Subscription date :
  May 27, 2009
Subscription method :
  KTF shares owned by NTT DoCoMo, Inc.
 
On June 2, 2009, KT’s treasury stocks (8,453,222 shares) were exchanged for total exchangeable bonds.
 
c.   Retirement of Treasury Stock
 
The board of directors of the Company resolved to retire 13,124,000 shares of treasury stocks, which will be acquired during the period from March 10, 2009 to June 9, 2009, by charging against retained earnings. Meanwhile, the Company expects that the total amount of W500,024 millions will be spent for the acquisition.
 
38.   RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
 
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Korea (“Korean GAAP”), which differ in certain respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). The significant differences are described below. Other differences do not have a significant effect on either consolidated net income or stockholders’ equity.
 
a.   Companies Included in Consolidation
 
Under Korean GAAP, all majority-owned subsidiaries and entities of which the Company or a controlled subsidiary owns more than 30% of total outstanding voting stock and is the largest stockholder are consolidated. However, U.S. GAAP generally requires that majority-owned subsidiaries be consolidated and that an entity which the Company has significant influence, generally including those in which it owns 20-50% of total outstanding voting stock, should not be consolidated; rather that entity should be accounted for under the equity method of accounting.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table shows the Company’s percentage of ownership and carrying value of each of its affiliates that are excluded from consolidation under U.S. GAAP and instead are accounted for under the equity method (in millions of Korean won):
 
                                         
    Percentage of Ownership (%)     Carrying Value  
    2006     2007     2008     2007     2008  
 
Entity
                                       
Listed :
                                       
Olivenine
    19.7       19.2       19.5     W 21,431     W 2,769  
KTSC
    36.9       36.9       36.9     W 12,338     W 11,072  
KTF Music (formerly, “Bluecord Technology”)
    —       35.3       35.3     W 19,526     W 18,705  
Unlisted :
                                       
KTP
    44.9       44.9       44.9     W 28,848     W 31,633  
SFNH BF-(1)
    43.3       43.3       43.3     W 12,978     W 10,505  
Doremi Media
    —       —       —       —       —  
 
The quoted market values (based on closing KOSDAQ prices) of Olivenine, KTSC and KTF Music shares held by the Company is W4,995 million, W11,820 million and W7,494 million as of December 31, 2008, respectively.
 
The Company acquired additional shares of KTF during the period from February 28, 2006 to September 15, 2006. The Company’s ownership percentage of KTF increased from 44.6% to 50.8% as a result of this series of acquisitions. Percentage of ownership exceeded 50% as of August 21, 2006 and accordingly, the Company became the majority stockholder and began to consolidate the financial statements of KTF under U.S. GAAP which were previously accounted for using the equity method until August 20, 2006.
 
Condensed balance sheet data of KTF as of August 20, 2006 under U.S. GAAP is as follows (in millions of Korean won):
 
         
Current assets
       
Accounts receivable — trade
  W 1,420,193  
Other current assets
    1,477,580  
         
Total current assets
    2,897,773  
Property and equipment, net
    4,177,784  
Other assets
    2,464,479  
         
Total assets
  W 9,540,036  
         
Current liabilities
       
Accounts payable
  W 1,213,506  
Other current liabilities
    830,290  
         
Total current liabilities
    2,043,796  
Long-term debt, excluding current portion
    1,597,631  
Other long-term liabilities
    804,763  
         
Total liabilities
    4,446,190  
         
Minority interest in consolidated subsidiaries
    4,321  
         
Stockholders’ equity
    5,089,525  
         
Total liabilities, minority interest and stockholders’ equity
  W 9,540,036  
         


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The acquisition was accounted for as a step acquisition. The purchase price of additional shares was W357,582 million including direct costs of acquisition, and goodwill amounting to W484,599 million was recognized as a result of purchase price allocation. Deferred income tax assets amounting to W416,928 million relating to the basis difference for its investment in KTF while being accounted for under the equity method was derecognized as it is not apparent that the temporary difference will reverse in the foreseeable future and was included in the determination of the total purchase price. Percentage of ownership of KTF is 52.2% as of December 28, 2006 due to the purchase and retirement of treasury stock by KTF. The purchase and retirement of treasury stock is considered a separate step acquisition for which consideration was W164,884 million resulting in additional goodwill of W23,212 million.
 
The following unaudited pro forma financial information presents the combined results of operations of the Company and KTF in accordance with U.S. GAAP as if the acquisition of KTF had occurred at January 1, 2006 (in millions of Korean won except per share data).
 
         
    2006  
 
Net revenue
  W 17,440,435  
Net earnings
  W 1,323,671  
Net earnings per share:
       
Basic (in Korean won)
  W 6,306  
Diluted (in Korean won)
  W 6,299  
 
After acquisition, KTF retired 2,979,000 shares and 4,448,000 shares of treasury stock on November 13, 2007 and July 21, 2008, respectively. Due to this retirement of treasury stock by KTF, the percentage of ownership of KTF is 54.3% as of December 31, 2008 and the Company recognized additional goodwill accounting to W43,437 million.
 
KTFT (owned 73.1% by KTF), KTFM (owned 51.0% by KTF), and KTFI (owned 99.0% by KTF), are consolidated by KTF, accordingly these companies were consolidated in the Company’s consolidated financial statements beginning August 21, 2006. In addition, as of August 21, 2006, Sidus FNH, which is owned by KT and KTF by 35.7% and 15.3%, respectively, was consolidated.
 
Presented below is the summarized combined financial information of those entities that are consolidated under Korea GAAP but not for U.S. GAAP, prepared in accordance with Korean GAAP as of December 31, 2007 and 2008, and for each of the three years in the period ended December 31, 2008. As KTF became a consolidated subsidiary as of August 21, 2006, the condensed statement of income for 2006 includes operational results of KTF for the period from January 1, 2006 through August 20, 2006 (in millions of Korean won).
 
                 
    2007     2008  
 
Current assets
  W 169,535     W 185,447  
Non-current assets
    179,439       172,011  
                 
Total assets
    348,974       357,458  
                 
Current liabilities
    115,068       104,128  
Non-current liabilities
    33,817       66,491  
                 
Total liabilities
    148,885       170,619  
                 
Net assets
  W 200,089     W 186,839  
                 
 


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                         
    2006     2007     2008  
 
Operating revenues
  W 4,335,555     W 210,170     W 272,407  
Operating income
  W 556,766     W 214,369     W 268,978  
Net earnings
  W 202,879     W 8,294     W (15,551 )
 
                         
    2006     2007     2008  
 
Net cash provided by operating activities
  W 1,045,235     W 4,487     W 30,172  
Net cash used in investing activities
    (690,269 )     (23,322 )     (53,271 )
Net cash used in financing activities
    (350,278 )     (19,992 )     (2,546 )
Effect of changes in consolidated entities
    (287,591 )     16,536       —  
                         
Net increase (decrease) in cash and cash equivalents
    (282,903 )     (22,291 )     (25,645 )
Cash and cash equivalents at beginning of the year
    352,329       69,425       47,185  
                         
Cash and cash equivalents at end of the year
  W 69,426     W 47,134     W 21,540  
                         
 
The Company’s proportionate share of U.S. GAAP adjustments of KTF, KTSC, KTFT, KTFM, KTFI, Sidus FNH, KTP and SFNH BF-(1), Olivenine, KTF Music (formerly, “Bluecord Technology”) and Doremi Media for periods prior to consolidation are presented in the line item “U.S. GAAP adjustments of equity method affiliates” in the U.S. GAAP reconciliation of net earnings and stockholders’ equity for the applicable periods. Condensed consolidated balance sheets as of December 31, 2007 and 2008, and condensed consolidated statements of cash flows of the Company under U.S. GAAP for each of the three years in the period ended December 31, 2008 are presented in Note 38 s.
 
b.   Debt and Equity Securities
 
Under Korean GAAP, non-marketable securities classified as available-for-sale securities are carried at cost or fair value if applicable with unrealized holding gains and losses reported as a capital adjustment, net of tax. For U.S. GAAP purposes, investment in non-marketable equity securities are accounted for under the cost method or the equity method of accounting in accordance with Accounting Principles Board Opinion (“APB”) No. 18.
 
Under Korean GAAP, available-for-sale securities, whose likelihood of being disposed within one year from the balance sheet date is probable, are classified as current. Under U.S. GAAP, when the disposition of available-for-sale securities within one year is reasonably expected, available-for-sale securities are classified as current.
 
For U.S. GAAP purposes, the Company accounts for marketable equity and debt investments under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 115 “Accounting for Certain Investments in Debt and Equity Securities.” SFAS No. 115 requires that marketable equity securities and all debt securities be classified in three categories and accounted for as follows:
 
  •  Debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost.
 
  •  Debt and equity securities that are bought and held principally for the purpose of selling in the short term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings.
 
  •  Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity until realized.

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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Information under U.S. GAAP with respect to investments under SFAS No. 115 at December 31, 2007 and 2008 is as follows (in millions of Korean won):
 
                                 
    2007  
          Gross
 		    Gross
 		       
    Cost or
 		    Unrealized
 		    Unrealized
 		       
    Amortized Cost     Holding Gains     Holding Losses     Fair Value  
 
Equity securities (available-for-sale)
  W 25,488     W 19,705     W 297     W 44,896  
Debt securities (available-for-sale)
    5,156       —       —       5,156  
                                 
    W 30,644     W 19,705     W 297     W 50,052  
                                 
 
                                 
    2008  
          Gross
 		    Gross
 		       
    Cost or
 		    Unrealized
 		    Unrealized
 		       
    Amortized Cost     Holding Gains     Holding Losses     Fair Value  
 
Equity securities (available-for-sale)
  W 103,388     W 7,300     W (9,170 )   W 101,518  
Debt securities (available-for-sale)
    6,117       —       (180 )     5,937  
                                 
    W 109,505     W 7,300     W (9,350 )   W 107,455  
                                 
 
The proceeds from sales of available-for-sale securities were W690,177 million in 2006, W1,181,025 million in 2007 and W614,405 million in 2008. The realized gains on those sales were W68,293 million in 2006, W11,428 million in 2007 and W5,587 million in 2008. The average-cost method is used to calculate gains or losses from the sale of available-for-sale securities.
 
Under Korean GAAP, when the subsequent recoveries of impaired available-for-sale securities and held-to-maturity securities result in an increase of their carrying amount, the recovery gains are reported in current operations up to the previously recognized impairment loss as reversal of loss on impairment of investment securities.
 
Under U.S. GAAP, the subsequent increase in carrying amount of the impaired and written down held-to-maturity securities is not allowed. The subsequent increase in fair value of available-for-sale securities is reported in other comprehensive income.
 
The subsequent recovery of the impaired held-to-maturity securities amounted to W12,493 million in 2006, while the subsequent recoveries of impaired available-for-sale securities amounted to W227 million in 2006 and W76 million in 2007. However, such differences have not been reconciled for U.S. GAAP purposes, since the amounts are immaterial and nil in 2008.
 
On November 3, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) SFAS 115-1 and SFAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” This FSP nullifies certain requirements of Emerging Issue Task Force (EITF) Issue No. 03-1 and supersedes EITF Abstracts, Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” This FSP carries forward the disclosure requirements included in EITF Issue No. 03-1. The Company has not included the disclosure requirements of EITF Issue No. 03-1 related to investments’ gross unrealized losses and fair value, since the amounts were immaterial. These pronouncements were effective for fiscal years beginning after December 15, 2005.
 
c.   Goodwill Impairment including Investor-level Goodwill
 
Under Korean GAAP, goodwill, which represents the excess of the acquisition cost over the fair value of net identifiable assets acquired, is amortized on a straight-line basis over its estimated economic useful life not exceeding 20 years. When it is no longer probable that goodwill will be recovered from expected future economic


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
benefits, it is expensed immediately. Also, for investments in affiliated companies accounted for using the equity method, the excess of acquisition cost of the affiliates over the Company’s share of their net assets at the acquisition date is amortized by the straight-line method over its estimated useful life.
 
Under U.S. GAAP, goodwill and indefinite-lived intangible assets are not amortized, but instead are tested for impairment at least annually. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill is tested for impairment on an annual basis by comparing the fair value of the Company’s reporting units to their carrying amounts. The investor-level goodwill is tested for impairment in accordance with APB No. 18. The investor-level goodwill, which is recorded only at the investor’s financial statements, represents the excess of the acquisition cost of equity method investees over the fair value of investor’s share of net identifiable assets acquired.
 
The changes in the carrying amount of goodwill which is recorded in the PCS segment for the years ended December 31, 2007 and 2008 are as follows (in millions of Korean won):
 
         
Balance as of January 1, 2007
  W 507,811  
Goodwill acquired during the year
    18,745  
         
Balance as of December 31, 2007
    526,556  
Goodwill acquired during the year
    24,692  
         
Balance as of December 31, 2008
  W 551,248  
         
 
d.   Equity Method Accounting
 
Under Korean GAAP, a put and call combination contract should be recorded as a right and obligation of the Company to acquire shares in accordance with the terms of the contract. Accordingly, the Company recorded the right and obligation of the option contract as additional equity method investment securities and long-term accounts payable.
 
Under U.S. GAAP, the potential equity ownership that may become available to the Company upon exercise of the option is not recorded prior to exercise, as the Company does not have legal ownership of the underlying shares. However, based on the nature of the Company’s arrangement to potentially acquire additional shares in KDB, the Company has resumed recognition of its share, including the potential equity ownership, of investee gains and losses, and the amount recognized in earnings under U.S. GAAP is the same as that recognized under Korean GAAP, except for the effect of other differences described herein.
 
e.   Additional Equity Investments in and Transactions of Subsidiaries
 
Under Korean GAAP, subsequent to acquiring a controlling financial interest in a subsidiary, additional equity investments by the Company in a subsidiaries stock and other equity transactions of subsidiaries are accounted for assuming such transactions occur as of the date of audited or reviewed financial statements of the acquired subsidiary closest to the date of acquisition. In addition, the difference between the Company’s cost of the acquired additional interest and the corresponding share of stockholders’ equity of the acquired subsidiary is presented as an adjustment to capital surplus.
 
Under U.S. GAAP, such equity investments in and transactions of affiliates and subsidiaries are recorded and accounted for as of the date the transaction occurs. As a result, the Company has a different basis in its equity investments in the subsidiaries under Korean GAAP as compared to U.S. GAAP. Therefore, any gains or losses recorded by the Company (which are recorded as capital transactions in stockholders’ equity) when an equity investee sells shares of its stock will be different under U.S. GAAP as compared to Korean GAAP. In addition, under U.S. GAAP, the cost of an additional equity interest would be allocated based on the fair value of net tangible and identifiable assets acquired and liabilities assumed, with the excess allocated to goodwill.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
f.   Intangible Assets
 
Under Korean GAAP, the frequency usage right related to the second generation (“2G”) paid by the initial stockholders to obtain the operating licenses prior to the establishment of KTM.Com Co., Ltd. (“KTM”), which was merged into KTF in 2001, was not recognized as an intangible asset in applying purchase accounting of KTM by KT in 2000.
 
Under U.S. GAAP, the 2G frequency usage right was considered as indefinite lived intangible asset and thus in the process of purchase accounting of KTM, KT recognized the frequency usage right at fair value. However, on December 31, 2005, the Korea Communication Act (“Act”) was revised effective July 1, 2006. Under the revised Act, the frequency usage right of 2G will expire by June 2011. Thus, KTF amortizes the frequency usage right of 2G over the remaining useful life under U.S. GAAP beginning \for the years ended December 31, 2006.
 
Identifiable intangible assets determined in accordance with U.S. GAAP as of December 31, 2007 and 2008 are presented below.
 
                         
    2007  
    Gross Carrying
 		    Accumulated
 		       
    Amount     Amortization     Net Amount  
    (In millions of Korean won)  
 
Amortizable intangible assets:
                       
Internal-use software
  W 775,845     W 464,290     W 311,555  
Frequency usage rights
    1,465,990       460,757       1,005,233  
Buildings and facility utilization rights
    126,742       73,437       53,305  
Other
    307,372       196,180       111,192  
                         
Total
  W 2,675,949     W 1,194,664     W 1,481,285  
                         
 
                         
    2008  
    Gross Carrying
 		    Accumulated
 		       
    Amount     Amortization     Net Amount  
    (In millions of Korean won)  
 
Amortizable intangible assets:
                       
Internal-use software
  W 876,471     W 579,663     W 296,808  
Frequency usage rights
    1,465,990       594,354       871,636  
Buildings and facility utilization rights
    127,896       79,799       48,097  
Other
    325,485       218,756       106,729  
                         
Total
  W 2,795,842     W 1,472,572     W 1,323,270  
                         
 
         
Amortization expense:
       
For the year ended December 31, 2006
  W 182,378 million  
For the year ended December 31, 2007
    284,016 million  
For the year ended December 31, 2008
    306,000 million  


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Estimated amortization expense (in millions of Korean won):
 
         
Year Ending December 31,
     
 
2009
  W 296,491  
2010
    232,948  
2011
    194,973  
2012
    147,591  
2013
    128,430  
 
The weighted-average amortization period of total amortized intangible assets, internal-use software, frequency usage rights and utilization rights are 9 years, 6 years, 11 years and 20 years, respectively. The Company has no identifiable intangible assets that are not subject to amortization.
 
g.   Depreciation
 
In 1995, KT adopted a method of depreciation, as allowed under Korean GAAP, whereby property and equipment placed in service at any time during the first half of the year received a full year of depreciation expense, and property and equipment placed in service at any time during the second half of the year received one-half year of depreciation. Also, as permitted under Korean GAAP, depreciation of these assets was based on lives which are shorter than their economic useful lives. In 1996, KT adopted the policy, also acceptable under Korean GAAP, whereby property and equipment is depreciated from the actual date it is placed in service, while continuing to use useful lives which are shorter than the economic useful lives of such assets. In 1998, under Korean GAAP, as required under a ruling by the National Tax Service (which is also applicable under Korean GAAP), the Company changed the estimated useful lives of certain assets, including underground access to cable tunnels and concrete and steel telephone poles acquired after 1995, from 6 years to periods ranging from 20 years to 40 years, and changed the depreciation method from the declining-balance method to the straight-line method.
 
In 1999, under Korean GAAP, the Company changed its depreciation method for buildings and structures acquired before December 31, 1994, from the declining-balance method to the straight-line method in order to be consistent with the method applied to buildings and structures acquired after January 1, 1995.
 
Under U.S. GAAP, property and equipment is generally depreciated over its estimated useful life in a systematic and rational manner. In addition, the depreciation method in the year of acquisition based on the Company’s in-service dates for its capital additions in 1995 described above, does not comply with U.S. GAAP in that significant depreciation expense is recognized prior to the actual use of the asset. The change in estimated useful lives in 1998, and the changes in 1998 and 1999 from the declining-balance method to the straight-line method would also not be appropriate under U.S. GAAP. Accordingly, adjustments have been reflected for U.S. GAAP purposes for the effect of each of these items.
 
Under U.S. GAAP, property and equipment is generally depreciated by using the declining-balance method except for the assets of certain subsidiaries, buildings and structures acquired in 1995 and thereafter which are depreciated using the straight-line method.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Under U.S. GAAP, the useful lives of property and equipment are summarized as follows:
 
         
    Estimated Useful Lives  
 
Buildings and structures
    5-60 years  
Underground access to cable tunnels, and concrete and steel telephone poles
    10-40 years  
Machinery and equipment
    3-15 years  
Vehicles
    3-10 years  
Tools, furniture and fixtures:
       
Steel safe boxes
    20 years  
Tools, computer equipment, furniture and fixtures
    3-8 years  
 
h.   Interest Capitalization
 
Under Korean GAAP, prior to January 1, 2003, interest was capitalized on borrowings related to the construction of all property and equipment and IMT-2000 frequency usage right, incurred prior to completing the acquisition, as part of the cost of such assets. Effective January 1, 2003, Korean GAAP was revised to allow a company to charge such interest expense to current operations. For Korean GAAP purpose, the Company adopted in 2003 the accounting policy not to capitalize such financing costs prospectively.
 
Under U.S. GAAP, interest costs related to certain assets that are routinely manufactured or otherwise produced in large quantities on a regular basis are not in the scope of interest capitalization. In addition, interest is capitalized in the amount that would have theoretically been avoided had expenditures not been made for assets which require a period of time to get them ready for their intended use.
 
Under U.S. GAAP, details of interest capitalization for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Total interest costs incurred
  W 379,017     W 458,951     W 471,816  
Interest capitalized
    9,169       13,372       15,376  
                         
Amounts charged to expense
  W 369,848     W 445,579     W 456,440  
                         
 
i.   Revenue Recognition
 
Under Korean GAAP, non-refundable service installation fees for telephone and initial subscription fees for broadband internet access and PCS services are recognized as revenue when installation and initiation services are rendered. The related direct incremental acquisition costs are expensed as incurred.
 
Under U.S. GAAP, service installation fees and initial subscription fees related to activation of service are deferred and recognized as revenue over the expected terms of customer relationships. The expected terms of customer relationships for telephone, broadband internet access and leased-line service, and PCS are 15 years, 3 years and 4 years, respectively. The related incremental direct costs related to customer acquisition are deferred and recognized over the period of the customer relationship.
 
Under Korean GAAP, handset subsidy paid by the Company is accounted as expenses. However, under U.S. GAAP, the handset subsidy is treated as reduction of revenue in accordance with EITF Issue No. 01-09 “Accounting for Consideration Given by a Vendor to a Customer”.
 
j.   Income Taxes
 
Under Korean GAAP, effective January 1, 2005, due to the adoption of SKAS No. 16 “Income Taxes”, deferred income taxes are recognized on the temporary difference related to unrealized gains and losses on investment


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
securities that are reported as a separate component of stockholders’ equity. Any adjustments to income tax provision attributable to prior years are included in income tax expense (benefit). Consequently, there is no GAAP difference as of December 31, 2007 and 2008, respectively, in terms of deferred income taxes on unrealized gains and losses on investment securities.
 
Under U.S. GAAP, deferred income taxes are recognized on the temporary difference related to unrealized gains and losses on investment securities that are reported as other comprehensive income. Any adjustments to income tax provision attributable to prior years are included in income tax expense (benefit).
 
Under Korean GAAP, recognition of deferred income tax benefit from equity in losses of affiliates requires realization of the benefit within the near future, which is interpreted to mean within 5 years. The Company does not believe it is probable to realize such benefit within 5 years.
 
Under U.S. GAAP, deferred income tax assets are recognized for an excess of the tax basis over the amount for financial reporting of domestic and foreign investments accounted for on the equity method (except for corporate joint ventures). However, deferred income tax assets related to consolidated subsidiaries are recognized only if it is apparent that the temporary difference will reverse in the foreseeable future.
 
Under Korean GAAP, prior to January 1, 2005, all deferred income tax assets and liabilities were recorded as non-current. Effective January 1, 2005, per SKAS No. 16, deferred income tax assets and liabilities shall be classified as current or non-current based on the classification of the related assets or liabilities for financial reporting or the expected reversal date of the temporary difference. As a result of adoption of SKAS No. 16, there is no difference between Korean GAAP and U.S. GAAP as of December 31, 2007 and 2008, respectively.
 
Under Korean GAAP, in accordance with SKAS No. 16, effective from January 1, 2005, the Company did not recognize deferred income tax liabilities of W26,377 million related to equity in gains of affiliates as of December 31, 2008 since it is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
 
Under U.S. GAAP, deferred income tax liabilities are fully recognized for an excess of the amount for financial reporting over the tax basis of an investment in domestic subsidiaries and corporate joint ventures, unless the investment in the subsidiary can be recovered tax-free under local tax laws and management expects that it will ultimately use that means. However, deferred income tax liabilities are not recognized in an investment in a more than 50 percent-owned foreign subsidiary or foreign corporate joint venture that is essentially permanent in duration.
 
In 2006 the Company adopted KAI opinion 06-2 “Deferred Tax Accounting for Investments in Subsidiaries, Affiliated Companies Accounted for Using the Equity Method, and Interest in Joint Ventures”. This statement requires recognition of deferred income tax asset or liability based on net of all temporary differences arising from the same subsidiary or investee rather than on an individual basis. According to the transition rule of the statement, Korean GAAP prior year financial statements have been restated. However, in 2008 the KAI opinion 06-2 was slightly amended as described in note 2 (b), in which temporary differences arising from certain transactions under SKAS No. 16, such as elimination of inter-company transactions through equity method, should be separately treated as an individual basis when they are recognized in the consolidated financial statements. Consequently, there is no GAAP difference as of December 31, 2008, in terms of the recognition of temporary differences arising from certain transactions mentioned above.
 
Under U.S. GAAP, effective January 1, 2007 the Company adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), which supplements SFAS No. 109 “Accounting for Income Taxes” (SFAS No. 109), by defining the confidence level that a tax position must meet in order to be recognized in the financial statements. FIN 48 requires that the tax effect(s) of a position be recognized only if it is “more-likely-than-not” to be sustained based solely on its technical merits as of the reporting date. The more-likely-than-not threshold represents a positive assertion by management that a company is entitled to the economic benefits of a tax position.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
If a tax position is not considered more-likely-than-not to be sustained based solely on its technical merits, no benefits of the tax position are to be recognized. The more-likely-than-not threshold must continue to be met in each reporting period to support continued recognition of a benefit. With the adoption of FIN 48, companies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Any necessary adjustment would be recorded directly to retained earnings and reported as a change in accounting principle. As a result of the adoption of FIN 48 as of January 1, 2007, the Company recorded a decrease to retained earnings of W58,667 million as a cumulative effect of a change in accounting principle with an increase to the liability amounting to W67,142 million for uncertain tax positions and an increase to the deferred income tax asset amounting to W8,475 million.
 
k.   Foreign Currency Transactions
 
Under Korean GAAP, prior to January 1, 2003, all unrealized foreign currency translation gains and losses on monetary assets and liabilities, except for amounts included in the cost of property and equipment, were included in results of operations. Effective January 1, 2003 the Company adopted SKAS No. 7, “Capitalization of Financing Costs”. As allowed by the standard, the Company elected to include all unrealized foreign currency translation gains and losses (including property and equipment) in the results of operations.
 
Under U.S. GAAP, all foreign exchange transaction gains and losses (referred to as translation gains and losses under Korean GAAP) are included in the results of operations for the current period and therefore, the amounts included in property and equipment and related depreciation expense under Korean GAAP are reversed.
 
Under Korean GAAP, the convertible notes denominated in a foreign currency are regarded as non-monetary liabilities since they have equity-like characteristics, and the Company does not recognize the associated foreign currency translation gain and loss.
 
Under U.S. GAAP, the convertible notes denominated in a foreign currency are translated at the rate of exchange on the balance sheet date, and the resulting foreign currency transaction gain and loss is included in the results of operations.
 
l.   Minority Interest Income in Consolidated Subsidiaries
 
Under Korean GAAP, minority interest incomes in consolidated subsidiaries are presented as a component of stockholders’ equity in the consolidated balance sheet.
 
Under U.S. GAAP, minority interest incomes in consolidated subsidiaries are not included in stockholders’ equity; rather, it is presented between liabilities and stockholders’ equity item in the consolidated balance sheet.
 
The differences relating to minority interest income in net profit between Korean GAAP and U.S. GAAP consist of reconciliation items affecting non-wholly-owned subsidiaries that are allocable to the minority interest holders.
 
m.   Stockholder’s Agreement between KT and DoCoMo
 
Under Korean GAAP, stockholders’ agreement between the Company and DoCoMo is regarded as a contingency which does not require recognition other than disclosure.
 
Under U.S. GAAP, the agreement is regarded as a guarantee provided by the Company to DoCoMo on behalf of KTF and is subject to FIN 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Upon commencement of the guarantee, the Company evaluated fair value of the guarantee and obtained fair value. Since the fair value of the guarantee was immaterial and as of August 3, 2007 the right of DoCoMo was extinguished, the Company has not recorded the guarantee.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
n.   Other
 
Korean GAAP requires gains and losses from the sale of property and equipment and impairment write-downs to be included as part of non-operating revenues (expenses). Under U.S. GAAP, gains and losses from the sale of property and equipment and impairment write-downs are required to be recorded as a component of operating income.
 
Under Korean GAAP, purchase of treasury stock is regarded as temporary and does not impact the ownership percentages of stockholders unless there is an explicit purpose of retirement of the repurchased shares in accordance with resolution of board of directors or stockholders’ meeting. Under U.S. GAAP, purchase of treasury stock results in a change of an entity’s ownership structure and ownership percentages of stockholders.
 
o.   Comprehensive Income
 
Prior to January 1, 2007, Korean GAAP did not require the presentation comprehensive income, however, effective January 1, 2007, the Company adopted SKAS No. 21, “Preparation and Presentation of Financial Statements 1”, which requires separate disclosure of the details of comprehensive income. Consequently, there is no GAAP difference as of December 31, 2007, in terms of disclosure of comprehensive income and its components.
 
Under U.S. GAAP, comprehensive income and its components must be presented in the financial statements. Comprehensive income includes all changes in stockholders’ equity during a period except those resulting from investments by, or distributions to, owners, including certain items not included in the current results of operations.
 
Comprehensive income for the years ended December 31, 2006, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Net earnings as adjusted in accordance with U.S. GAAP
  W 1,329,343     W 1,068,533     W 518,245  
Other comprehensive income, net of tax:
                       
Foreign currency translation adjustments
    (10,520 )     19,295       16,921  
Unrealized gains on investments:
                       
Unrealized holding gains (losses), net of tax of W1,351 million, W1,023 million and (W1,907) million in 2006, 2007 and 2008, respectively
    3,562       2,698       (6,762 )
Reclassification adjustment for losses realized in net earning due to disposal, net of tax of W39 million, W1,004 million and W687 million in 2006, 2007 and 2008, respectively
    102       2,648       2,436  
Gains (losses) on valuation of derivatives for cash flow hedge, net of tax of W768 million and (W1,297) million in 2007 and 2008, respectively
    —       2,024       (4,598 )
                         
Comprehensive income as adjusted in accordance with U.S. GAAP
  W 1,322,487     W 1,095,198     W 526,242  
                         
 
p.   Statements of Cash Flows
 
Statements of cash flows under Korean GAAP include the cash flows of KTSC, KTP, SFNH BF-(1), Olivenine, KTF Music (formerly, “Bluecord Technology”) and Doremi Media, which are accounted for under the equity method under U.S. GAAP.
 
Under Korean GAAP, cash flows from contributions that are restricted for the purposes of constructing assets are included in investing activities. For U.S. GAAP purposes, those cash flows are included in financing activities. In addition, under Korean GAAP cash flows from initial consolidation or deconsolidation of a subsidiary is


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
presented as a separate line whereas for U.S. GAAP purposes, it is categorized as investing activities net of cash paid or received.
 
q.   Significant New Accounting Pronouncements
 
(i) In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (SFAS No. 141(R)) which retained the underlying concepts of SFAS No. 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS No. 141(R) changed the method of applying the acquisition method in a number of significant aspects. SFAS No. 141(R) will require that: (1) for all business combinations, the acquirer records all assets and liabilities of the acquired business, including goodwill, generally at their fair values; (2) certain contingent assets and liabilities acquired should be recognized at their fair values on the acquisition date; (3) contingent consideration should be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settled; (4) acquisition-related transaction and restructuring costs should be expensed rather than treated as part of the cost of the acquisition and included in the amount recorded for assets acquired; (5) in step acquisitions, previous equity interests in an acquiree held prior to obtaining control should be re-measured to their acquisition-date fair values, with any gain or loss recognized in earnings; and (6) when making adjustments to finalize initial accounting, companies revise any previously issued post-acquisition financial information in future financial statements to reflect any adjustments as if they had been recorded on the acquisition date. SFAS No. 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS No. 141(R) amends SFAS No. 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of this statement should also apply the provisions of SFAS No. 141(R). This standard will be applied to all future business combinations after December 31, 2008.
 
(ii) In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB 51” (SFAS No. 160) which amends ARB 51 to establish new standards that will govern the accounting for and reporting of noncontrolling interests in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Also, SFAS No. 160 requires that: (1) noncontrolling interest, previously referred to as minority interest, be reported as part of equity in the consolidated financial statements; (2) losses be allocated to the noncontrolling interest even when such allocation might result in a deficit balance, reducing the losses attributed to the controlling interest; (3) changes in ownership interests be treated as equity transactions if control is maintained; and, (4) upon a loss of control, any gain or loss on the interest sold be recognized in earnings. SFAS No. 160 is effective on a prospective basis for all fiscal years beginning on or after December 15, 2008, except for the presentation and disclosure requirements, which will be applied retrospectively. Management is currently evaluating the effects, if any, that SFAS No. 160 may have on the Company’s consolidated financial condition and results of operations.
 
(iii) In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” (SFAS No. 161), that expands the disclosure requirements of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133). SFAS No. 161 requires additional disclosures regarding: (1) how and why an entity uses derivative instruments; (2) how derivative instruments and related hedged items are accounted for under SFAS No. 133; and (3) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. In addition, SFAS No. 161 requires qualitative disclosures about objectives and strategies for using derivatives described in the context of an entity’s risk exposures, quantitative disclosures about the location and fair value of derivative instruments and associated gains and losses, and disclosures about credit-risk-related contingent features in derivative instruments. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. Management does anticipate that the adoption of this statement will have a material effect on our consolidated financial position or results of operations.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
(iv) In April 2008, the FASB issued FSP FAS 142-3, “Determining of the Useful Life of Intangible Assets,” (“FSP FAS 142-3”) with the objective of improving the consistency between the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS 142”) and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other U.S. GAAP standards. FSP FAS 142-3 establishes additional factors to be considered by an entity in developing assumptions about renewal or extension used to determine the useful life of an intangible asset recognized under SFAS No. 142. FSP FAS 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. We will adopt FSP FAS 142-3 effective January 1, 2009. Management does anticipate that the adoption of this statement will have a material effect on our financial position or results of operations.
 
(v) In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement),” (“FSP APB 14-1”) was issued which specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the issuer’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB 14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Management is currently evaluating the effects, if any, which FSP APB 14-1 may have on the Company’s consolidated financial condition and results of operations.
 
(vi) In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162) that is intended to improve financial reporting by identifying a consistent framework, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. GAAP for nongovernmental entities. SFAS No. 162 is effective 60 days following the Securities and Exchanges Commission’s approval of the Public Company Accounting Oversight Board Auditing amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.”
 
(vii) In June 2008, the EITF issued EITF No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” (“EITF No. 03-6-1”). The FASB concluded that all unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The EITF No. 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. Management is currently evaluating the effects, if any, which EITF No. 03-6-1 may have on the Company’s consolidated financial condition and results of operations.
 
(viii) In September 2008, the EITF issued EITF No. 08-5, “Issuer’s Accounting for Liabilities at Fair Value with a Third-Party Credit Enhancement” (EITF No. 08-5). EITF No. 08-5 states that the issuer of debt with a third-party credit enhancement that is inseparable from the debt instrument shall not include the effect of the credit enhancement in the fair value measurement of the liability. EITF No. 08-5 is effective on a prospective basis for periods ending after December 15, 2008. Management is currently evaluating the effects, if any, which EITF No. 08-5 may have on the Company’s consolidated financial condition and results of operations.
 
(ix) In November 2008, the EITF issued EITF No. 08-6, “Equity Method Investment Accounting Considerations” (EITF No. 08-6) that addresses how the initial carrying value of an equity method investment should be determined, how an impairment assessment of an underlying indefeinite-lived intangible asset of an equity method investment should be performed, how an equity method investee’s issuance of shares should be accounted for, and how to account for a change in an investment from equity method to the cost method. EITF No. 08-6 shall be effective in fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. EITF No. 08-6 shall be applied prospectively with early application prohibited. Management is currently evaluating the effects, if any, which EITF No. 08-6 may have on the Company’s consolidated financial condition and results of operations.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
(x) In November 2008, the EITF issued EITF No. 08-7, “Accounting for Defensive Intangible Assets,” (“EITF No. 08-7”) applies to defensive intangible assets, which are acquired intangible assets that the acquirer does not intend to actively use but intends to hold to prevent its competitors from obtaining access to them. As these assets are separately identifiable, EITF No. 08-7 requires an acquiring entity to account for defensive intangible assets as a separate unit of accounting. Defensive intangible assets must be recognized at fair value in accordance with SAFS No. 141(R) and SFAS No. 157. EITF No. 08-7 is effective for defensive intangible assets acquired in fiscal years beginning on or after December 15, 2008.
 
(xi) In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS 132(R)-1), to provide guidance on an employer’s disclosure about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 provides objectives for the disclosure about the employer’s (1) investment policies and strategies, (2) categories of plan assets, (3) fair value measurements, and (4) significant concentrations of risk. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15, 2009. Upon initial application, the provisions of FSP FAS 132(R)-1 are not required for earlier periods that are presented for comparative purposes. Earlier adoption is permitted. Because this impacts the disclosure and not the accounting treatment for benefit and other postretirement plans, management believes the adoption of FSP FAS 132(R)-1 will not have a material effect on the consolidated financial condition or results of operations.
 
(xii) In April 2009, the FASB issued three staff positions intended to provide additional application guidance and enhance disclosures regarding fair value measurements and impairments of debt securities. The first, FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset of Liability Have Significantly Decreased and Identifying Transaction That Are Not Orderly,” provides guideline for determining fair value measurements consistently with the principles presented in SFAS No. 157 when the volume and level of activity for the asset or liability has significantly decreased, and provides guidance on identifying circumstances that indicate that a transaction is not orderly. The second, FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” expands the frequency of fair value disclosures for publicly traded entities about the fair value of certain financial instruments not recognized at fair value in the statement of financial position to include interim reporting periods. The third, FSP FAS 115-2 and 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” amends the other-than-temporary impairment guidance for debt securities, and modifies the presentation and disclosure requirements for all other-than-temporary impairments. The staff positions are effective for interim and annual reporting periods ending after June 15, 2009 with early adoption permitted of all three FSPs together. The Company did not early adopt these FSPs. Management does anticipate that the adoption of these staff positions will have a material effect on the consolidated financial position or results of operations.
 
(xiii) In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” addressing accounting and disclosure requirements related to subsequent events (“SFAS No. 165”). SFAS No. 165 requires management to evaluate subsequent events through the date the financial statements are either issued or available to be issued, depending on the entity’s expectation of whether it will widely distribute its financial statements to its shareholders and other financial statement users. Entities will be required to disclose the date through which subsequent events have been evaluated. SFAS No. 165 is effective for interim or annual financial periods ending after June 15, 2009 and should be applied prospectively. Management believes the adoption of SFAS No. 165 will not have a material effect on our consolidated financial position or results of operations.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
r.   U.S. GAAP Reconciliations
 
The effects of the significant adjustments to net earnings and stockholders’ equity for the years ended December 31, 2006, 2007 and 2008 which would be required if U.S. GAAP were to be applied instead of Korean GAAP are summarized as follows (in millions of Korean won except per share data):
 
                                 
    Note
 		                   
    Reference     2006     2007     2008  
 
Net income (attributable to equity holders of the parent) in accordance with Korean GAAP
          W 1,291,863     W 1,056,227     W 449,810  
Adjustments:
                               
U.S. GAAP adjustments of equity method affiliates
    38.a       1,250       —       —  
Goodwill impairment
    38.c       —       —       (13,948 )
Equity in income of associates:
                               
Reversal of amortization of goodwill
    38.c       145,510       180,343       166,422  
Impairment loss relating to equity investee
    38.c       —       —       (9,466 )
Additional acquisitions of equity investees
    38.e       (26,337 )     (15,760 )     6,351  
Intangible assets
    38.f       (4,742 )     (13,652 )     (14,329 )
Property and equipment
    38.g       (150,885 )     (207,573 )     (114,744 )
Interest capitalization (including related depreciation), net
    38.h       8,631       5,310       (2,128 )
Capitalized foreign exchange transactions, net
    38.k       2,789       3,433       880  
Service installation fees
    38.i       17,615       (9,236 )     5,865  
Deferred income tax — methodology difference
    38.j       37,590       (22,618 )     4,275  
Deferred income tax effects of U.S. GAAP adjustments
    38.j       1,346       57,363       (15,228 )
Miscellaneous accounts
    38.j       (68 )     13,886       35,230  
Foreign currency translation of convertible notes
    38.k       948       —       —  
Minority interest income
    38.l       3,833       20,810       19,255  
                                 
            W 37,480     W 12,306     W 68,435  
                                 
Net earnings as adjusted in accordance with U.S. GAAP
          W 1,329,343     W 1,068,533     W 518,245  
                                 


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2006, 2007 and 2008:
 
                                                 
    2006     2007     2008  
    Diluted     Basic     Diluted     Basic     Diluted     Basic  
          (In millions of Korean won except per share data)        
 
CONSOLIDATED
                                               
Earnings from continuing operations
  W 1,329,034     W 1,328,995     W 994,399     W 994,399     W 518,245     W 518,245  
Earnings from discontinuing operations
    348       348       74,134       74,134       —       —  
                                                 
Net earnings available
    1,329,382       1,329,343       1,068,533       1,068,533       518,245       518,245  
                                                 
AVERAGE EQUIVALENT SHARES
                                               
Shares of common stock outstanding
    209,894,649       209,894,649       206,599,294       206,599,294       202,891,015       202,891,015  
Dilutive effect of convertible notes
    254,949       —       —       —       —       —  
                                                 
Total average equivalent shares
    210,149,598       209,894,649       206,599,294       206,599,294       202,891,015       202,891,015  
                                                 
PER SHARE AMOUNTS
                                               
Earnings from continuing operations
    6,325       6,331       4,814       4,814       2,554       2,554  
Earnings from discontinuing operations
    2       2       358       358       —       —  
                                                 
Net earnings per share
  W 6,327     W 6,333     W 5,172     W 5,172     W 2,554     W 2,554  
                                                 
 
Basic earnings per share is computed on the basis of the weighted-average number of common stock outstanding. Diluted earnings per share is computed on the basis of the weighted-average number of common stock outstanding plus the effect of outstanding convertible notes using the “if-converted method”. The denominator of the diluted earnings per share computation is adjusted to include the number of additional common stock that would have been outstanding had the dilutive potential common stock been issued at the beginning of the period. In addition, the numerator is adjusted to include the after-tax amount of interest and foreign currency translation gain (loss) recognized associated with the convertible notes. Stock options were not considered when calculating diluted earnings per share because the exercise price of the stock options was greater than the average market price of the shares and, therefore, the effect would have been antidilutive.
 


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                         
    Note Reference     2007     2008  
 
Stockholders’ equity in accordance with Korean GAAP
          W 11,137,766     W 11,087,898  
Adjustments:
                       
Goodwill impairment
    38.c       (12,947 )     (26,895 )
Equity in earnings of equity method affiliates:
                       
Reversal of goodwill amortization
    38.c       846,305       1,012,727  
Impairment loss relating to equity investee
    38.c       (1,462,443 )     (1,471,474 )
Additional acquisitions of equity investees
    38.e       766,291       787,293  
Different useful life of intangibles
    38.f       111,631       111,631  
Intangible assets
    38.f       53,010       38,681  
Accumulated depreciation
    38.g       (510,021 )     (624,765 )
Interest capitalization, net
    38.h       67,822       65,694  
Capitalized foreign exchange transactions, net
    38.k       (3,896 )     (3,016 )
Service installation fees
    38.i       (481,618 )     (475,753 )
Deferred tax — methodology difference
    38.j       28,518       32,864  
Deferred tax effects of U.S. GAAP adjustments
    38.j       226,605       209,666  
Miscellaneous accounts
    38.j       (44,704 )     (9,474 )
Minority interest
    38.l       (2,283,928 )     (2,244,679 )
                         
              (2,699,375 )     (2,597,500 )
                         
Stockholders’ equity as adjusted in accordance with U.S. GAAP
          W 8,438,391     W 8,490,398  
                         

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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
s.   Condensed Consolidated U.S. GAAP Financial Information
 
Condensed consolidated balance sheets in accordance with U.S. GAAP as of December 31, 2007 and 2008 are presented as follows (in millions of Korean won):
 
                 
    2007     2008  
 
Current assets
               
Accounts receivable — trade
  W 2,510,955     W 2,963,183  
Other current assets
    2,974,231       3,946,259  
                 
Total current assets
    5,485,186       6,909,442  
Investments
    413,012       496,052  
Property and equipment, net
    14,670,821       14,460,108  
Goodwill
    557,119       584,761  
Other assets
    2,897,283       3,523,729  
                 
Total assets
  W 24,023,421     W 25,974,092  
                 
Current liabilities
               
Accounts payable — trade
  W 1,009,032     W 827,971  
Other current liabilities
    4,144,455       4,441,864  
                 
Total current liabilities
    5,153,487       5,269,835  
Long-term debt, excluding current portion
    5,970,098       7,910,118  
Other long-term liabilities
    2,310,831       2,184,470  
                 
Total liabilities
    13,434,416       15,364,423  
                 
Minority interest in consolidated subsidiaries
    2,150,614       2,119,271  
                 
Stockholders’ equity
    8,438,391       8,490,398  
                 
Total liabilities, minority interest and stockholders’ equity
  W 24,023,421     W 25,974,092  
                 
 
Changes in consolidated stockholders’ equity in accordance with U.S. GAAP for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Beginning of the year
  W 7,345,041     W 8,037,993     W 8,438,391  
Net earnings
    1,329,343       1,068,533       518,245  
Retirement of treasury stock
    (213,644 )     (196,329 )     (73,807 )
Foreign currency translation adjustments
    (10,520 )     19,295       16,921  
Unrealized gains on investments, net of tax
    3,664       5,346       (4,326 )
Sale of treasury stock, net
    14,368       884       807  
Dividends
    (426,113 )     (416,191 )     (407,374 )
Adoption of FIN 48
    —       (58,667 )     —  
Changes in consolidated entities
    —       (23,990 )     —  
Other, net of tax
    (4,146 )     1,517       1,541  
                         
End of the year
  W 8,037,993     W 8,438,391     W 8,490,398  
                         


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Condensed consolidated statements of cash flows in accordance with U.S. GAAP for the years ended December 31, 2006, 2007 and 2008 are set out below (in millions of Korean won):
 
                         
    2006     2007     2008  
 
CASH FLOWS FROM OPERATING ACTIVITIES :
                       
Net income
  W 1,329,343     W 1,068,533     W 518,245  
Adjustments to reconcile net earnings to net cash provided by operating activities:
                       
Depreciation and amortization
    2,882,488       3,695,405       3,663,037  
Provision for doubtful accounts
    47,515       67,263       139,441  
Loss on disposal of property and equipment
    73,539       76,839       89,734  
Equity in loss of associates
    (81,488 )     (145,861 )     (164,336 )
Deferred income tax expense (benefit)
    (15,261 )     (68,417 )     (115,337 )
Gain on disposition of available-for-sale securities, net
    (63,133 )     (11,428 )     (5,587 )
Impairment losses of equity method affiliates
    —       —       22,058  
Foreign currency translation gain (loss), net
    (114,950 )     7,293       753,592  
Gain (loss) on settlement and valuation of derivatives, net
    92,784       (22,440 )     (649,360 )
Minority interest income in earnings of consolidated subsidiaries
    93,874       91,521       55,178  
Changes in assets and liabilities related to operating activities:
                       
Notes and accounts receivable
    250,695       (416,506 )     (161,287 )
Inventories
    68,218       (72,708 )     (142,512 )
Advance payments
    52,575       (20,599 )     (2,795 )
Notes and long-term accounts receivable
    (20,705 )     (9,384 )     (654,248 )
Accounts payable
    (81,279 )     14,740       (423,619 )
Advance receipts
    (610 )     (30,484 )     19,783  
Income taxes payable
    234,888       (150,832 )     (153,173 )
Prepaid expenses
    (5,314 )     (12,678 )     (44,291 )
Withholdings
    (340 )     24,657       26,404  
Accrued expenses
    7,821       66,584       24,904  
Refundable deposits for telephone installation
    (48,557 )     (66,145 )     (59,437 )
Payment of severance indemnities
    158,423       254,671       140,352  
Deposits for severance indemnities
    (150,621 )     (132,427 )     (148,822 )
Other, net
    (42,900 )     52,483       160,633  
                         
Net Cash Provided by Operating Activities
    4,667,005       4,260,080       2,888,557  
                         
CASH FLOWS FROM INVESTING ACTIVITIES :
                       
Acquisition of property and equipment
    (2,827,851 )     (3,621,428 )     (3,322,381 )
Disposal of property and equipment
    54,819       103,471       53,606  
Decrease (increase) in short-term financial instruments, net
    369,902       114,459       209,474  
Disposal of available-for-sale securities
    690,177       1,181,025       614,405  
Decrease in equity method investment securities
    60,785       10,807       1,047  


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
                         
    2006     2007     2008  
 
Collection of held-to-maturity securities
    607       252       5  
Acquisition of available-for-sale securities
    (647,051 )     (981,008 )     (692,289 )
Acquisition of equity method investment securities
    (9,482 )     (7,220 )     (123,171 )
Acquisition of held-to-maturity securities
    (281 )     (5 )     (13,988 )
Acquisition of assets and liabilities of consolidated subsidiaries
    (109,853 )     (31,928 )     (5,619 )
Other, net
    (13,715 )     (178,630 )     (223,359 )
                         
Net Cash Used in Investing Activities
    (2,431,943 )     (3,410,205 )     (3,502,270 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES :
                       
Payment of dividends
    (426,663 )     (472,774 )     (408,242 )
Repayment of short-term borrowings
    25,485       30,601       55,440  
Repayment of long-term borrowings and current portion of long-term debt
    (922,740 )     (1,314,424 )     (2,121,831 )
Increase in long-term borrowings
    235,831       872,085       3,735,500  
Acquisition of treasury stock
    (213,664 )     (195,217 )     (73,807 )
Inflows (outflows) from capital transactions of consolidated entities
    (164,884 )     (150,055 )     (110,917 )
Increase in accounts receivable — trade
    (200,000 )     —       —  
Other, net
    (3,597 )     (41,383 )     70,702  
                         
Net Cash Used in Financing Activities
    (1,670,232 )     (1,271,167 )     1,146,845  
                         
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    564,830       (421,292 )     533,132  
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
    1,194,314       1,759,144       1,337,852  
                         
CASH AND CASH EQUIVALENTS AT END OF THE YEAR
  W 1,759,144     W 1,337,852     W 1,870,984  
                         
Supplemental schedule:
                       
Cash paid for interest (net of amounts capitalized)
  W 385,553     W 433,471     W 406,485  
Cash paid for income taxes
  W 322,866     W 486,448     W 453,532  
 
39.   ADDITIONAL U.S. GAAP DISCLOSURES
 
a.   Income Tax Expense
 
The components of income tax expense for the years ended December 31, 2006, 2007 and 2008 are as follows (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Current income tax expense
  W 372,351     W 337,904     W 293,512  
Deferred income tax expense (benefit)
    (15,261 )     (68,417 )     (115,337 )
                         
Income tax expense
  W 357,090     W 269,487     W 178,175  
                         

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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Substantially all income before income taxes and related income tax expense (benefit) are attributable to domestic operations. The provision for income taxes using statutory tax rates differs from the actual provision for the years ended December 31, 2006, 2007 and 2008 for the following reasons (in millions of Korean won):
 
                         
    2006     2007     2008  
 
Provision for income taxes at statutory tax rates
  W 489,584     W 372,704     W 191,502  
Tax credits
    (147,509 )     (121,159 )     (197,492 )
Additional income tax payment (refund) related to prior year
    (26,449 )     (23,683 )     (4,716 )
Non-temporary difference
    51,341       18,217       24,863  
Changes in deferred income tax unrecognized
    (9,877 )     10,039       16,058  
Tax rate changes
    —       —       142,437  
Others
    —       13,369       5,523  
                         
Actual provision for income taxes
  W 357,090     W 269,487     W 178,175  
                         
 
The effective tax rates after adjustments of certain differences between amounts reported for financial accounting and income tax purpose, were approximately 20.1%, 18.8% and 25.6% for the years ended December 31, 2006, 2007 and 2008, respectively.
 
The tax effects of temporary differences that resulted in significant portions of the deferred income tax assets and liabilities at December 31, 2007 and 2008, computed under U.S. GAAP, and a description of financial statement items that created these differences are as follows (in millions of Korean won):
 
                 
    2007     2008  
 
Deferred income tax assets:
               
Allowance for doubtful accounts
  W 98,470     W 119,855  
Refundable deposits for telephone installation
    14,850       11,205  
Investment securities
    3,653       8,840  
Inventories
    9,619       4,543  
Property and equipment
    130,553       130,443  
Unearned revenue
    111,144       74,560  
Equity method investment securities
    46,131       24,251  
Tax credit carryforwards
    71,555       131,102  
Tax loss carryforwards
    18,529       49,183  
Accrued expenses
    81,928       53,825  
Other
    98,816       240,529  
                 
Total deferred income tax assets
    685,248       848,336  
Valuation allowance
    (20,558 )     (78,444 )
                 
Deferred income tax assets
    664,690       769,892  
Deferred income tax liabilities:
               
Equity method investment securities
    (58,973 )     (41,678 )
Accrued interest income
    (1,682 )     (2,798 )
                 
Deferred income tax liabilities
    (60,655 )     (44,476 )
                 
Net deferred income tax assets
  W 604,035     W 725,416  
                 


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In 2007 and 2008, valuation allowance were recognized by certain subsidiaries as realization of deferred income tax asset was not assessed as more likely than not mainly due to lack of expected future taxable income.
 
In 2008, the Company was eligible for tax credits of W305,651 million. However, due to the minimum tax provisions, the Company utilized only W152,556 million. The remaining tax credit will expire in 2013. During 2008, the Company concluded that the remaining tax credit was more likely than not of realization in the future based on future taxable income estimates. As a result, the Company recorded an income tax benefit of W131,102 million of the tax credit. The tax loss carryforwards of W223,560 million as of December 31, 2008 will expire in 2013. During 2008, certain subsidiaries including TSC did not recognize deferred income tax assets amounting to W48,591 million which resulted from the tax effects of tax loss carryforwards of W220,869 million in excess of taxable differences and future taxable income.
 
In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and tax carryforwards are utilizable. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred income tax assets are deductible, management believes that it is more likely than not the Company will realize the benefits of these deductible differences and tax carryforwards.
 
Upon adoption of FIN 48 as of January 1, 2007, the Company recorded a decrease to retained earnings of W58,667 million as a cumulative effect of the liability for uncertain tax positions. At January 1, 2007, the Company had W67,142 million of total gross unrecognized tax benefits, of which W46,386 million represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate. The amount of unrecognized tax benefits that would favorably affect the effective income tax rate was W441 million and W784 million for the years ended December 31, 2007 and 2008, respectively. These amounts consider the guidance in FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48.” The liability for uncertain tax positions is classified as a non-current liability.
 
A reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period is as follows (in millions of Korean won):
 
                 
    2007     2008  
 
Balance at January 1,
  W 67,142     W 6,450  
Additions to tax positions recorded during the current year
    3,303       573  
Additions to tax positions recorded during prior years
    —       268  
Reductions to tax positions recorded during prior years
    —       (226 )
Reductions in tax positions due to lapse of statutory limitations
    —       —  
Reductions for settlement
    (63,995 )     (2,813 )
                 
Balance at December 31,
  W 6,450     W 4,252  
                 
 
The Company’s practice is to classify interest on uncertain tax positions in non-operating expense whereas penalties are classified in income tax expense. The Company recognized W311 million and W295 million in penalties for the years ended December 31, 2007 and 2008, respectively. As of December 31, 2007 and 2008, the Company had W477 million and W683 million accrued for the payment of penalties.
 
The Company has open tax years ranging from 2004 to 2008, by which our taxes remain subject to examination. However, the Company does not anticipate that the total amount of unrecognized tax benefits will significantly change in the next 12 months.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
b.   Fair Value Measurements (SFAS No. 157)
 
The Company carries certain assets and liabilities as fair value recognized in the consolidated financial statements each year. The Company makes estimates regarding valuation of assets and liabilities measured at fair value in preparing the consolidated financial statements. These assets and liabilities mainly include available-for-sale debt and equity securities accounted for pursuant to SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and derivative contracts accounted for pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
 
On January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements, for all financial and nonfinancial assets and liabilities recognized at fair value in the consolidated financial statements on a recurring basis. The adoption of this statement did not change our previous accounting for financial assets and liabilities. The provisions of SFAS No. 157 will be applied to nonfinancial assets and liabilities that are recognized at fair value in the consolidated financial statements on a nonrecurring basis beginning January 1, 2009. Upon application of the remaining provisions of SFAS No. 157 on January 1, 2009, the Company will provide additional disclosures regarding the nonrecurring fair value measurements.
 
SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a three-tier fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
 
Following is a description of the valuation methodologies the Company used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
Securities
 
The Company classifies its securities within Level 1 of the valuation hierarchy where quoted prices are available in an active market. The Company generally classifies its securities within Level 2 of the valuation hierarchy where quoted market prices are not available. If quoted market prices are not available, the Company determines the fair value of its securities using pricing models, quoted prices of securities with similar characteristics or discounted cash flow models.
 
Derivatives
 
The Company generally classifies derivatives within Level 2 of the valuation hierarchy. The derivative financial instruments consist of cross currency interest rate swap and put option contracts. The cross currency interest swaps are valued using internal models that use as their basis readily observable market inputs, such as time value, forward interest rates, volatility factors and current and forward market prices for foreign currency.
 
The Company classifies put option within Level 3 of the valuation hierarchy. The put option is valued using internal model with significant unobservable inputs as Level 3 of the valuation hierarchy. The fair value of the put option is measured using Black-Sholes option pricing model that utilizes unobservable inputs such as expectation about dividend and future volatility. In addition, considering the fair value measurement, management judgments are applied to assess the appropriate level of valuation adjustments to reflect counterparty credit quality and the Company’s own nonperformance risk, where relevant.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following fair value hierarchy table presents information regarding the assets and liabilities measured at fair value on a recurring basis as of December 31, 2008 (in millions of Korean won):
 
                                 
    Level 1     Level 2     Level 3     Total  
 
ASSETS
                               
Securities
                               
•   Beneficiary certificates
  W 39,696     W —     W —     W 39,696  
•   Available-for-sale securities :
    107,455       —       —       107,455  
•   Held-to-maturity securities
    —       14,073       —       14,073  
Derivative instruments assets :
                               
•   Currency swap
    —       72,127       —       72,127  
•   Combined interest rate currency swap
    —       417,731       —       417,731  
•   Put option
    —       —       14,540       14,540  
                                 
Total
  W 147,151     W 503,931     W 14,540     W 665,622  
                                 
                                 
LIABILITIES                                
Derivative instruments liabilities :
                               
•   Interest rate swap
    —       15,641       —       15,641  
•   Currency forwards
    —       4,755       —       4,755  
                                 
Total
  W —     W 20,396     W —     W 20,396  
                                 
 
The following table provides a reconciliation of the beginning and ending balances for the year ended December 31, 2008 of the Company’s put option, as the option is measured at fair value using significant unobservable inputs (in millions of Korean won):
 
         
Balances at January 1, 2008
  W 1,971  
Unrealized gain included in earnings
    12,569  
Unrealized gain (loss) included in other comprehensive income
    —  
Purchases, sales, issuances and settlements, net
    —  
Transfer in and/or out of Level 3
    —  
         
Balances at December 31, 2008
  W 14,540  
         
 
c.   Fair Value of Financial Instruments (SFAS No. 107)
 
The following method and assumptions were used to estimate the fair value of each significant class of financial instrument for which it was practicable to estimate such value:
 
(i) Cash and cash equivalents, short-term financial instruments, accounts receivable, accounts payable and short-term borrowings
 
The carrying amount approximates fair value due to the short-term maturity of these instruments.
 
(ii) Loans to employees
 
The carrying amount of short-term loans approximates fair value due to the short term maturities of these loans. The fair value of long-term loans is estimated based on discounted cash flows using current rates offered for loans of the similar remaining maturities.


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KT CORPORATION AND SUBSIDIAIRIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
(iii) Long-term debt
 
The fair value of the long-term debt, including current portion, is estimated based on quoted market prices for the same or similar issues or on the current rates offered for debt of the same remaining maturities.
 
The estimated fair values of the Company’s significant financial instruments at December 31, 2007 and 2008 are summarized as follows (in millions of Korean won):
 
                                 
    2007     2008  
    Carrying Amount     Fair Value     Carrying Amount     Fair Value  
 
Cash and cash equivalents
  W 1,337,852     W 1,337,852     W 1,871,018     W 1,871,018  
Short-term financial instruments
    259,504       259,504       86,059       86,059  
Notes and accounts receivable
    3,058,264       3,058,264       3,805,072       3,805,072  
Loans to employees
    163,864       149,305       56,020       52,616  
Accounts payable
    1,009,032       1,009,032       1,212,756       1,212,756  
Short-term borrowings
    199,768       199,768       261,006       261,006  
Long-term debt, including current portion
    6,979,913       6,848,696       9,371,938       9,182,625  
 
d.   Accrued Severance Indemnities
 
The Company expects to pay the following future benefits to its employees upon their normal retirement age (in millions of Korean won):
 
         
Year Ending December 31,
     
 
2009
  W 5,795  
2010
    13,701  
2011
    15,130  
2012
    24,614  
2013
    46,633  
2014-2018
    551,582  


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SIGNATURES
 
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
KT CORPORATION
(Registrant)
 
/s/  Suk-Chae Lee
Name:     Suk-Chae Lee
  Title:      Chief Executive Officer
 
 
Date: June 29, 2009

Table of Contents

 
Exhibit Index
 
         
  1     Articles of Incorporation of KT Corporation (English translation) Form of Common Stock Certificate of KT Corporation, par value W5,000 per share (including translation in English)
  2 .1*   Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit(a)(i) of the Registrant’s Registration Statement (Registration No. 333-13578) on Form F-6)
  2 .2*   Form of Amendment No. 1 Deposit Agreement dated as of May 25, 1999 entered into among KT Corporation, Citibank, N.A., as depositary, and all Holders and Beneficial Owners of American Depositary Shares evidenced by the American Depositary Receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit(a)(ii) of the Registrant’s Registration Statement (Registration No. 333-13578) on Form F-6)
  2 .3*   Letter from Citibank, N.A., as depositary, to the Registrant relating to the pre-release of the American depositary receipts (incorporated herein by reference to the Registrant’s Registration Statement (Registration No. 333-10330) on Form F-6)
  2 .4*   Letter from Citibank, N.A., as depositary, to the Registrant relating to the establishment of a direct registration system for ADSs and the issuance of uncertified ADSs as part of the direct registration system. (incorporated herein by reference to Exhibit 2.4 of the Registrant’s Annual Report on Form 20-F filed on June 30, 2008)
  4 .1*   The Merger Agreement dated January 20, 2009, entered into by and between KT Corporation and KT Freetel Co., Ltd. (incorporated herein by reference to Annex I of the Registrant’s Registration Statement (Registration No. 333-156817) on Form F-4)
  8 .1   List of subsidiaries of KT Corporation
  12 .1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  12 .2   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  13 .1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  15 .1   The Telecommunications Basic Law (English translation)
  15 .2   Enforcement Decree of the Telecommunications Basic Law (English translation)
  15 .3   The Telecommunications Business Act (English translation)
  15 .4   Enforcement Decree of the Telecommunications Business Act (English translation)
 
 
* Filed previously.

EX-1 2 h03459exv1.htm EX-1 EX-1
Exhibit 1
THE ARTICLES OF INCORPORATION
OF
KT CORPORATION
Adopted on     October 1, 1997
Amended on     December 8, 1997
September 18, 1998
March 19, 1999
March 24, 2000
March 21, 2001
March 22, 2002
August 20, 2002
March 14, 2003
March 12, 2004
March 11, 2005
August 19, 2005
March 10, 2006
March 16, 2007
January 14, 2009
March 27, 2009
CHAPTER I. GENERAL PROVISIONS
Article 1. (Name)The name of the Corporation shall be “Chusik Hoesa KT”, which shall

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be written in English as “KT Corporation” (hereafter “KT”).
Article 2. (Purpose)The objective of KT is to engage in the following business activities:
  1.   Information and communications business;
 
  2.   New media business;
 
  3.   Development and sale of software and contents;
 
  4.   Sale and distribution of information communication equipment;
 
  5.   Testing and inspection of information communication equipment, device or facilities;
 
  6.   Advertisement business;
 
  7.   Retail business via telephone, mail order or online;
 
  8.   IT facility construction business and electrical construction business;
 
  9.   Real estate and housing business;
 
  10.   Electronic banking and finance business;
 
  11.   Education and learning service business;
 
  12.   Security service business (Machinery system surveillance service, Facilities security service, etc);
 
  13.   Research and technical development, education, training and promotion, overseas businesses, and export and import, manufacture and distribution related to activities mentioned in Subparagraphs 1 through 12; and
 
  14.   Frequency-based telecommunications services and other telecommunications services
 
  15.   Value-added telecommunications business
 
  16.   Manufacture, provision (screening) and distribution of contents such as musical records, music videos, movies, videos and games
 
  17.   Issuance and management of pre-paid electronic payment instruments, and businesses related to electronic finance such as payment gateway services
 
  18.   Sales and leasing of equipment and facilities related to the activities mentioned in Subparagraphs 14 through 17
 
  19.   Any overseas business or export and import business related to activities

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      mentioned in Subparagraphs 14 through 18
  20.   Tourism
 
  21.   Insurance agency business
 
  22.   New and renewable energy and energy generation business
 
  23.   Any and all other activities or businesses incidental to or necessary for attainment of the foregoing.
Article 3. (Location of Offices)The head office of KT (the “head office”) shall be located in Seoul or Kyunggi Province. KT may establish requisite sub-offices at site(s) pursuant to resolution of the Board of Directors.
Article 4. (Method of Public Notice)Public notices by KT shall be given in The Seoul Shinmun circulated in Seoul, Republic of Korea. Provided, however, that if the public notices cannot be published in The Seoul Shinmun due to unavoidable circumstances, such public notices may be given in any daily newspaper published in Seoul, Republic of Korea.
CHAPTER II. SHARES OF STOCK
Article 5. (Amount of Authorized Capital)
The total number of shares authorized to be issued by KT shall be one billion shares.
Article 6. (Par Value and Types of Shares and Share Certificates)
(1) Par value per share issued by KT shall be 5,000 Korean Won. The type of shares shall be common shares and preferred shares, both of which shall be in registered form.
(2) Share certificates shall be in eight (8) denominations of one (1), five (5), ten (10), fifty (50), one hundred (100), five hundred (500), one thousand (1000) and ten thousand

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(10,000) shares.
Article 7. (Shares to be Issued at the Time of Incorporation)
The total number of shares to be issued by KT at the time of incorporation shall be 395,675,369 shares.
Article 8. (Number and Description of Preferred Shares)
(1)The total number of Preferred Shares to be issued by KT shall be up to one-fourth (1/4) of the total number of shares issued and outstanding, which shall be without voting rights.
(2)Dividends on Preferred Shares shall be an amount not less than nine (9) percent p.a. of the par value as determined by the Board of Directors at the time of issuance.
(3) If the dividends on the Common Shares exceed those on Preferred Shares, the excess dividend amount shall also be paid to the holders of Preferred Shares commensurate to the rate applicable to Common Shares.
(4) If dividends on Preferred Shares are not paid for any fiscal year, the holders of such Preferred Shares shall be entitled to receive such accumulated unpaid dividend in priority to the holders of Common Shares from the dividends payable in the next fiscal year.
Article 9. (Preemptive Rights)
(1) When KT issues new shares, the shareholders of KT shall be entitled to subscribe for such new shares in proportion to their existing shareholdings.
(2) Notwithstanding Paragraph (1) above, new shares may be issued to persons other than the shareholders of KT, in the following cases:
  1.   When the new shares are issued by public offering or subscribed by underwriters pursuant to Article 4 and Article 119 of the Financial Investment Services and Capital Markets Act (“FSCMA”);
 
  2.   When the members of the Employee Stock Ownership Association of KT have

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      preemptive rights to subscribe for such new shares pursuant to Article 165-7 of the FSCMA;
  3.   When the new shares are represented by depositary receipt pursuant to Article 165-16 of the FSCMA
 
  4.   When the new shares are issued by the exercise of stock options set forth in Article 10 of these Articles of Incorporation;
 
  5.   When the new shares are issued in order to accomplish specific business purposes such as strategic alliance, inducement of foreign funds, other capital raising requirements, introduction of new technology, and improvement of financial structure.
 
  6.   When the new shares are issued by a resolution of the Board of Directors through a general public offering pursuant to Article 165-6 of the FSCMA. However, in such case, the total number of the shares to be issued shall not exceed ten percent (10%) of the total number of KT issued and outstanding; or
 
  7.   When there exists an immediate need for the company to raise funds, new shares can be issued to domestic and foreign financial institutions (enacted on March 21, 2001).
(3)The method of disposition of shares in respect of which preemptive rights have not been exercised or where fractions of shares occur shall be determined by a resolution of the Board of Directors.
(4) Notwithstanding Paragraph (1) above, shareholders who acquire shares in violation of any laws and regulations or these Articles of Incorporation shall not be entitled to subscribe for new shares in respect of such shares.
Article 10. (Stock Options)
(1) KT may grant stock options to its officers and employees who have contributed, or are capable of contributing, to the establishment, management or technical innovation of KT, except for officers or employees in any of the following cases, by a Special Resolution of the General Meeting of Shareholders pursuant to Article 340-2 and

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Article 542-3 of the Commercial Code of Korea, to the extent not exceeding fifteen percent (15%) of the total number of issued shares, provided that KT may grant stock options by a resolution of the Board of Directors adopted by affirmative votes of two-thirds (2/3) of the directors in offices, to the extent not exceeding one percent (1%) of the total number of issued shares. In such case, the provision of the latter part of the Proviso of Paragraph 1 of Article 38 shall apply mutatis mutandis:
  1.   The largest shareholder of KT and the Related Person thereto (refers to the Related Person as prescribed in Paragraph 2-5, Article 542-8 of the Commercial Code of Korea. The same shall apply in this Article);
 
  2.   Major Shareholders (refers to the Major Shareholders as prescribed in Paragraph (2-6) of Article 542-8 of the Commercial Code of Korea. The same shall apply hereinafter) and the Related Person thereto; or
 
  3.   Any person who shall become a Major Shareholder of KT by exercising his/her stock options.
(2) The proviso of Paragraph (1) shall not apply to the directors of KT, and the grant of stock options pursuant to the proviso of Paragraph (1) shall be approved by the General Meeting of Shareholders which is held after such grant of stock options.
(3) The shares to be issued to the officers or employees by the exercise of their stock options (in case where KT pays in cash or shares the difference between the exercise price of stock options and the market price, refers to the shares which are the basis for such calculation) shall be Common Shares in registered form.
(4) The number of officers and employees of KT who are granted with stock options shall not exceed ninety nine percent (99%) of the total number of officers and employees in office. Stock options granted to one single officer or employee shall not exceed ten percent (10%) of total number of shares issued and outstanding.
(5) The exercise price per share of the stock options shall not be less than the price as set forth in the Commercial Code of Korea.
(6) Unless otherwise provided for by the relevant laws, the exercise period of stock options shall be determined by separate agreements, to the extent that such exercise

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periods shall not exceed seven (7) years from the date two (2) years have elapsed after the date of the General Meeting of Shareholders or the Meeting of the Board of Directors at which a resolution to grant such stock option rights is adopted.
(7) KT may cancel the grant of stock options by a resolution of the Board of Directors in any of the following cases:
  1.   When the relevant officer or employee of KT voluntarily retires from his/her office within two (2) years after the date of the General Meeting of Shareholders or the Meeting of the Board of Directors at which a resolution to grant such stock option rights is adopted;
 
  2.   When the relevant officer or employee of KT is dismissed for substantial damages incurred to KT due to his/her willful misconduct or gross negligence; or
 
  3.   When any event for the cancellation set forth in the agreement for granting such stock options occurs.
Article 11. (Base Date Regarding Dividends of the New Shares) (1)In case KT issues new shares through right issues, bonus issues and stock dividends, with respect to the distribution of dividends on the new shares, the new shares shall be deemed to have been issued at the end of the fiscal year immediately prior to the fiscal year during which the new shares are issued.
Article 12. (Transfer Agent)
(1)KT may appoint a transfer agent to make entries in the register of shareholders.
(2) The transfer agent, and the place and scope of business of the transfer agent shall be determined by a resolution of the Board of Directors, and a public notice shall be given thereof.
Article 13. (Report of Names, Addresses and Seals of Shareholders)
(1) Shareholders and registered pledges shall report their names, addresses, and seals to

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the transfer agent referred to in Article 12. Any changes thereto shall also be reported.
(2) Shareholders and registered pledgees who reside in foreign countries shall appoint and report the place where, and an agent to whom, notices will be given in Korea. Any changes there to shall also be reported.
Article 14. (Closing of the Register of Shareholders and the Record Date)
(1) KT shall suspend the entries of any changes into the register of shareholders regarding any rights on Shares from January 1 to January 31 of each year.
(2) KT shall let the shareholders who are entered into the register of shareholders on December 31 of each year exercise their rights thereof at the Ordinary General Meeting of Shareholders.
(3) KT may, for convening an Extraordinary General Meeting of Shareholders or when necessary, by a resolution of the Board of Directors, set the record date or close the register of shareholders for a certain period not exceeding three (3) months by giving at least two (2) weeks’ prior public notice.
CHAPTER III. DEBENTURES
Article 15. (Issuance of Convertible Bonds)
(1) KT may issue convertible bonds to persons other than shareholders to the extent that the aggregate face value of the convertible bonds so issued shall not exceed 2 trillion (2,000,000,000,000) Korean Won. Provided that, the issuance of convertible bonds to persons other than shareholders may be made in cases provided for by any of the Subparagraphs of Paragraph (2) of Article 9.
(2) The Board of Directors may determine that the convertible bonds referred to in

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Paragraph (1) may be issued on the condition that conversion rights will be attached to only a portion of the convertible bonds.
(3) The type of shares to be issued upon conversion of convertible bonds shall be common shares. The conversion price, which shall be equivalent to or more than the par value of the shares, shall be determined by the Board of Directors at the time of issuance.
(4) The period during which conversion rights may be exercised shall commence on the date set forth in the FSCMA after the date of issuance of the relevant convertible bonds and end on the date immediately preceding the redemption date thereof. However, the Board of Directors may adjust the conversion period in accordance with relevant laws within the above period by its resolution.
(5) For the purposes of any distribution of dividends on the shares issued upon conversion or any payment of interest on the convertible bonds, the convertible bonds shall be deemed to have been converted into shares at the end of the fiscal year immediately preceding the fiscal year in which the relevant conversion rights are exercised.
Article 16. (Issuance of Bonds with Warrants)
(1)KT may issue bonds with warrants to persons other than shareholders to the extent that the aggregate face value of the bonds with warrants so issued shall not exceed 2 trillion (2,000,000,000,000) Korean Won. Provided that, the issuance of bonds with warrants to persons other than shareholders may be made in only in cases provided for by Subparagraphs of Pargraph(2) of Article 9.
(2) The amount of new shares which can be subscribed by the holders of the bonds with warrants shall be determined by the Board of Directors, provided that the maximum amount of such new shares shall not exceed the aggregate face value of the bonds with warrants.
(3) The type of shares to be issued upon exercise of warrants shall be common shares. The issue price, which shall be equivalent to or more than the par value of the shares,

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shall be determined by the Board of Directors at the time of issuance.
(4) The period during which warrants may be exercised shall commence on the date set forth in the FSCMA after the date of issuance of the relevant bonds with warrants and end on the date immediately preceding the redemption date thereof. Provided that, the Board of Directors may adjust the conversion period in accordance with the relevant laws within the above period by its resolution.
(5) For the purposes of any distribution of dividends on the shares issued upon exercise of warrants, shares shall be deemed to have been issued at the end of the fiscal year immediately preceding the fiscal year in which the subscription monies therefor are fully paid.
Article 17. (Applicable Provisions regarding Issuance of Bonds) The provisions of Articles 12 and 13 shall apply mutatis mutandis to the issuance of bonds.
CHAPTER IV. GENERAL MEETING OF SHAREHOLDERS
Article 18. (Convening of General Meeting)
(1)Ordinary General Meeting of Shareholders shall be convened within three (3) months after the end of each fiscal year, and Extraordinary General Meeting of Shareholders may be convened at any time, by the President (hwejang) pursuant to a resolution of the Board of Directors except as otherwise provided by the relevant laws and regulations. Provided, however, that Article (29), Paragraph (2) shall apply mutatis mutandis in the event the President (hwejang) fails to perform his duties.

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(2)Notice of the General Meeting of Shareholders specifying the time, place and purpose thereof shall be sent to each shareholder two (2) weeks prior to the date set for the General Meeting of Shareholders. However, such notice to the shareholders who hold less than one-hundredth (1/100) of the total number of shares with voting rights may be given in the form of a public notice of the meeting appearing twice or more in The Seoul Shinmun, The Maeil Business Newspaper and The Korean Economic Daily instead.
(3) General Meeting of Shareholders shall be held at the location of the head office, Seoul or its neighboring place.
Article 19. (Chairman) The President (hwejang) shall preside at the General Meeting of Shareholders; provided, however, that Paragraph (2) of Article 29 shall apply mutatis mutandis in the event that the President (hwejang) fails to perform his duties.
Article 20. (Chairman’s Right to Maintain Order)
(1)The Chairman shall suspend or cancel the proposal of any person who intentionally disrupts, by speech or behavior, the proceedings of the General Meeting of Shareholders or shall order such person to leave the General Meeting of Shareholders.
(2) If the Chairman deems it necessary for the smooth proceeding of the General Meeting of Shareholders, the Chairman may restrict the time and frequency of a shareholder’s proposal.
Article 21. (Voting by Proxy)
(1) A shareholder may exercise its voting rights by proxy.
(2) The proxy described in Paragraph (1) must file with KT a power of attorney before the opening of the General Meeting.
Article 22. (Method of Adoption of Resolutions) Resolutions of the General Meetings of Shareholders, except as otherwise provided by the relevant laws and regulations,

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shall be adopted if the approval of a majority vote of the shareholders present at such meeting is obtained and such majority also represents at least one-fourth (1/4) of the total number of shares issued and outstanding.
Article 22-2 (Exercise of Voting Rights by Writing)
(1)The Shareholders may exercise their voting rights by writing without attending the General Meetings of Shareholders in person.
(2)In case of Paragraph (1) above, KT shall send the notice of convening the General Meeting of Shareholders, together with written documents and reference materials necessary for the Shareholders to exercise their voting rights.
(3)The Shareholders desiring to exercise their voting rights by writing shall enter necessary matters in the written documents under paragraph (2) and submit them to KT by the date immediately preceding the date set for the Meeting.
Article 23. (Minutes of the General Meeting)
With respect to the proceedings of the General Meeting of Shareholders, the details of the proceedings and its resolutions shall be recorded in the minutes which shall bear the names and seals or signatures of the Chairman and the Directors present, and shall be preserved at the head office and branches.
CHAPTER V. DIRECTORS
Article 24. (Number of Directors) KT shall have not more than eleven (11) directors. The number of standing directors including the President (hwejang) shall not exceed three (3), and the number of outside directors shall not exceed eight (8).
Article 25. (Election of President and Directors) (1) The President (hwejang) shall be elected by a resolution of the General Meeting of Shareholders among those who are recommended by the President (hwejang) Recommendation Committee pursuant to

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Article (32) of these Articles of Incorporation, and the standing director recommended by the President (hwejang) may be elected the Representative Director by a resolution of the Board of Directors.
(2) The dismissal of the President (hwejang) requires a resolution by the General Meeting of Shareholders adopted by the affirmative vote of two-thirds (2/3) of the voting rights of the shareholders in attendance at the Meeting; provided, however, that such votes shall represent at least one-third (1/3) of the total number of issued shares of KT. Dismissal of the Representative Director other than the President (hwejang) shall be in accordance with the resolution under Article 38 of these Articles of Incorporation.
(3) Standing directors other than the President (hwejang) shall be elected at the General Meeting of Shareholders among the executive officers under the provision of Article 35 of these Articles of Incorporation who are recommended by the President (hwejang) with the consent of the Board of Directors. the President (hwejang) may propose to the General Meeting of Shareholders with the consent of the Board of Directors the dismissal of any standing director even during his/her term of office, when any of the following event occurs. In this case, the standing directors other than the President (hwejang) shall not participate in the resolution of the Board of Directors:
  1.   Inability to perform his/her duties for a period not less than one (1) year due to his/her physical and/or mental disorders; or
 
  2.   Remarkably poor results of his/her business management due to deficient management abilities.
(4)Notwithstanding Paragraph 3 above, if the President (hwejang) Recommendation Committee has recommended a candidate for the President (hwejang), the candidate for the President (hwejang) shall recommend candidates for the standing directors with the consent of the Board of Directors. Provided, however, that the candidate for the President (hwejang) is not elected as the President (hwejang) at the General Meeting of Shareholders, his recommendation of the candidacy for the standing directorship shall become null and void.
(5) Any person who falls under any of the following categories shall not become a

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director of KT, and upon any elected director of KT falling under any of the following categories, such director shall be dismissed:
  1.   Person who retired from his/her office within the last three (3) years due to his/her own faults or business responsibilities;
 
  2.   Person who is sentenced to imprisonment or more severe punishment, and three (3) years have not elapsed after the expiration of the execution of such imprisonment or determination not to execute such imprisonment;
 
  3.   Person who is currently under the suspension of pronouncement or who is sentenced to probation, and two (2) years have not elapsed after the expiration of the probation period;
(6) Any person who falls under any of the following disqualification criteria shall not become an outside director of KT, and any elected outside director shall be dismissed if he or she falls under any of the following disqualification criteria:
  1.   The same person and his or her related party as defined in the Monopoly Regulation and Fair Trade Act (“MRFTA”) who controls a company in competition with KT’s major business areas (however, with respect to the definition of competitor of KT used herein, if the company engages in the same business as KT and belongs to the same enterprise group of KT, such company is not deemed to be in competition with KT. This shall have the same meaning hereafter);
 
  2.   Any person who presently serves or has served at any time during the past two (2) years, as an officer or an employee for the company in competition with KT’s major business areas and for other companies which belong to the same enterprise group under the MRFTA of such company;
 
  3.   Any person who presently works or has worked at any time during the past two(2) years, as an officer or an employee for the largest or second largest shareholding company in competition with KT’s major business areas and for other companies which belong to the same enterprise group under the MRFTA of such company; or

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  4.   Any person who falls under the disqualification criteria under the Commercial Code of Korea and other relevant laws and regulations
Article 26. (Staggered Term of Office of Outside Director) One-third of the total number of the outside directors shall be elected every year.
Article 27. (Term of Office of Directors)
(1)The term of office of directors shall be not more than three (3) years; where the term of office expires before the closing date of the Ordinary General Meeting of Shareholders in the last fiscal year of such term, the term of office shall be extended to the closing date of such General Meeting.
(2) An outside director may be re-elected only once.
Article 28. (By-election of Directors)
(1) In case of any vacancy in the office of a director, a director shall be elected to fill such vacancy at the General Meeting of Shareholders, provided that election thereof may not be made unless such vacancy results in lack of the requisite number of the directors or a difficulty in the administration of business.
(2) The term of office of an outside director elected to fill a vacancy shall be the remainder of the term of office of his/her predecessor.
Article 29. (Duties of the President (hwejang) and Directors)
(1) The Representative Directors shall respectively represent KT, the Representative Director/President (hwejang) shall execute businesses resolved by the Board of Directors and supervise all businesses of KT. Duties of the Representative Director elected through recommendation of the President (hwejang) shall be determined by the Board of Directors.
(2) Standing directors shall assist the President (hwejang) and shall perform their duties. In the event the President fails to perform his duties, a standing director shall perform

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his/her duties in accordance with the order as provided in the Office Regulation. However, in the event both the President and standing directors fail to perform their duties, a director shall perform his/her duties in accordance with the order as provided in the Office Regulation.
(3) If a director becomes aware of any event which may cause a material damage to KT, such director should immediately report to the Auditors’ Committee thereof.
Article 30. (Duties of Directors)
(1) Directors shall perform their duties faithfully for the good of KT in accordance with the applicable laws and regulations and the provisions of these Articles of Incorporation.
(2) The directors shall not disclose any business secret of KT that they obtained in the course of performance of their duties, during and after their terms of offices.
Article 31. (Remuneration and Severance Allowance for Directors)
(1) The Remuneration for the directors shall be determined by a resolution of the General Meeting of Shareholders, and such remuneration may be paid either in cash or in combination of cash and stock.
(2) The criteria for remuneration for the President (hwejang) and the standing directors, and the method of payment thereof shall be determined by a resolution of the Board of Directors, which shall be reported to the General Meeting of Shareholders.
(3) The President (hwejang) and the standing directors shall not participate in the resolution of the Board of Directors as set forth in Paragraph (2) above.
(4) Severance allowances for directors shall be paid in accordance with KT’s regulations for payment of officers’ severance allowance adopted at the General Meeting of Shareholders.
(5) The Outside directors may be reimbursed for expenses necessary for the performance of their duties.
Article 32. (President (hwejang) Recommendation Committee)

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(1) KT may organize a President (hwejang) Recommendation Committee in order to recommend a President (hwejang) candidate. The President (hwejang) Recommendation Committee shall consist of the following members: However, any person who was elected as a member of President (hwejang) Recommendation Committee shall not be a Candidate for the President (hwejang) .
  1.   All of the outside directors;
 
  2.   One (1) person who is designated by the Board of Directors from among ex- the Presidents (hwejang) of KT; and
 
  3.   One (1) non-government person who is designated as a member of the President Recommendation Committee by the Board of Directors with the President and the standing directors excluded (in any event excluding former (within 2 years) and present officers and employees of any telecommunications business operator who is in competition with KT and any of their related persons as defined in MRFTA, and officers and employees of KT, and the public officials).
(2) The President (hwejang) Recommendation Committee shall be organized by not later than two (2) months prior to the date of expiration of the term of office of the President (hwejang) (or within two (2) weeks from the date of retirement of the President (hwejang) when such retirement is due to reasons other than the expiration of the term of office thereof), and shall be dissolved after the execution of management agreement between the President (hwejang) so elected and the chairman of the President (hwejang) Recommendation Committee.
(3) The chairman of the President (hwejang) Recommendation Committee shall be elected by the Board of Directors from among its members who hold the position of outside directors of KT. In this case, the President (hwejang) and the standing directors shall not participate in the resolution of the Board of Directors.
(4) A resolution of the President (hwejang) Recommendation Committee shall be adopted by the affirmative votes of a majority of the members in office other than the chairman thereof. In this case, the chairman shall not have any voting rights.
(5) The President (hwejang) Recommendation Committee shall examine all the

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President (hwejang) candidates in compliance with the criteria for the examination of a candidate for the President (hwejang) prescribed by the Board of Directors, in consideration of the following requirements:
  1.   Experiences and scholastic achievements under which his/her knowledge with respect to the field of business management and economics can be evaluated in objective point of view;
 
  2.   Past business results and the management period of being in office under which his/her business experience can be evaluated in objective point of view;
 
  3.   Any requirements to evaluate qualification and ability as a chief executive officer; and
 
  4.   Any requirements to evaluate professional knowledge and experience with respect to the telecommunications and related fields.
Article 33. (Election of President(hwejang))
(1) President(hwejang) shall be elected from among CEO-qualified candidates who have a knowledge of management and economics or who have much managerial work experience.
(2) The President(hwejang) Recommendation Committee may conduct a search for such candidates or hire a third party agency to perform searches.
(3) The President(hwejang) Recommendation Committee shall examine the candidates for the President(hwejang) who are searched pursuant to the provision of Paragraph 2 above, in accordance with the candidates evaluation criteria determined by the Board of Directors.
(4) The President(hwejang) Recommendation Committee shall, in selecting the candidates for the President(hwejang), consult with such candidates regarding the terms of employment contract including the management goal established by the Board of Directors. In such case, if deemed necessary, the President(hwejang) Recommendation Committee may change the terms of employment contract.
(5) The President(hwejang) Recommendation Committee shall recommend a candidate

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for the President(hwejang) to the General Shareholders’ Meeting, based on the evaluation under Paragraph 3 and the consultation under Paragraph 4 above, concurrently submitting a draft employment contract.
(6) The President(hwejang) and standing directors shall not attend the Board of Directors’ Meeting for the resolution of the agenda prescribed in Paragraphs 2 through 4.
Article 34. (Execution of Employment Contract with the Candidate for President(hwejang))
(1) When the draft employment contract submitted pursuant to Paragraph 5 of Article 33 above is approved at the General Shareholders’ Meeting, KT shall enter into such management contract with the candidate for President(hwejang). In such case, the Chairman of the President(hwejang) Recommendation Committee shall, in the capacity of the representative of KT, sign the management contract.
(2) The Board of Directors may conduct a performance review to determine if the new President(hwejang) has performed his/her duties under the management contract as provided in Paragraph 1 or hire a professional evaluation agency for such purpose.
(3) When the Board of Directors determines, based on the result of performance review under the provision of Paragraph 2 above, that the new President(hwejang) has failed to achieve the management goal, it may propose to dismiss the President(hwejang) at the General Shareholders’ Meeting.
(4) The management goal shall include revenue increase, profitability improvement, investment plan and other related business objectives. and shall be determined, on a yearly basis, at the Board of Directors’ Meeting in order to achieve the mid to long-term plans approved by the Board of Directors. Such management goal may be established on a numerical basis, if possible.
(5) The performance review prescribed in Paragraph 2 above, shall be conducted by the Board of Directors at the closing of each fiscal year or may be delegated by the Board of Directors to a professional evaluation agency; provided, however, that if the Board of Directors deems necessary, it may conduct the performance review during any fiscal

19

 

year.
(6) The Board of Directors shall report the result of the performance review prescribed in Paragraph 2 above to the General Meeting of Shareholders.
(7) The President(hwejang) and the standing directors may not attend the Board of Directors’ Meeting for the resolution of the agenda prescribed in Paragraphs 2 through 4.
Article 35. (Executive Officers)
(1) For the efficient operation, KT shall have executive officers including standing directors.
(2) The executive officers shall consist of positions determined by the Board of Directors.
(3) The number and remuneration of the executive officers who do not hold the position of standing directors of KT shall be determined by the Board of Directors. The severance allowance for the said executive officers shall be paid in accordance with KT’s regulations for payment of officers’ severance allowance adopted at a General Meeting of Shareholders.
(4) Executive officers who do not hold the position of standing directors of KT shall be elected by the President(hwejang) of KT, whose term of office shall not exceed three (3) years.
(5) All matters concerning the respective duties of executive officers shall be determined by the President(hwejang).
Article 36. (Advisor, etc.) The President(hwejang) may employ an Advisor or appoint an Advisory Council in order to receive advice and suggestions regarding important matters concerning the operation of KT’s businesses.
CHAPTER VI. BOARD OF DIRECTORS

20

 

Article 37. (Organization and Operation)
(1) The Board of Directors shall consist of the directors, and shall resolve important matters related to the execution of business of KT as prescribed in the laws and regulations and these Articles of Incorporation, which were submitted by a director as an agenda.
(2) The Board of Directors’ Meeting shall be convened by each director. However, this shall not apply in the event that a director to convene the Board of Directors’ Meeting is determined by a resolution of the Board of Directors’ Meeting.
(3) The rest of directors may request the director designated under Paragraph 2 above to convene the Board of Directors’ Meeting. However, if the designated director refuses to convene the Board of Directors’ Meeting without any justifiable reason therefor, other directors may convene the Board of Directors’ Meeting.
(4) In convening a meeting of Board of Directors, the notice thereof shall be given at least three (3) days prior to the date set for such meeting to each director; provided, however, that the above procedure may be omitted with the consent of all of the directors.
(5) Matters necessary for the operation of the Board of Directors shall be set forth in the Regulations of the Board of Directors.
(6) For the efficient management of the Board of Directors, a self evaluation regarding the activities of the Board of Directors may be conducted, and detailed matters therefor, including the evaluation method, etc. shall be determined by a resolution of the Board of Directors.
Article 38. (Resolution and Delegation)
(1) A resolution at a meeting of Board of Directors shall be adopted by the presence of a majority of all directors in offices and by the affirmative votes of a majority of the directors present. However, the resolution on the sale of equity in any subsidiary of KT accompanying transfer of management rights, which is for more than 10 billion

21

 

(10,000,000,000) Korean Won of the subsidiary’s equity, shall be adopted by affirmative votes of two-thirds (2/3) of the directors in office, and the resolution on the dismissal of the President shall be adopted by the affirmative votes of two-thirds (2/3) of the outside directors in offices.
(2) The Board of Directors may delegate part of its authorities to the President(hwejang).
Article 39. (Chairman)
(1) The chairman of the Board of Directors shall be elected from among the outside directors by a resolution of the Board of Directors.
(2) The term of office of the chairman shall be one (1) year.
Article 40. (Minutes of the Board of Directors) The proceeding and the result of meeting of the Board of Directors shall be recorded in the minutes, which shall bear the names, seals or signatures of the Chairman and the directors present at the meeting, and shall be kept at the head office.
Article 41. (Committees within the Board of Directors)
(1) The Board of Directors may have expert committees under its control by its resolution, in order to deliberate or decide with respect to the specific matters submitted to the Board of Directors.
  1.   Outside Director Candidates Recommendation Committee;
 
  2.   Audit Committee;
 
  3.   Person who is currently under the suspension of pronouncement or who is sentenced to probation, and two (2) years have not elapsed after the expiration of the probation period;
(2) Other Committees which the Board of Directors deems necessary.
Article 42. (Outside Director Candidates Recommendation Committee)

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(1) The Outside Director Candidates Recommendation Committee shall consist of one (1) standing director and all of the outside directors, provided that in case of election of an outside director due to the expiration of the term of office of an outside director, the relevant outside director the expiration of whose term has caused the need for such election may not be a member of the Committee.
(2) The Outside Director Candidates Recommendation Committee shall recommend outside director candidates to the General Shareholders’ Meeting.
(3) Any other detailed matters regarding organization and operation of the Outside Director Candidates Recommendation Committee shall be determined by a resolution of the Board of Directors.
Article 43. (Audit Committee)
(1) The Audit Committee shall consist of not less than three (3) outside directors.
(2) The Audit Committee shall perform an audit of KT’s accounting books and records, and of other aspects of its business operations.
(3) Any other detailed matters regarding organization and operation of the Audit Committee shall be determined by a resolution of the Board of Directors.
Article 44. (Executive Officers’ Meeting)
(1) KT may convene executive officers’ meeting in order to consider and resolve matters delegated by the Board of Directors.
(2) Matters necessary for the organization and operation of the executive officers’ meeting set forth in Paragraph 1 above shall be determined by a resolution of the Board of Directors.
CHAPTER VII. ACCOUNTING
Article 45. (Fiscal Year) The fiscal year of KT shall be from January 1 to December 31 of each year.

23

 

Article 46. (Preparation, Submission and Maintenance of the Financial Statements)
(1) The President(hwejang) of KT shall prepare the following documents and supplementary documents thereto and the business report for each fiscal year, and submit such documents, after approved by the Board of Directors, to the Audit Committee, six (6) weeks prior to the date of the Ordinary General Meeting of Shareholders:
  1.   A balance sheet;
 
  2.   A statement of profit and loss; and
 
  3.   A statement of appropriation of retained earnings or a statement of disposition of deficit.
(2) The Audit Committee shall submit an auditor’s report to the President(hwejang) at least one (1) week before the General Shareholders’ Meeting.
(3)The President(hwejang) shall keep each document listed in Paragraph (1) together with the business report and the auditor’s report at the head office for a period of five (5) years, commencing from one week prior to the date of the Ordinary General Meeting of Shareholders. Certified copies of these documents shall be kept in each respective branch office for a period of three (3) years.
(4)The President(hwejang) shall submit each document listed in Paragraph (1) to the Ordinary General Meeting of Shareholders and request approval therefor. With respect to the business report, he/she shall report the contents thereof to the Ordinary General Meeting of Shareholders.
(5) When the approval of the General Meeting of Shareholders is obtained for the documents listed in Paragraph (1), the President(hwejang) shall, without delay, give a public notice of the balance sheet and the audit opinion thereon of an independent auditor.
Article 47. (Disposition of Profits) The unappropriated retained earnings for each fiscal year of KT shall be disposed of as following order:

24

 

  1.   Legal Reserves;
 
  2.   Other statutory reserves;
 
  3.   Amortization by way of the appropriation of the retained earnings;
 
  4.   Dividends; and
 
  5.   Voluntary reserve.
Article 48 (Retirement of Shares)
Pursuant to Article (165-3) of the FSCMA, KT may, by a resolution of the Board of Directors, retire the shares within the scope of profits attributable to the shareholders.
Article 49. (Payment of Dividends)
(1) Dividends may be paid either in cash or in shares.
(2) In case of stock dividends, if KT has issued several types of shares, different types of shares may be allotted by a resolution of the General Meeting of Shareholders.
(3) Pursuant to a resolution of the Board of Directors, KT may pay interim dividends in cash once during a fiscal year with June 30 as a base date(referred to as the fixed interim dividend date).
(4) The dividends referred to in Paragraphs (1) and (3) shall be paid to the shareholders or registered pledgees who are registered in the registry of shareholders as of the end of each fiscal year or as of the fixed interim dividend date.
(5) The rights to dividends shall be extinguished if it is not exercised within five (5) years from the date when the relevant dividend was declared, and such unclaimed dividends shall belong to KT.
CHAPTER VIII. SUPPLEMENTARY PROVISIONS
Article 50. (Guarantee of Personnel Status)

25

 

(1) Any employee of KT shall not receive a dismissal, suspension, reduction in compensation, reprimand and other disadvantageous orders, without any justifiable reasons therefor.
(2) The retirement age of the employee of KT shall be prescribed in accordance with Paragraph 2 of Article (6)of Addenda of the Laws Repealing the Korea Telecom Act.
Article 51. (Publication of Management Information)
KT shall make public any and all matters deemed to be necessary for the promotion of transparency in management.
ADDENDUM
Article 1. (Enforcement Date) These Articles of Incorporation shall be effective from October 1, 1997.
Article 2. (Term of Office of the First President and Standing Directors) Notwithstanding Paragraph (1), Article (29) hereof, the term of office of the first President and the standing directors to be elected at the General Meeting of Shareholders convened after the execution of these Articles of Incorporation shall be extended until the end of the Ordinary General Meeting of Shareholders convened after the expiration of the said term of office.
Article 3. (Term of Office of First Non-Standing Director) (1) Pursuant to Article (3) of the Addenda of the Special Act, candidates for non-standing directors who are recommended by the Temporary Non-standing Directors Recommendation Committee shall be classified into three groups, i.e., first, second and third groups, which shall consist of one, two and three persons, respectively.
(2) Notwithstanding Article (29), Paragraph (1) hereof, the term of office of a non-

26

 

standing director in the first group shall expire at the close of the first Ordinary General Meeting of Shareholders convened after one (1) year has elapsed. The term of office of non-standing directors in the second and third group shall expire at the close of the first Ordinary General Meetings of Shareholders convened after two (2) and three (3) years have elapsed, respectively.
Article 4. (Special Provisions for Term of Office of Standing Directors succeed to the Term of Office of an Executive Officer) In the event that a former executive officer who has been elected prior to the date of enforcement of these Articles of Incorporation is elected as a first standing director of KT after the enforcement of these Articles, his/her term of office may be shortened to the remainder of the term of office of a executive officer prior to the date of enforcement of these Articles of Incorporation.
ADDENDUM (December 8, 1997)
These articles of Incorporation shall be effective from the date of resolution of the general meeting of shareholders thereon.
ADDENDUM (September 18, 1998)
Article 1. (Enforcement Date)These Articles of Incorporation shall be effective from the date of resolution thereon of the general meetings of shareholders.
Article 2. (Interim Measures for the Acquisition of Shares of KT by Foreigners) Those provisions of Paragraph (3), Article (10) hereof shall not be applicable where Foreigners have acquired any shares of KT prior to the date of enforcement of these Articles of Incorporation pursuant to the relevant laws and regulations. In this regard, the number

27

 

of shares so acquired shall be included in the maximum aggregate shareholdings ceiling prescribed in Item 1, Paragraph (2), Article (10) above.
ADDENDUM (March 19, 1999)
Article 1. (Enforcement Date) These Articles of Incorporation shall be effective from the date of resolution thereon of the general meetings of shareholders.
Article 2. (Interim Measure) The cumulative voting system provided for in Article (382-2) of the Commercial Code shall not apply until each of the requirements set forth in Paragraph (1), Article (21) of the Special Act has been satisfied.
ADDENDUM (March 24, 2000)
These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.
ADDENDUM (March 21, 2001)
These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.

28

 

ADDENDUM (March 22, 2002)
These Articles of Incorporation shall be effective as of the date of resolution of the general meeting of Shareholders.
ADDENDUM (August 20, 2002)
Article1. (Enforcement Date) These Articles of Incorporation shall become effective from the date on which a resolution on the foregoing amendments is adopted at the General Meeting of Shareholders. Provided, however, that the amended provision of Article 41-3 shall become effective from the date following the day on which the first General Meeting of Shareholders is convened after enforcement of these amended Articles of Incorporation.
Article 2. (Interim Measures regarding Auditor) (1) The amended provisions regarding auditor of Articles 27, 28, 29, 30, 32, 33, 37 and 40 shall remain invalid, concurrently upon establishment of the Audit Committee.
(2) The term, “auditor” referred in Paragraph 3 of Article 31 and Article 44, shall be interpreted to be “Audit Committee”, respectively, concurrently upon establishment of the Audit Committee.
Article3. (Interim Measures on Increase in Number of Outside Directors) Notwithstanding the amended provision of Article 26, a candidate for outside director recommended by the Shareholders’ Committee established in accordance with the previous AOI, shall be deemed to have been recommended by the Outside Director Recommendation Committee, and the term of office of such additionally appointed

29

 

outside director in the above shall be until the date on which the Ordinary General Meeting of Shareholders is held in the year of 2005.
ADDENDUM (March 14, 2003)
These Articles of Incorporation shall be effective from the date of resolution thereon of the general meeting of shareholders.
ADDENDUM (March 12, 2004)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 11, 2005)
These Articles of Incorporation shall become effective as of the date when the General Meeting of Shareholders resolved adoption hereof.
Addendum (August 19, 2005)
These Articles of Incorporation shall take effect upon approval by the General Meeting of Shareholders.

30

 

Addendum (March 10, 2006)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
Addendum (March 16, 2007)
These Articles of Incorporation shall become effective as of the date of resolution of the General Meeting of Shareholders.
ADDENDUM (March 27, 2009)
Article 1. (Enforcement Date) These Articles of Incorporation shall become effective upon resolution of the General Meeting of Shareholders approving the amendment hereof.
Article 2. (Interim Measure) The person who is “President (sajang)” as of the amendment date of these Articles of Incorporation will become the “President (hwejang)”, and in applying Article 32(1)-2 “ex-Presidents (sajang)” prior to the amendment date will be interpreted as “ex-Presidents (hwejang)”.

31

EX-8.1 3 h03459exv8w1.htm EX-8.1 EX-8.1
Exhibit 8.1
List of Subsidiaries of KT Corporation
(As of December 31, 2008)
     
    Jurisdiction of
Name   Incorporation
KT Powertel Co., Ltd.
  Korea
KT Networks Corporation
  Korea
KT Linkus Co., Ltd.
  Korea
KT Hitel Co., Ltd.
  Korea
KT Submarine Co., Ltd.
  Korea
KT Freetel Co., Ltd.
  Korea
KT Commerce Inc.
  Korea
KTF Technologies Inc.
  Korea
KT Internal Venture Fund No.2
  Korea
KTF M Hows Co., Ltd.
  Korea
KT Rental Co., Ltd.
  Korea
Sidus FNH Corporation
  Korea
Sidus FNH Benex Cinema Investment Fund
  Korea
KT Capital Co., Ltd.
  Korea
Telecop Service Co., Ltd.
  Korea
Olive Nine Co., Ltd.
  Korea
KTF M&S Co., Ltd.
  Korea
KT FDS Co., Ltd.
  Korea
KTF Music Corporation (formerly, Bluecord Technology Co., Ltd.)
  Korea
Doremi Media Co., Ltd.
   Korea
Nasmedia, Inc.
   Korea
Sofnics, Inc.
   Korea
JungBoPremiumEdu Co., Ltd.
   Korea
KT New Business Fund No. 1
  Korea
KT DataSystems Co., Ltd.
   Korea
Korea Telecom America, Inc.
   America
New Telephone Company, Inc.
   Russia
Korea Telecom Japan Co., Ltd.
   Japan
Korea Telecom China Co., Ltd.
   China
PT. KTF Indonesia
  Indonesia
Super iMax
  Uzbekistan
East Telecom
  Uzbekistan
KTSC Investment Management B.V.
  Netherlands

EX-12.1 4 h03459exv12w1.htm EX-12.1 EX-12.1
Exhibit 12.1
CERTIFICATION
I, Suk-Chae Lee, certify that:
1.   I have reviewed this annual report on Form 20-F of KT Corporation;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
 
4.   The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
  (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  (c)   Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  (d)   Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.   The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
  (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
 
  (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: June 29, 2009
     
    /s/ Suk-Chae Lee
     
    Suk-Chae Lee
Chief Executive Officer

EX-12.2 5 h03459exv12w2.htm EX-12.2 EX-12.2
Exhibit 12.2
CERTIFICATION
I, Yeon-Hak Kim, certify that:
1.   I have reviewed this annual report on Form 20-F of KT Corporation;
 
2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
 
4.   The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
  (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  (c)   Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  (d)   Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5.   The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
  (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
 
  (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: June 29, 2009
     
    /s/ Yeon-Hak Kim
     
    Yeon-Hak Kim
Executive Vice President and
Chief Financial Officer

EX-13.1 6 h03459exv13w1.htm EX-13.1 EX-13.1
Exhibit 13.1
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsection (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
     Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a) and (b) of section 1350, chapter 63 of title 18, United States Code), the undersigned officer of KT Corporation, a corporation organized under the laws of the Republic of Korea (the “Company”), does hereby certify, to such officer’s knowledge, that:
     The annual report on Form 20-F for the year ended December 31, 2008 (the “Form 20-F”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operation of the Company.
     
 
  /s/ Suk-Chae Lee
 
   
 
  Suk-Chae Lee
Chief Executive Officer
Date: June 29, 2009
     
 
  /s/ Yeon-Hak Kim
 
   
 
  Yeon-Hak Kim
Executive Vice President and
Chief Financial Officer
Date: June 29, 2009
     A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to KT Corporation and will be retained by KT Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-15.1 7 h03459exv15w1.htm EX-15.1 EX-15.1
Exhibit 15.1
THE TELECOMMUNICATION BASIC LAW
FRAMEWORK ACT ON TELECOMMUNICATIONS
Amended by Act No. 9481 of Mar. 13, 2009, effective March 13, 2009
CHAPTER I. GENERAL PROVISIONS
Article 1 (Purpose)
     The purpose of this Act is to contribute to the enhancement of the public welfare by managing telecommunications efficiently and stimulating the development of telecommunications by providing basic matters on telecommunications.
Article 2 (Definitions)
     The definitions of the terms as used in this Act shall be as follows:
     1. The term “telecommunications” means transmission or reception of code, words, sound or image through wired, wireless, optic, and other electro-magnetic processes;
     2. The term “telecommunications facilities and equipment” means machinery, appliances, lines for telecommunications, and other facilities necessary for telecommunications;
     3. The term “telecommunications line facilities and equipment” means the facilities and equipment which constitute communications channels between sending and receiving points for telecommunications among the telecommunications facilities and equipment, and the transmission and line facilities and equipment, with the exchange facilities installed as one body of the transmission and line facilities, and all facilities attached thereto;
     4. The term “telecommunications business facilities and equipment” means the

1

 

telecommunications facilities and equipment to be provided for telecommunications businesses;
     5. The term “private telecommunications facilities and equipment” means the telecommunications facilities and equipment other than the telecommunications business facilities and equipment, installed by an individual to be used for his own telecommunications;
     6. The term “telecommunications equipments” means apparatus, machinery, parts or line equipments, etc. used by the telecommunications facilities and equipment;
     7. The term “telecommunications service” means services that mediate a third party’s communication through the telecommunications facilities and equipment or to provide the telecommunications facilities and equipment for the third party’s telecommunications; and
     8. The term “telecommunications business” means a business that provides telecommunications services.
Article 3 (Supervision of Telecommunications)
     The matters concerning telecommunications shall be governed by the Korea Communications Commission, except the ones stipulated specifically by this Act or other Acts. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>
Article 4 (Government Policies)
     The Korea Communications Commission shall devise basic and comprehensive government policies concerning telecommunications to attain the purpose of this Act. <Amended by Act No. 5219, Dec. 30, 1996 ;Amended by Act No. 8867, Feb. 29, 2008>
Article 5 (Establishment of Basic Telecommunications Plans)
     (1) The Korea Communications Commission shall establish and publicly notify basic telecommunications plans (hereinafter referred to as the “basic plan”) for smooth

2

 

development of telecommunications and the promotion of the information society. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb.29, 2008>
     (2) The following matters shall be included in the basic plan of paragraph (1):
     1. Matters concerning utilization efficiency of telecommunications;
     2. Matters concerning maintenance of telecommunications order;
     3. Matters concerning telecommunications business;
     4. Matters concerning telecommunications facilities and equipment;
     5. Matters concerning promotion of telecommunications technology (including technology about telecommunications construction; hereinafter the same shall apply); and
     6. Other basic matters concerning telecommunications.
     (3) The Korea Communications Commission shall consult in advance with the heads of administrative agencies concerned, when establishing the basic plan for the matters of paragraph (2) 4 and 5 of this Article. <Amended by Act No. 5219, Dec. 30, 1996 ;Amended by Act No. 8867, Feb. 29, 2008>
Article 6 (Annual Report)
     The Government shall present an annual report on the policy and trend about telecommunications developments to the National Assembly prior to the opening of the regular session.
Article 7 (Classification of Telecommunications Business Operator)
     The telecommunications business operator shall be classified as the key communications business operator, the special communications business operator and the value-added communications business operator pursuant to the Telecommunications Business Act. <Amended by Act No. 5385, Aug. 28, 1997>

3

 

     [This Article Wholly Amended by Act No. 4905, Jan. 5, 1995]
CHAPTER II. PROMOTION OF TELECOMMUNICATIONS TECHNOLOGY
Article 8 (Establishment and Execution of Enforcement Plan for Technology Development)
     (1) The Minister of Knowledge Economy shall establish and execute enforcement plans for the development of telecommunications technology as stipulated in Article 5 (2) 5. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>
     (2) The following matters shall be included in the enforcement plans of the above paragraph (1):
     1. Matters concerning the research and development of telecommunications technology;
     2. Matters concerning the training and the supply and demand of telecommunications technicians;
     3. Matters concerning the adoption of new telecommunications technologies and modes;
     4. Matters concerning the standardization of telecommunications technologies;
     5. Matters concerning promotion of telecommunications technology research institutes and organizations;
     6. Matters concerning the international cooperation of telecommunications technology; and
     7. Other matters concerning the development of telecommunications technology.

4

 

Article 9 (Management of Technical Information on Telecommunications)
     (1) The Minister of Knowledge Economyshall devise measures necessary for the systematic and comprehensive management and the popularization of technical information on telecommunications for the promotion of telecommunications technology. <Amended by Act No. 5219, Dec. 30, 1996 ;Amended by Act No. 8867, Feb. 29, 2008>
     (2) The Minister of Knowledge Economy may give advance notices of new technology concerning telecommunications for harmonious telecommunications development. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>
Article 10 (Promotion of Research Institutes, etc.)
     (1) The Minister of Knowledge Economy shall guide and promote telecommunications research institutes and organizations for the development of telecommunications. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>
     (2) The Government may give financial aid to the institutes and organizations under the above paragraph (1).
     (3) Deleted. <by Act No. 6231, Jan. 28, 2000>
     (4) The scope of the institutes and organizations under above paragraph (1), the ways for guidance and promotion thereof and other necessary matters shall be prescribed by the Enforcement Decree.
Article 11 (Designation of Research Projects, etc.)
     (1) The Minister of Knowledge Economy may select research projects concerning telecommunications technology and designate researchers, when necessary for research and development of telecommunications technology. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>

5

 

     (2) Matters necessary for selection of research projects, designation of researchers and support for the research expenses, etc., under paragraph (1) shall be prescribed by the Enforcement Decree.
Article 12 (Donation Requirement for Research and Development)
     (1) The Minister of Knowledge Economy may require each of the following persons to invest an amount as prescribed by the Enforcement Decree and corresponding to a specific ratio not exceeding one (1)% of annual turnover to the person to the information and communications promotion fund pursuant to Article 33 of the Framework Act on Informatization Promotion Provided, no such donation as set forth above shall be required in the event the person donated fees in exchange for allocated radio waves pursuant to Article 11 of the Radio Waves Act <Amended by Act No. 8867, Feb. 29, 2008>:
  1.   key communications business operator as provided under Article 5 of the Telecommunications Business Act;
 
  2.   specific communications business operator as provided under Article 19 of the Telecommunications Business Act; or
 
  3.   any other designee of the President who is required to donate funds for telecommunications-related research and development.
     (2) Matters necessary for determination of the calculation standards and procedures such as donor, donation ratio and maximum donation amount under (1) shall be prescribed by the Enforcement Decree.
     (3) In the event the person’s business size or capacity does not meet a certain standard, the Minister of Knowledge Economy, as provided by the Enforcement Decree, may decrease the amount of donation required upon the person under this Article 12.1 or exempt the person from the requirement to donate the amount<Amended by Act No.8867, Feb. 29, 2008>.
     (4) In the event a person required under this Article 12.1 to make a donation fails to do so, the Minister of Knowledge Economy may impose an additional charge as

6

 

prescribed by the Enforcement Decree.<Amended by Act No. 8867, Feb. 29, 2008>
     (5) In the event a person who is required under this Article 12.1 and 12.4 to make a donation and additional charges thereon fails to pay such amount within the payment period, the Minister of Knowledge Economy may collect such amount pursuant to the dispositions on arrears of national taxes <Amended by Act No.8867, Feb. 29, 2008>
     <This Article Wholly Amended by [Act No. 7810], Dec. 30, 2005.>
Article 13 (Technical Guidance)
     (1) The Minister of Knowledge Economy shall provide technical guidance for technical standardization, technical training, supply of technical information or cooperation with international organizations, etc., to a manufacturer of telecommunications equipments and materials (hereinafter referred to as the “manufacturer of telecommunications equipments and materials”) or a constructor of information and telecommunications works under the Information and Communications Work Business Act, when necessary for an accurate application of telecommunications modes and standards, etc., of telecommunications equipments and materials from their manufacturing stage and for securing quality of telecommunications works. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 5386, Aug. 28, 1997; Act No. 8867, Feb. 29, 2008>
     (2) The subjects, contents and other necessary matters of technical guidance under paragraph (1) above shall be prescribed by the Enforcement Decree.
Articles 14 and 15 Deleted. <by Act No. 5219, Dec. 30, 1996>
Article 15-2 Deleted. <by Act No. 5733, Jan. 29, 1999>
CHAPTER III. TELECOMMUNICATIONS FACILITIES AND EQUIPMENT
SECTION 1 Telecommunications Facilities and Equipment for Business

7

 

Article 16 (Maintenance and Repair of Telecommunications Facilities and Equipment)
     The telecommunications business operator shall maintain and repair his telecommunications facilities and equipment so as to have them compatible with technical criteria as determined by the Enforcement Decree, for a stable supply of his telecommunications services. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 17 (Installation Report of Telecommunications Facilities and Equipment, and Approval thereon, etc.)
     (1) Any key communications business operator shall, where he intends to install or alter major telecommunications facilities and equipment, file in advance a report thereon with the Korea Communications Commission under the conditions as prescribed by the Enforcement Decree: Provided, That with respect to any telecommunications facilities and equipment which are first installed under a new telecommunications technology mode, an approval shall be obtained fromthe Korea Communications Commission under the conditions as determined by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     (2) The scope of major telecommunications facilities and equipment under paragraph (1) shall be prescribed and publicly announced by the Korea Communications Commission. <Amended by Act No. 5219, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>
Article 18 (Joint Installation of Telecommunications Facilities and Equipment)
     (1) The key communications business operator may jointly construct and use the telecommunications facilities and equipment with other key communications business operators. In this case, the key communications business operator shall make in advance a consultation with another key communications business operator. <Newly Inserted by Act No. 6602, Jan. 14, 2002; Act No. 8867, Fe. 29, 2008>
     (2) The Korea Communications Commission may, in case where a key communications business operator makes a consultation under paragraph (1), investigate and provide the required information, under the .Enforcement Decree

8

 

<Amended by Act No. 6602, Jan. 14, 2002; Act No. 8867, Fe. 29, 2008>
     (3) The Korea Communications Commission may, in order to effectively perform the investigation of data under paragraph (2), have a specialized institution in the field of telecommunications perform the relevant investigation under the conditions as prescribed by the Enforcement Decree. <Newly Inserted by Act No. 6602, Jan. 14, 2002>
     (4) The Korea Communications Commission may, where it falls
     under any of the following subparagraphs, advise the key communications business operator under paragraph (1) to jointly construct the telecommunications facilities and equipment, under the conditions as prescribed by the Enforcement Decree: <Newly Inserted by Act No. 6602, Jan. 14, 2002; Amended by Act No. 8867, Feb. 29, 2008>
     1. Where the consultation under paragraph (1) has not been achieved, and where there exists a request from the relevant key communications business operator; and
     2. Where deemed necessary for promoting the public interests.
     (5) Where it is necessary to use the land or structures, etc. owned by the State, local government, government-invested institution, or other key telecommunications business operator for a joint installation of telecommunications facilities and equipment, and where an agreement is not reached on it, the key communications business operator may ask the Korea Communications Commission for its cooperation in the use of the relevant land or structures, etc.<Amended by Act No. 8867, Feb. 29, 2008>
     (6) The Korea Communications Commission may, upon receipt of a request for its cooperation under paragraph (5), ask the head of the State agency, local government or government-invested institution or other key communications business operator to comply with a consultation on the use of the relevant land or structures, etc. with the key communications business operator who has asked for a cooperation under paragraph (5). In this case, the State agency, local government, or the head of government -invested institution or other key communications business operator shall comply with a consultation with the key telecommunications business operator unless there exist any justifiable causes. <Amended by Act No. 6602, Jan. 14, 2002; Act No.

9

 

8867, Feb. 29, 2008>
     [This Article Wholly Amended by Act No. 5219, Dec. 30, 1996]
Article 19 Deleted. <by Act No. 5219, Dec. 30, 1996>
SECTION 2 Private Telecommunications Facilities and Equipment
Article 20 (Installation of Private Telecommunications Facilities and Equipment)
     (1) A person who intends to install private telecommunications facilities and equipment shall report thereon to the Korea Communications Commission under the conditions as prescribed by the Enforcement Decree. The same shall also apply in case where he intends to alter the important matters as determined by the Enforcement Decree from among the reported matters. <Amended by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) Notwithstanding the provisions of paragraph (1), the private telecommunications facilities and equipment with wireless modes, the military telecommunications facilities and equipment, etc., which are specially stipulated by other statutes, shall be governed by such statutes.
     (3) A person who has made a report or a modified report on the installation of private telecommunications facilities and equipment under paragraph (1) shall obtain, upon completion of an installation work or a modifying work, a confirmation by the Korea Communications Commission, prior to their use, under the conditions as stipulated by the Enforcement Decree. <Newly Inserted by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (4) Any private telecommunications facilities and equipment prescribed by the Enforcement Decree may, notwithstanding the provisions of paragraph (1), be installed without filing any report. <Newly Inserted by Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>

10

 

Article 21 (Restriction on Use Beyond Its Purpose)
     (1) Any person who has installed the private telecommunications facilities and equipment shall not mediate a third party’s communications with the facilities, nor operate the facilities against the installation purpose: Provided, That this shall not apply to cases of special provisions in other statutes or of uses falling under any of the following subparagraphs, within the limits not against the installation purposes: <Amended by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996; Act No. 6602, Jan. 14, 2002; Act No. 8867, Feb. 29, 2008>
     1. In case of use for maintaining public peace or providing emergency rescue mission by the person engaged in police or accident rescue works;
     2. In case of use, prescribed by the Korea Communications Commission, between the person who installed private telecommunications facilities and equipment and the one specially related with him for the purpose of work; and
     3. Deleted. <by Act No. 6602, Jan. 14, 2002>
     (2) Any person who has installed his private telecommunications facilities and equipment may provide telecommunications facilities and equipment including line tracks, line equipments, etc., to the key communication business operator, pursuant to the Enforcement Decree.
     (3) The provisions of Articles 33-5, 34-6 (excluding paragraph (5)), and 35 of the Telecommunications Business Act shall apply mutatis mutandis to the above paragraph (2) concerning the supply of facilities and equipment. <Amended by Act No. 4905, Jan. 5, 1995; Act No. 5219, Dec. 30, 1996>
     (4) Deleted. <by Act No. 6602, Jan. 14, 2002>
Article 22 (Securing of telecommunications in Case of Emergency)
     (1)The Korea Communications Commission may order the person who installed private telecommunications facilities and equipment to provide telecommunications services or other important communication services, or to interconnect the private

11

 

facilities and equipment in question with other telecommunications facilities and equipment, when war, natural disaster or other national emergency situation corresponding to such happens or is likely to happen. This shall apply mutatis mutandis to the provisions concerning telecommunications services under the Telecommunications Business Act. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission may make the key telecommunications business operator deal with such services, when deemed necessary of paragraph (1). <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) The expenses necessary for performing the services or for interconnection of the facilities of paragraph (1) shall be borne by the Government: Provided, That when the private telecommunications facilities and equipment are provided for telecommunications services, then the key communications business operator provided with the facilities, shall bear such expenses.
Article 23 (Orders for Correction, etc.<Amended by Act No. 6231, Jan. 28, 2000>)
     (1) The Korea Communications Commission may, when any person who has installed the private telecommunications facilities and equipment violates this Act or the orders under this Act, order him to make a correction thereof with fixing a specified period. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission may, when any person who has installed the private telecommunications facilities and equipment falls under any of the following subparagraphs, order him to suspend the relevant uses with fixing a period of not more than one year: <Newly Inserted by Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     1. Where he fails to execute an order under paragraph (1);
     2. Where he uses the private telecommunications facilities and equipment without obtaining a confirmation in contravention of Article 20 (3); and

12

 

     3. Where he intermediates other’s communications or operates the private telecommunications facilities and equipment in a manner contrary to the installation purposes, in contravention of Article 21 (1).
     (3) The Korea Communications Commission may, where deemed that any private telecommunications facilities and equipment impede other’s telecommunications or likely undermine other’s telecommunications facilities and equipment, order the person who has installed the relevant facilities and equipment to suspend a use of them or to renovate or repair them, or take other measures. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 24 (Imposition of Penalty Surcharge)
     (1) The Korea Communications Commission may, in issuing an order to suspend a use of any private telecommunications facilities and equipment under Article 23 (2), and where a suspension of the relevant use is likely to cause any serious inconveniences to users of telecommunications services which are rendered by using such private telecommunications facilities and equipment, or to undermine other public interests, impose a penalty surcharge of not exceeding 1 billion won in lieu of such order to suspend the relevant use. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) Classifications of the violating acts subject to the imposition of a penalty surcharge under paragraph (1), the amount of penalty surcharge as determined by the relevant levels and other necessary matters shall be prescribed by the Enforcement Decree <Amended by Act No. 8867, Fe. 29, 2008>.
     (3) The Korea Communications Commission shall, where any person liable for the payment of a penalty surcharge under paragraph (1) fails to pay such penalty surcharge by a payment term, collect it according to the example of a disposition on the national taxes in arrears. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 6231, Jan. 28, 2000]

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SECTION 3 Technical Standards, etc. for Telecommunications Facilities and Equipment
Article 25 (Technical Standards)
     (1) A person who installs and operates the telecommunications facilities and equipment shall keep such facilities and equipment compatible with the technical standards as prescribed by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) In case of the installation of telecommunications facilities and equipment as determined and publicly announced by the Korea Communications Commission or of the expansion of installed facilities and equipment, the key communication business operator and the special communications business operator shall test whether the relevant telecommunications facilities and equipment conform with the technical standards under paragraph (1) above, prior to commencing a provision of telecommunications services, and record and manage the results thereof. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     (3) The installation and conservation of telecommunications facilities and equipment shall be executed according to the design documents.
     (4) Matters necessary for making the design documents under paragraph (3) shall be prescribed by the Enforcement Decree <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (5) In any of the following cases,the Korea Communications Commission may have public officials belonging to him investigate or test the facilities of the person who installs and operates the telecommunications facilities and equipment in order to verify whether the telecommunications facilities and equipment are installed and operated in conformity with the technical standards: <Newly Inserted by Act No.5219, Dec. 30, 1996; Act No.7810, Dec. 30, 2005; Act No.8867, Feb. 29, 2008>
  1.   to establish policies related to telecommunications facilities;
 
  2.   to prevent national emergency;
 
  3.   to prevent natural disasters and in the event of natural disasters; and
 
  4.   in the event wide-spread telecommunications hurdles are expected due

14

 

      to malfunctions in the telecommunications facilities.
,. <Newly Inserted by Act No. 5219, Dec. 30, 1996>
     (6) The public official who conducts an investigation or a testing under paragraph (5) shall notify the person who has installed and operated telecommunications facilities no later than seven (7) days prior to the date of investigation or testing, informing the person of the investigation or testing plans, including the time and substance of, and the reasons for, the investigation or testing. Provided, no such notification is necessary in the event of emergency or in the event that there is risk that relevant evidence will be destroyed.. <Newly Inserted by Act No. 7810, Dec. 30, 2005>
     (7) A public official who conducts the investigation or testing under paragraph (5) shall carry a certificate indicating his authority, present it to the person concerned and give the documents indicating the name, time of entry and purpose of entry, etc. to the person concerned at the time of entry. <Newly Inserted by Act No. 5219, Dec. 30, 1996; Act No. 7810, Dec. 30, 2005>
Article 26 (Management Rules)
     (1) The key communications business operator shall set forth the management rules for communications facilities and equipment and manage them, in order to provide a stable telecommunications service. <Amended by Act No. 5219, Dec. 30, 1996>
     (2) Matters to be explicitly stipulated in the management rules under paragraph (1) shall be prescribed by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 27 (Correction Order for Violations of Technical Standards)
     When the installed telecommunications facilities and equipment have come not to conform with the technical standards under Article 25, the Korea Communications Commission may issue an order to make a correction thereto or take other necessary measures. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 28 (Adoption of New Telecommunications Modes, etc.)

15

 

     (1) The Korea Communications Commission may adopt the new telecommunications modes, etc., for a smooth development of telecommunications. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission shall, in case where it has adopted the new telecommunications modes, etc. under paragraph (1), make a pubic announcement thereof.
     [This Article Wholly Amended by Act No. 5219, Dec. 30, 1996]
Article 29 (Promotion of Standardization)
     (1) The Korea Communications Commission may promote the standardization of telecommunications, and recommend it to the telecommunications business operator or the manufacturers of telecommunications equipments, for a sound development of telecommunications and for ensuring the convenience of users: Provided, That in a case of matters for which the Korean Industrial Standards under the Industrial Standardization Act are set, such standards shall govern. <Amended by Act No. 4528, Dec. 8, 1992; Act No. 5219, Dec. 30, 1996>
     (2) The Korea Communications Commission shall, in case where it has adopted the telecommunications standards, make a public announcement thereof. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) Matters necessary for the promotion of standardization of telecommunications under paragraph (1) shall be determined by the Ordinance of the Ministry of Information and Communication. <Newly Inserted by Act No. 6602, Jan. 14, 2002; Act No. 8867, Feb. 29, 2008>
Article 30 (Telecommunications Technology Association)
     (1) The Telecommunications Technology Association (hereinafter referred to as the “Association”) may be established for efficient promotion of the business concerning telecommunications standardization. <Amended by Act No. 5219, Dec. 30, 1996>
     (2) The Association shall be established in the form of a juristic person.

16

 

     (3) The Government may contribute to the Association within the budget limit, when necessary for the establishment and operation of the Association.
     (4) The Korea Communications Commission may order changes of articles of incorporation, project plans, or reelection of officers, when the operation of the Association is deemed in violation of the Acts and subordinate statutes or articles of incorporation. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (5) Except for those stipulated under this Act, the provisions pertaining to an incorporated foundation in the Civil Act shall apply mutatis mutandis to matters on the Association.
SECTION 4 Integrated Operation of Telecommunications Facilities and Equipment, etc.
Article 30-2 (Securing Pipeline Facilities, etc.)
     (1) A person who installs or builds up the facilities, etc. falling under any of the following subparagraphs (hereinafter referred to as the “facilities installer”) shall listen to the views of key communications business operators on the installation of joint-use tunnels in which the telecommunications facilities and equipment may be accommodated and the pipelines, etc. as well, and reflect its contents: Provided, That the same shall not apply to the case where the reflection of the views of key communications business operators are very difficult: <Amended by Act No. 6602, Jan. 14, 2002; Act No. 7210, Mar. 22, 2004; Act No. 7303, Dec. 31, 2004>
     1. Roads under Article 2 of the Road Act;
     2. Railroads under subparagraph 1 of Article 2 of the Railroad Enterprise Act;
     3. Urban railroads under subparagraph 1 of Article 3 of the Urban Railroad Act;
     4. Industrial complex under subparagraph 5 of Article 2 of the Industrial Sites

17

 

and Development Act;
     5. Free trade zone under subparagraph 1 of Article 2 of the Act on Designation and Management of Free Trade Zones;
     6. Airport area under subparagraph 7 of Article 2 of the Aviation Act;
     7. Harbor area under subparagraph 4 of Article 2 of the Harbor Act; and
     8. Other facilities or housing sites as prescribed by the Enforcement Decree.
     (2) Any views expressed by the key communications business operators on the installation of joint-use tunnels or pipelines under paragraph (1) shall be in conformity with the standards for the installation of pipelines as prescribed by .the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     (3) The provisions of Articles 33-5, 34-6 (excluding paragraph (5) of the same Article) and 35 of the Telecommunications Business Act shall apply mutatis mutandis to the offer of joint-use tunnels or pipelines, etc., installed under paragraph (1).
     (4) A facilities installer shall, where he is unable to reflect the views of key communications business operators under paragraph (1), notify the relevant key communications business operators of the relevant reasons within 30 days from the date of receiving their views.
     (5) Where any facilities installer fails to reflect the views of key communications business operators under paragraph (1), the relevant telecommunications business operator may ask the Korea Communications Commission for its adjustments. <Amended by Act No. 8867, Feb. 29, 2008>
     (6) The Korea Communications Commission shall, where it makes such adjustments upon receipt of a request for adjustments under paragraph (5), consult in advance with the heads of the related central administrative agencies. <Amended by Act No. 8867, Feb. 29, 2008>
     (7) Matters necessary for the adjustments under paragraphs (5) and (6) shall be

18

 

prescribed by the Enforcement Decree.
     [This Article Wholly Amended by Act No. 6231, Jan. 28, 2000]
Article 30-3 (Installation of Telecommunications Facilities and Equipment for Extension)
     (1) The structures under subparagraph 2 of Article 2(1) of the Building Act shall be equipped with the telecommunications line facilities, etc. for extension, and secure a specified area for a connection with the telecommunications line facilities and equipment. <Amended Mar. 21, 2008>
     (2) Matters on the scope of structures, the criteria for installation of telecommunications line facilities, etc., and the securing, etc., of an area for a connection with telecommunications line facilities and equipment under paragraph (1) shall be determined by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]
Article 30-4 Deleted. <by Act No. 6823, Dec. 26, 2002>
Article 31 (Integrated Operation of Telecommunications Facilities and Equipment, etc.)
     (1)The Korea Communications Commission may, where it is necessary for an efficient management and operation of telecommunications facilities and equipment, have a key communications business operator selected according to the standards and procedures as prescribed by the Enforcement Decree (hereinafter referred to as the “communications business operator under integrated operations”) make an integrated operation of the telecommunications facilities and equipment installed under this Act or other Acts, and the land, buildings and other structures appurtenant thereto (hereinafter referred to as the “telecommunications facilities and equipment, etc.”). <Amended by Act No. 5219, Dec. 30, 1996; Act No. 5454, Dec. 13, 1997; Act No. 6231, Jan. 28, 2000; Act No.8867, Feb. 29, 2008>

19

 

     (2) The Korea Communications Commission shall, where it intends to put the telecommunications facilities and equipment, etc. under an integrated operation under paragraph (1), formulate an integrated operation plan for telecommunications facilities and equipment, etc. (hereinafter referred to as the “integrated operation plan”), consult with the heads of the related administrative agencies, and obtain an approval of the President by going through a deliberation by the State Council. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) The integrated operation plan under paragraph (2) shall contain the matters falling under one of the following subparagraphs:
     1. Objects, time, methods and procedures for the integration;
     2. Matters concerning an operation of telecommunications facilities and equipment, etc. after integration; and
     3. Other matters as prescribed by the Enforcement Decree.
     (4)The Korea Communications Commission, where it intends to formulate an integrated operation plan under paragraph (2), consult in advance with the installer of the telecommunications facilities and equipment, etc. to be integrated. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 32 (Purchase of Telecommunications Facilities and Equipment, etc.)
     (1) The communications business operator under integrated operations may, when necessary for an integrated operation of the telecommunications facilities and equipment, etc. under Article 31 (1), make a request for purchase of the relevant telecommunications facilities and equipment, etc. In this case, the owner of relevant telecommunications facilities and equipment, etc. shall not refuse it without any justifiable reasons. <Amended by Act No. 6231, Jan. 28, 2000>
     (2) National or public telecommunications facilities and equipment, etc. for which the communications business operator under integrated operations has made a request for their purchase under paragraph (1) may be sold to the communications business operator under integrated operations, notwithstanding the provisions of Article 27 of the

20

 

State Properties Act or Article 82 of the Local Finance Act. In this case, matters necessary for the sale such as the calculation method of sale price, procedures for the sale, and payment methods of sale price, etc., shall be prescribed by the Enforcement Decree. <Amended by Act No. 6231, Jan. 28, 2000; amended Jan. 30, 2009>
     (3) The provisions of Articles 67 (1), 70, 71, 74 through 77, and 78 (5) through (7) of the Act on the Acquisition of Land, etc. for Public Works and the Compensation Therefor shall be applied mutatis mutandis to the calculation method, criteria, etc. for purchase price of the telecommunications facilities and equipment, etc. other than the national or public ones which are purchased by the communications business operator under integrated operations under paragraph (1). <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000; Act No. 6656, Feb. 4, 2002>
CHAPTER IV. MANAGEMENT OF TELECOMMUNICATIONS EQUIPMENTS
Article 33 (Approval for Types)
     (1) A person who intends to manufacture, sell or import the telecommunications equipments which are specified by the Korea Communications Commission after consulting with the heads of the related administrative agencies, shall obtain an approval with respect to such telecommunications equipments from the Korea Communications Commission: Provided, That this shall not apply to the cases of telecommunications equipments as prescribed by the Enforcement Decree such as the telecommunications equipments for the purpose of test, research or export. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) Objects, methods and procedures, etc. for the approval of types under paragraph (1) shall be prescribed by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) the Korea Communications Commission shall grant a type approval, when the telecommunications equipments conform with technical criteria for telecommunications equipments as prescribed by .the Enforcement Decree <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>

21

 

     (4) When a person who has obtained a type approval of telecommunications equipments under paragraph (1) intends to sell or display such telecommunications equipments, the sign of type approval shall be marked pursuant to .the Enforcement Decree <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (5) A person who has obtained the type approval for the telecommunications equipments under paragraph (1) shall, when he intends to modify the matters for which a type approval has been obtained, file a report thereon with the Korea Communications Commission under the conditions as determined by the Enforcement Decree. In this case, if the matters reported on modification are related to the technical criteria under paragraph (3), the said paragraph shall apply mutatis mutandis. <Newly Inserted by Act No. 6602, Jan. 14, 2002; Act No. 8867, Feb. 29, 2008>
     (6) A person who intends to obtain the type approval under paragraph (1) or a person who files a report on modification under paragraph (5) shall pay the fees as prescribed by the Enforcement Decree. <Amended by Act No. 6602, Jan. 14, 2002; Act No. 8867, Feb. 29, 2008>
Article 33-2 (Designation, etc. of Performance Testing Institution)
     (1) The Korea Communications Commission may, in granting the type approval under Article 33, have a testing institution designated by the said Commission (hereinafter referred to as the “designated testing institution”) conduct the performance test. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) A person who is eligible for a designation as a designated testing institution shall be limited to a juristic person.
     (3) The Korea Communications Commission may inspect any designated testing institution under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     (4) The Korea Communications Commission may, when a designated testing institution falls under any of the following subparagraphs, cancel the relevant designation or order a suspension of the testing service, in whole or in part, for a fixed

22

 

period of not more than one year: Provided, That where it falls under subparagraph 1, its designation shall be cancelled: <Amended by Act No. 8867, Feb. 29, 2008>
     1. When it has obtained a designation by deceit or other illegal means;
     2. When it has failed to conduct the testing service without any justifiable reasons;
     3. When it has conducted an inaccurate testing service by deliberation or gross negligence;
     4. When it has refused, obstructed or evaded the inspection under paragraph (3) without any justifiable reasons, or flunked the inspection; and
     5. When it has violated the Acts and subordinate statutes relating to telecommunications.
     (5) Any person who intends to be designated as a testing institution under paragraph (1) and a person who undergoes the inspection under paragraph (3) shall pay fees under the conditions as prescribed by .the Enforcement Decree. <Amended by Act No, 8867, Feb. 29, 2008>
     (6) Matters necessary concerning the designation, management, testing standards, and supervision, etc. of any designated testing institution shall be determined by .the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Wholly Amended by Act No. 6231, Jan. 28, 2000]
Article 33-3 (Mutual Recognition of Type Approval between States)
     (1) The Government may conclude an agreement with a foreign government on the mutual recognition of type approval of telecommunications equipment.
     (2) Where the Government has concluded an agreement under paragraph (1), it may recognize the telecommunications equipment which have obtained an authentication of a foreign government same as or similar to the type approval under

23

 

Article 33 as have been granted a type approval under Article 33, or make the designation of a foreign testing agency as a designated testing institution under Article 33-2 (1) the content of the relevant agreement.
     (3) Where an agreement has been concluded with a foreign government on the mutual recognition of type approval of the telecommunications equipment under paragraph (1), the Korea Communications Commission shall publicly announce its contents. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]
Article 34 Deleted. <by Act No. 6231, Jan. 28, 2000>
Article 34-2 (Termination of Type Approval)
     (1) When a person who has obtained the type approval of telecommunications equipment under Article 33 (1) intends to discontinue the manufacture, sale or import of the telecommunications equipment, he may make an application to the Korea Communications Commission for a termination of the relevant type approval. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) Matters necessary for the application for a termination of the type approval under paragraph (1) shall be determined by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>.
     [This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]
Article 35 (Cancellation, etc. of Type Approval)
     (1) In case where a person who has obtained a type approval of the telecommunications equipments under Article 33 (1) falls under any of the following subparagraphs, the Korea Communications Commission may cancel the relevant type approval, or suspend the manufacture of relevant products or take other necessary measures: <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     1. When he has obtained a type approval by deceit and other illegal means;

24

 

     2. When the telecommunications equipments have come not to conform with the technical criteria under Article 33 (3); and
     3. When the sign of type approval under Article 33 (4) is not marked, or a false sign is marked.
     (2) Where a person who has obtained a type approval under Article 33 (1) comes to fall under paragraph (1) 1 or 3 and his type approval has thus been cancelled, he shall not file an application for the type approval of telecommunications equipments within the period as fixed by the Enforcement Decree within the scope of 6 months after from the day when type approval is cancelled. <Amended by Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
Article 36 (Follow-up Management)
     (1) No person shall sell, or display for the purpose of selling, the telecommunications equipments for which a type approval under Article 33 (1) has not been obtained or other telecommunications equipments which are not marked with a sign of the type approval under Article 33 (4): Provided, That the same shall not apply to the telecommunications equipments for tests or research. <Amended by Act No. 6231, Jan. 28, 2000>
     (2) In any of the following cases, the Korea Communications Commission may, in case where necessary to confirm whether the matters concerning a type approval of the telecommunications equipments are implemented, have the public officials belonging to him investigate or test the telecommunications equipments in the process of production, import or circulation. < Amended by Act No. 5219, Dec. 30, 1996; Act No. 7810, Dec. 30, 2005; Act No. 8867, Feb. 29, 2008>:
  1.   in the event any harm has been or is likely to be done to the telecommunications network;
 
  2.   in the event the telecommunications network has been altered or reconstructed in violation of relevant laws or the production, purchase and sale of machinery that do not comport with the relevant technical standards haven taken place.
     (3) The Korea Communications Commission may order a person who has

25

 

manufactured, imported, sold or displayed with intention of sale the telecommunications equipments which have been sold or displayed with intention of sale in violation of paragraph (1), or the telecommunications equipments which have been found as the inferior goods upon the investigation or tests under paragraph (2), to destroy or recall the relevant telecommunications equipments, under the conditions as prescribed by the Enforcement Decree.>
     (4) The provisions of Article 25 (7) shall apply mutatis mutandis to the cases under paragraph (2).<Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (5) Matters necessary for the procedures for and methods of the investigation or tests under paragraph (2) shall be prescribed by the Enforcement Decree <Newly Inserted by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (6) In the event of investigation or testing pursuant to paragraph (2) above, the person subject to such investigation or testing shall be notified no later than seven (7) days prior to the date of investigation or test, with details of the investigation or testing plans including the investigation or testing time, content and reasons therefore. Provided, no such notification is necessary in the event of emergency or in the event that there is risk that relevant evidence will be destroyed. < Newly inserted, Dec., 30, 2005>
CHAPTER V. RULING OF DISPUTES, ETC.
<Amended by Act No. 8867, Feb. 29, 2008>
Article 37 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 38 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 39 Deleted <by Act No. 8867, Feb. 29, 2008>

26

 

Article 40 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 40-2 (Ruling by Korea Communications Commission)
     (1) The telecommunications business operators or users may make an application to the Korea Communications Commission for a ruling, in case where an agreement between the parties has not been reached, or they are unable to make an agreement on the matters falling under any of the following subparagraphs: <Amended by Act No. 6602, Jan. 14, 2002; Act No. 8425 May 11, 2007; Act No. 8867, Feb. 29, 2008>
     1. Compensation for damages under Article 33-2 of the Telecommunications Business Act,
     2. The supply of telecommunications facilities and equipment under Article 33-5 (1) and (2) of the Telecommunications Business Act, the joint utilization of the radio communications facilities under Article 33-7 (1) and (2) of the same Act, the interconnection under Article 34 (1), the joint use, etc. under Article 34-3 (1), or the conclusion of an agreement on supply, etc. of information under Article 34-4 (1);
     3. The supply of telecommunications facilities and equipment under Article 33-5 (1) and (2) of the Telecommunications Business Act, the joint utilization of the radio communications facilities under Article 33-7 (1) and (2) of the same Act, the interconnection under Article 34 (1), the joint use, etc. under Article 34-3 (1), or the implementation of an agreement on supply, etc. of information under Article 34-4 (1) or a compensation for damages; and
     4. Other disputes related to the telecommunications business, or other matters prescribed by other Acts as the matters to be ruled by the Korea Communications Commission. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission shall, upon receipt of an application for ruling under paragraph (1), notify the other party of the relevant fact, and provide him with an opportunity to state an opinion with fixing a period: Provided, That this shall not apply in case where the interested parties fail to comply with it without any justifiable reasons.

27

 

     (3) The Korea Communications Commission shall, in case where it makes a ruling on the application for ruling under paragraph (1), forward the document of such ruling to the parties concerned without delay. <Amended by Act No. 8867, Feb. 29, 2008>
     (4) When the Korea Communications Commission makes a ruling, and where a lawsuit has not been initiated or it has been withdrawn concerning the content of the relevant ruling, within sixty days from the date when the authentic copy of the document of ruling is served on the parties concerned, an agreement which is identical with the content of the relevant ruling is deemed to have been reached between the parties concerned. <Amended by Act No. 8867, Feb. 29, 2008>
     (5) A person who is dissatisfied with the amount which shall be paid or received by the parties concerned from among the rulings of the Korea Communications Commission, may request an increase or decrease of the relevant amount by a lawsuit, within sixty days from the date when he has been served with the written ruling. <Amended by Act No. 8867, Feb. 29, 2008>
     (6) In the lawsuit under paragraph (5), the other party shall be the defendant.
     [This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]
Article 40-3 (Good Offices of Disputes)
     The Korea Communications Commission may, in case where deemed inadequate to make a ruling or when necessary, upon receipt of an application for ruling under Article 40-2 (1), set up the subcommission by cases of dispute, and have such subcommission offer its good offices thereon. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5219, Dec. 30, 1996]
Article 41 Deleted <by Act No. 8867, Feb. 29, 2008>

28

 

Article 42 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 43 (Investigation and Listening to Opinions, etc.)
     The Korea Communications Commission may, in case where deemed necessary to deal with a case for ruling, carry out the acts falling under any of the following subparagraphs, upon a request from a party concerned or ex officio: <Amended by Act No. 8867, Feb. 29, 2008>
     1. A request for the presence of a party concerned or a relevant witness, and listening to his opinions;
     2. A request to an appraiser for an appraisal;
     3. A request for the furnishing of any document or articles related to a case of dispute, and the provisional holding of furnished document or articles; and
     4. An act of letting public officials belonging to the Korea Communications Commission enter the business place of the party concerned and other places related to the case of dispute to examine and peruse the documents or articles, or copy such documents.
     [This Article Newly Inserted by Act No. 6231, Jan. 28, 2000]
Article 44 Deleted <by Act No. 8867, Feb. 29, 2008>
Article 44-2 Deleted <by Act No. 9481, Mar. 13, 2009>
CHAPTER V-2. COMMUNICATIONS DISASTER CONTROL
<Newly inserted by Act No. 6823, Dec. 26, 2002>

29

 

Article 44-3 (Development of Basic Plan for Control of Communications Disaster)
     (1) The Korea Communications Commission shall draw up a basic plan for the control of communications disaster (hereinafter referred to as the “basic plan”) to prevent the occurrence of any disaster provided for in the Framework Act on the Management of Disasters and Safety, any disaster provided for in the Countermeasures against Natural Disasters Act and any other physical and technical defects, etc. (hereinafter referred to as the “communications disaster”), and to swiftly control and restore the communications disaster with respect to telecommunications services rendered by the key communications business operators prescribed by the Enforcement Decree (hereinafter referred to as the “key communications business operator”). In this case, the basic plan shall be deemed a plan in the field of communications from among the safety management plans provided for in Article 22 of the Framework Act on the Management of Disasters and Safety and the execution plans for the prevention of disasters provided for in Article 16 of the Countermeasures against Natural Disasters Act. <Amended by Act No. 7188, Mar. 11, 2004; Act No. 8867, Feb. 29, 2008>
     (2) The basic plan shall contain the matters falling under each of the following subparagraphs:
     1. matters concerning the designation and management of the telecommunications facilities and equipment that has the high risk of incurring any communications disaster or is needed to be continuously managed to prevent the occurrence of any communications disaster, and of the installation area thereof, etc.;
     2. matters concerning each of the following which is needed to prepare against any communications disaster:
          (a) security of communications bypass path;
          (b) formation of an information system for combined operation of the telecommunications line facilities and equipment; and
          (c) security of the goods for the restoration of damages; and

30

 

     3. other matters deemed necessary for the control of any communications disaster.
     (3) The Korea Communications Commission shall, when it intends to develop the basic plan referred to in paragraph (1), establish a guideline for developing such basic plan and notify key communications business operators of it. <Amended by Act No. 8867, Feb. 29, 2008>
     (4) The key communications business operators shall each draw up a plan for the control of communications disaster in line with the guideline referred to in paragraph (3) and submit it to the Korea Communications Commission (Amended by Act No 8867, Feb. 29, 2008>.
     (5) The Korea Communications Commission shall put together the plans for the control of communications disaster submitted by the key communications business operators pursuant to paragraph (4) and develop the basic plan <Amended by Act No. 8867, Feb. 29, 2008; Act No. 9481, Mar. 13, 2009>
     (6) The Korea Communications Commission shall notify the key communications business operators of the matters that are concerned with them in the basic plan that is finally decided under paragraph (5). . <Amended by Act No. 8867, Feb. 29, 2008>
     (7) Detailed matters necessary for developing the basic plan shall be prescribed by the Enforcement Decree.
     (8) The provisions of paragraphs (3) through (7) shall apply mutatis mutandis to any alteration of the basic plan.
     [This Article Newly Inserted by Act No. 6823, Dec. 26, 2002]
Article 44-4 (Preparations against Communications Disaster)
     (1) In the event that any communications disaster occurs or is obviously expected to occur, the Korea Communications Commission may have a key communications business operator operate his telecommunications facilities and equipment integrated with the telecommunications facilities and equipment owned by other key

31

 

telecommunications business operators or owner of private telecommunications facilities and equipment to ensure smooth communications and emergency restoration in the relevant area. . <Amended by Act No. 8867, Feb. 29, 2008>
     (2) The provisions of Article 22 (3) shall apply mutatis mutandis to a case where the actual expense required for integrated operation of the telecommunications facilities and equipment under paragraph (1) is indemnified.
     (3) Necessary matters concerning the integrated operation of the telecommunications facilities and equipment under paragraph (1) shall be prescribed by tthe Enforcement Decree. . <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 6823, Dec. 26, 2002]
Article 44-5 Deleted <by Act No. 9481 of Mar. 13, 2009>
Article 44-6 Deleted <by Act No. 9481 of Mar. 13, 2009>
Article 44-7 (Report on Communications Disaster)
     Any key communications business operator shall, when any communications disaster occurs with respect to the telecommunications services rendered by him, report without delay the current situation, cause of such communications disaster, details of emergency measures, countermeasures to restore damage, etc. to the Korea Communications Commission. . <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 6823, Dec. 26, 2002]
Article 44-8 (Communications Disaster Countermeasures Headquarters)
     (1) In the event that the damage caused by any communications disaster is extensive requiring a comprehensive measure at the level of the Government, the Korea Communications Commission may establish and operate the communications disaster countermeasures headquarters (hereinafter referred to as the “countermeasures headquarters”). . <Amended by Act No. 8867, Feb. 29, 2008>

32

 

     (2) The head of the countermeasures headquarters shall be the Chairman of the Korea Communications Commission. . <Amended by Act No. 8867, Feb. 29, 2008>
     (3) Necessary matters concerning the composition, operation, etc. of the countermeasures headquarters shall be prescribed by the Enforcement Decree.
     (4) The key communications business operators shall report the current situation, etc. of the progress in the restoration of damage done by any communications disaster to the countermeasures headquarters under the conditions as prescribed by the Enforcement Decree. . <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 6823, Dec. 26, 2002]
CHAPTER VI. SUPPLEMENTARY PROVISIONS
Article 45 (Report, Inspection, etc.)
     (1) The Korea Communications Commission may, when the Enforcement Decree so determines, have the installer of the telecommunications facilities and equipment report on the relevant facilities, or have the public officials belonging to him enter the relevant office, business office, factory or business place to inspect the status of facilities, account books or documents, etc. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission may, where there exists a person who has installed the telecommunications facilities and equipment in violation of this Act, order him to remove the relevant facilities and take other necessary measures. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) The provisions of Article 25 (7)shall apply mutatis mutandis to the cases under paragraph (1). <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (4) In the event of the investigation or testing pursuant to paragraph (1) above, the facilities installer shall be notified no later than seven (7) days prior to the date of

33

 

investigation or testing, with details of the investigation or testing plans including the investigation or testing time, content and reasons therefore. Provided, no such notification is necessary in the event of emergency or in the event that there is risk that relevant evidence will be destroyed. < Newly inserted, Dec., 30, 2005>
Article 45-2 (Hearing)
     The Korea Communications Commission shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing: <Amended by Act No. 6231, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     1. Cancellation of a designation under Article 33-2 (4); and
     2. Cancellation of a type approval under Article 35 (1).
     [This Article Wholly Amended by Act No. 5453, Dec. 13, 1997]
Article 46 (Delegation and Entrustment of Authority)
     (1) Part of the authority of the Minister of Knowledge Economy and the Korea Communications Commission under this Act may be delegated or commissioned to the head of the related agencies or of the Korea Post under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission may commission the tasks under Article 29 to the Association, under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
CHAPTER VII. PENAL PROVISIONS
Article 47 (Penal Provisions)
     (1) A person who has publicly made a false communication over the telecommunications facilities and equipment for the purpose of harming the public

34

 

interest shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>
     (2) A person who has publicly made a false communication over the telecommunications facilities and equipment for the purpose of benefiting himself or the third party or inflicting damages on the third party shall be punished by imprisonment for not more than three years or by a fine not exceeding thirty million won. <Amended by Act No. 5219, Dec. 30, 1996>
     (3) In case where the false communication under paragraph (2) is of a telegraphic remittance, it shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>
     (4) When a person engaged in the telecommunications business commits the act under paragraph (1) or (3), he shall be punished by imprisonment for not more than ten years or by a fine not exceeding 100 million won, and in case of committing the act under paragraph (2), he shall be punished by imprisonment for not more than five years or by a fine not exceeding fifty million won. <Amended by Act No. 5219, Dec. 30, 1996>
Article 48 (Penal Provisions)
     A person who has produced, sold, or imported the telecommunications equipment without obtaining type approval, in violation of Article 33 (1), shall be punished by imprisonment for not more than three years or by a fine not exceeding thirty million won.
     [This Article Wholly Amended by Act No. 5219, Dec. 30, 1996]
Article 48-2 Deleted. <by Act No. 6360, Jan. 16, 2001>
Article 49 (Penal Provisions)
     A person who falls under any of the following subparagraphs shall be punished by imprisonment for not more than one year or by a fine not exceeding ten million won:

35

 

     1. A person who has installed or modified the telecommunications facilities and equipment without making a report under the text of Article 17 (1), or who has installed the telecommunications facilities and equipment without obtaining an approval under the proviso of the same Article and same paragraph;
     2. A person who has installed the private telecommunications facilities and equipment without making a report or modified report under Article 20 (1);
     3. A person who has intermediated other person’s communications by utilizing the private telecommunications facilities and equipment under Article 21 (1), or who has operated them in a manner contrary to the installation purposes;
     4. A person who has violated an order to provide telecommunications services or other important communication services, or to interconnect the relevant facilities and equipment with other telecommunications facilities and equipment under Article 22 (1);
     5. A person who has violated an order to suspend the use under Article 23 (2), or an order to suspend their use, to renovate, or to repair under paragraph (3) of the same Article;
     6. A person who has displayed the telecommunications equipment with intention of sale without obtaining type approval under Article 33 (1);
     7. A person who has violated an order to suspend production under Article 35 (1);
     8. A person who has violated an order to destroy or recall under Article 36 (3); and
     9. A person who has violated an order to remove telecommunications facilities under Article 45 (2).
     [This Article Wholly Amended by Act No. 6602, Jan. 14, 2002]
Article 50 Deleted. <by Act No. 6231, Jan. 28, 2000>

36

 

Article 51 (Joint Penal Provisions)
     When the representative of a juristic person, or an agent, employee or any other employed of the juristic person or an individual commits violations of Articles 48, 48-2 and 49 concerning the business of the relevant juristic person or individual, the relevant juristic person or individual shall be punished by a fine as stipulated under the corresponding Articles, in addition to the punishment of the violator. <Amended by Act No. 6231, Jan. 28, 2000>
Article 52 (Legal Fiction of Public Officials in Application of Penal Provisions)
     , a person who carries out a performance test under Article 33-2 (1), and a person who deals with the entrusted business under Articles 46 (2), shall be deemed public officials in the application of Articles 129 through 132 of the Criminal Act. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 53 (Fine for Negligence)
     (1) A person falling under any of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won: <Amended by Act No. 6231, Jan. 28, 2000; Act No. 6602, Jan. 14, 2002; Act No. 6823, Dec. 26, 2002>
     1. A person who has used the private telecommunications facilities and equipment without obtaining a confirmation, in contravention of Article 20 (3);
     2. A person who has failed to conduct the testing under Article 25 (2) or to record and manage its results;
     3. A person who has committed the act of refusing, evading or obstructing the inspection and the testing under Article 25 (5);
     4. A person who has managed the telecommunications facilities and equipment without setting forth the management regulations under Article 26 (1);
     5. A person who has violated the orders under Article 27;

37

 

     6. A person who has sold the telecommunications equipment, or displayed it with intention of sale, without making any indication of type approval, in violation of Article 33 (4);
     7. A person who has produced or imported the telecommunications equipment which was judged as inferior goods by the investigation or test under Article 36 (2), or who has sold or displayed it with intention of sale while being aware that it was judged as inferior goods;
     8. A person who has refused, obstructed or evaded the inspection and testing under Article 36 (2);
     9. A person who has failed to submit the plan for the control of communications disaster required by Article 44-3 (4);
     10. A person who has failed to report the communications disaster required by Article 44-7 or made a false report;
     11. A person who has failed to report the current situation of the progress in the restoration of damage, etc. required by Article 44-8 (4) or made a false report;
     12. A person who has failed to file a report under Article 45 (1), or filed a false report; and
     13. A person who has refused, obstructed or evaded the inspection under Article 45 (1).
     (2) The fine for negligence under paragraph (1) shall be imposed and collected by tthe Korea Communications Commission, under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) A person who is dissatisfied with a disposition of fine for negligence under paragraph (2) may raise an objection to the Korea Communications Commission within 30 days from the date of notification of such disposition. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>

38

 

     (4) When the person notified of a disposition of fine for negligence under paragraph (2) raises an objection under paragraph (3), the Korea Communications Commission shall notify without delay the competent court thereof, and the court so notified shall make judgments of a fine for negligence based on the Non-Contentious Case Litigation Procedure Act. <Amended by Act No. 5219, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (5) In case where neither an objection to nor the payment of the fine for negligence within the period specified under paragraph (3) is made, it shall be collected pursuant to the example of the disposition on the national taxes in arrears.
ADDENDA <Amended by Act No. 9481, Mar. 13, 2009>
Article 1 (Enforcement Date)
     This Act shall enter into force four months after the date of its promulgation.
Article 2 (Amendment of Other Laws)
     (1) The Telecommunications Business Act shall be partly amended as follows:
    Article 5(2) shall be deleted.
 
    In Article 13(7), “a deliberation by the Information and Communications Policy Deliberation Council under Article 44-2 of the Framework Act on Telecommunication, and consultation with the Fair Trade Commission” shall be amended to “a consultation with the Fair Trade Commission.”
     (2) The Protection and Use of Information on Location shall be amended as follows:
Article 5(2) shall be deleted.

39

EX-15.2 8 h03459exv15w2.htm EX-15.2 EX-15.2
Exhibit 15.2
ENFORCEMENT DECREE OF THE TELECOMMUNICATIONS BASIC LAW
ENFORCEMENT DECREE OF THE FRAMEWORK ACT ON TELECOMMUNICATIONS
Amended by Enforcement Decree No. 21224 of Dec. 31, 2008, effective Jan. 1, 2009
CHAPTER I GENERAL PROVISIONS
Article 1 (Purpose)
     The purpose of this Enforcement Decree is to provide matters delegated under the Framework Act on Telecommunications (the “Act”) and matters necessary for its enforcement.
CHAPTER II PROMOTION OF TELECOMMUNICATIONS TECHNOLOGY
Article 2 (Financial Support for Research Institute, etc.)
  (1)   The Minister of Knowledge Economy may appropriate into the budget the required funds for the financial support under Article 10(2) of the Act and for subsidies of research funds under Article 11(2) of the Act.
 
  (2)   The Minister of Knowledge Economy shall determine detailed matters necessary for the method of, and procedures for, financial support and performance of research tasks.
Article 3 (Institutions Subject to, and Methods of, Guidance and Fostering)
  (1)   The research institutes, etc. which the Minister of Knowledge Economy guides and fosters under Article 10(4) of the Act shall be as follows:
  1.   the Electronics and Telecommunications Research Institute established under Article 8 of the Act on the Establishment, Operation and Fosterage of Government-Invested Research

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      Institutions of Science and Technology;
 
  2.   research institutes established for the purpose of conducting research on telecommunications and designated by the Minister of Knowledge Economy;
 
  3.   an institute or an organization which undertakes research, development, education or training in telecommunications; and
 
  4.   a corporation or an organization engaged in collecting, analyzing and publicizing information on telecommunications.
  (2)   Methods of guidance and fostering concerning research institutes, etc. under paragraph (1) shall be as follows:
  1.   financial support for ground research and performance of special tasks in the field of telecommunications;
 
  2.   support of education and training for the purpose of fostering skilled technicians in the field of telecommunications;
 
  3.   supply of technological information on telecommunications; and
 
  4.   support for cooperation with other institutes, organizations or international bodies.
  (3)   The following funds shall be given to the research institutes prescribed under subparagraphs 1 and 2 of paragraph (1):
  1.   research and development funds for telecommunications technology and policy on telecommunications;
 
  2.   construction expenses for facilities, etc. necessary for research and development; and
 
  3.   other expenses for the management of research institutes, etc.
Article 4 (Selection of Research Tasks)

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     Research tasks the Minister of Knowledge Economy may select under Article 11(2) of the Act are as follows:
  1.   matters of basic research relating to telecommunications;
 
  2.   matters concerning research and development of new telecommunications methods or technology;
 
  3.   matters concerning technical improvement of telecommunications equipment; or
 
  4.   other matters necessary for securing core telecommunications technology.
Article 5 (Designation of Researchers)
     When designating persons who will conduct research on research tasks under Article 11(2) of the Act, the Minister of Knowledge Economy shall do so in the following order:
  1.   persons who proposed the subject research task
 
  2.   persons who successfully conducted research on a subject matter similar to the subject research task.
Article 6 (Joint Research, etc.)
     The Minister of Knowledge Economy may have the person designated under Article 5 to work jointly on the research tasks under Article 4, if it is deemed especially necessary to do so.
Article 7 (Computation Criteria for Donations to Research and Development)
  (1)   Sales under Article 12(1) of the Act shall be profits made from sales activities, subtracted by the price paid for using other telecommunications business operators’ communication network.
 
  (2)   The amount to be donated to research and development pursuant to Article 12(1) of the Act (the “Donations”) shall be determined pursuant to the classification described in Table 1 attached hereto..

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  (3)   When imposing the Donations pursuant to Article 12(1) of the Act, the Minister of Knowledge Economy shall notify the donor every year in writing, specifying the Donations computed in accordance with paragraph (2) and payment period, to submit the relevant Donations to an account opened with the Bank of Korea for the purpose of managing the receipt and disbursement of the information and communication promotion fund pursuant to Article 33 of the Framework Act on Informatization Promotion.
 
  (4)   The Minister of Knowledge Economy shall set forth, and issue public notification on, the details necessary for computation and imposition of the Donations.
Article 8 (Reduction of Donations)
     Pursuant to Article 12(3) of the Act, the Minister of Knowledge Economy shall exempt telecommunications business operators whose sales from the preceding year is less than 30,000,000,000 won or who incurred a net loss during the current period from the obligation to make the Donations. In the event the Donations computed exceed 0.7% of the net profit during the current period of the relevant telecommunications business operator, the Donations shall be reduced by an amount equal to the amount of excess.
Article 9 (Additional Charges, etc.)
  (1)   The additional charges contemplated under Article 12(4) shall be an amount equal to 0.3% of the Donations in arrears.
 
  (2)   In the event the Donations in arrears are not paid, an amount corresponding to 1.2% of such amount in arrears shall be charged for each month following the payment due date in addition to the additional charges set forth in paragraph (1) (the “Increased Additional Charges”); provided that, the Increased Additional Charges shall not be imposed for more than 60 months.
Article 10 (Contents of Technical Guidance, etc.)
  (1)   The matters subject to, and the contents of, technical guidance pursuant to Article 13(2) of the Act shall be as follows:

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  1.   matters concerning the application of technical standards of telecommunications equipment;
 
  2.   matters concerning the adoption, practical application and development of a new telecommunications method and technology;
 
  3.   matters concerning the improvement of production technology of telecommunications equipment;
 
  4.   matters concerning the improvement of functions and special features of telecommunications equipment; and
 
  5.   matters concerning the standard construction method applied to the installation and maintenance of telecommunications facilities and equipment.
  (2)   The methods of technical guidance extended to persons subject to technical guidance shall be as follows:
  1.   guidance concerning quality assurance of telecommunications equipment;
 
  2.   supply of technical information;
 
  3.   support for technical training and overseas technical cooperation; and
 
  4.   transfer of technology.
CHAPTER III TELECOMMUNICATIONS FACILITIES AND EQUIPMENT
Article 11 (Report on Installation or Alternation of Telecommunications Facilities and Equipment)
     Key communications business operators who wish to install or alter major telecommunications facilities and equipment under the text of Article 17(1) of the Act shall submit to the Korea Communications Commission a report on installation of, or alteration to, major telecommunications facilities and equipment (including an electronic report) with each of the following documentation (including electronic documentation) attached thereto:

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  1.   details of installation of, or alteration to, telecommunications facilities and equipment, including a communication network diagram; and
 
  2.   security polices relating to telecommunications facilities and equipment.
Article 12 (Authorization to Install Telecommunications Facilities and Equipment)
  (1)   Key communications business operators who wish to obtain an authorization to install telecommunications facilities and equipment for the first time in accordance with new telecommunications technology under the proviso of Article 17(1) of the Act shall submit to the Korea Communications Commission an application for authorization to install telecommunications facilities and equipment (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto:
  1.   a business proposal;
 
  2.   security polices relating to telecommunications facilities and equipment;
 
  3.   present technological trend of the subject telecommunications facilities and equipment, such as their standards in or outside Korea;
 
  4.   present status of research and development relating to the subject telecommunications facilities and equipment in or outside Korea; and
 
  5.   an accord (applicable only where installing or using telecommunications facilities and equipment jointly with other operators in or outside Korea).
  (2)   Upon receipt of an application under paragraph (1), the Korea Communications Commission shall examine the distinctive technical qualities of the telecommunications facilities and equipment sought to be installed and notify the relevant applicant, within 15 days of the date of receipt of the application, whether the application has been approved.
Article 13 (Selection of Specialized Agency for Data Survey)

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  (1)   When, under Article 18(3) of the Act, the Korea Communications Commission intends to have a specialized agency in the field of telecommunications conduct data survey necessary for consultation among key communications business operators regarding joint installation of telecommunications facilities and equipment, it shall select an agency recognized as having specialty with regard to the relevant survey and being capable of ensuring impartiality and objectivity and have such agency conduct the data survey.
 
  (2)   Upon selecting a specialized agency to conduct data survey under paragraph (1), the Korea Communications Commission shall inform the key communications business operator concerned thereof.
Article 14 (Investigation of Information related to Joint Installation of Telecommunications Facilities and Equipment)
     Under Article 18(2) of the Act, the Korea Communications Commission may investigate each of the following information necessary for consultation among key communications business operators regarding joint installation of telecommunications facilities and equipment:
  1.   a key communications business operator’s plans for installing telecommunications facilities and equipment concerning each of the following:
  (a)   types and standards of the telecommunications facilities and equipment to be installed;
 
  (b)   areas and sections for installation;
 
  (c)   time of installation; and
 
  (d)   technological conditions, etc.;
  2.   telecommunications facilities and equipment capable of being jointly installed, and areas and sections suitable for joint installation of telecommunications facilities and equipment;
 
  3.   plans for efficient joint installation of telecommunications facilities and equipment; and
 
  4.   economical effect of joint installation of telecommunications facilities and equipment.
Article 15 (Recommendation to Jointly Install Telecommunications Facilities and Equipment)

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  (1)   In the event the Korea Communications Commission makes a recommendation, pursuant to Article 18(4) of the Act, for key communications business operators to jointly install telecommunications facilities and equipment, it shall specify the telecommunications facilities and equipment subject to joint installation, areas and sections for installation, time of installation, technological conditions, etc. in its recommendation.
 
  (2)   A key communications business operator who wishes to jointly install telecommunications facilities and equipment under Article 18(4)1 of the Act shall submit documentation containing each of the following to the Korea Communications Commission:
 
  1.   plans for jointly installing telecommunications facilities and equipment;
 
  2.   economical effect of joint installation of telecommunications facilities and equipment; and
 
  3.   reasons why consultations with the key communications business operator subject to joint installation of telecommunications facilities and equipment have not taken place, and solutions therefor.
 
  (3)   A key communications business operator who receives a recommendation to jointly install telecommunications facilities and equipment from the Korea Communications Commission shall notify the Korea Communications Commission, within 21 days from the date of receipt of such recommendation, whether it can accept such recommendation and, in the event it cannot, the reasons therefor.
Article 16 (Report on Private Telecommunications Facilities and Equipment)
  (1)   A person who intends to install private telecommunications facilities and equipment under Article 20 of the Act shall submit, not later than 21 days prior to the date installation work for such facilities and equipment commences, to the Korea Communications Commission a report on installation of private telecommunications facilities and equipment (including an electronic report), specifying each the following, with design drawings of the installation work for such facilities and equipment attached thereto:
 
  1.   reporter;

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  2.   type of business;
 
  3.   purpose of business;
 
  4.   telecommunications method;
 
  5.   installation place of facilities and equipment;
 
  6.   outline of the facilities and equipment ; and
 
  7.   (expected) operation date of the facilities and equipment .
 
  (2)   “Matters specified under the Enforcement Decree of the Act” in the latter part of Article 20(1) of the Act means matters set forth in subparagraphs 2-6 of paragraph (1).
 
  (3)   In the event a person who filed a report on installation of private telecommunications facilities and equipment intends to alter the matters prescribed under paragraph (2), the person shall file with the Korea Communications Commission, not later than 21 days prior to the commencement date of the relevant alteration (or, where intending to alter any of the information set forth in subparagraphs 4-6 of paragraph (1), the commencement date of the relevant alteration work), a report (including an electronic report) on such alteration stating the details thereof, with design drawings of the installation work for such facilities and equipment, including a comparison of before and after the alteration, attached thereto.
 
  (4)   Upon receipt of a report on installation of, or alternation to, private telecommunications facilities and equipment under paragraph (1) or (3), the Korea Communications Commission shall examine each of the following:
 
  1.   whether the installation or alteration complies with the technical standards under Article 25(1) of the Act; and
 
  2.   whether the private telecommunications facilities and equipment were installed by an individual to be used for her or his own telecommunications.
 
  (5)   Upon verifying that a report on installation of, or alternation to, private telecommunications

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      facilities and equipment satisfies the considerations set forth in each of the subparagraphs of paragraph (4), the Korea Communications Commission shall issue to the person who filed such report a certificate thereof.
Article 17 (Confirmation on Construction Work, etc. for Installation)
  (1)   A person who files an installation or alteration report on private telecommunications facilities and equipment under Article 20(3) of the Act shall receive confirmation thereof from the Korea Communications Commission within 7 days after the construction work for the installation or alteration of such facilities and equipment is completed.
 
  (2)   A person who intends to receive confirmation from the Korea Communications Commission under paragraph (1) shall submit thereto an application for confirmation of private telecommunications facilities and equipment (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto:
 
  1.   documentation demonstrating that the construction work was completed in compliance with the technical criteria under Article 25(1) of the Act;
 
  2.   documentation demonstrating that the construction work was completed in compliance with the design drawings under Article 25(3) of the Act; and
 
  3.   copies of licenses held by the operator.
 
  (3)   In the event any of the following is discovered as a result of examination of the documentation under paragraph (2), the Korea Communications Commission may request supplementation thereto within a period reasonably fixed:
 
  1.   where any of the attachments is incomplete; or
 
  2.   where the contents of the application or attachments are unclear.
Article 18 (Exemption from Report on Installation of Private Telecommunications Facilities and Equipment)

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     Private telecommunications facilities and equipment that may be installed without a report under Article 20(4) of the Act are as follows:
  1.   private telecommunications facilities and equipment for installing main and terminal equipment inside a building and on the site thereof;
 
  2.   private telecommunications facilities and equipment for installing main and terminal equipment inside two or more buildings, or on the sites thereof, between which the shortest distance is 100 meters or less and which are possessed by one person (excluding buildings or sites separated by a road or river); or
 
  3.   private telecommunications facilities and equipment installed for use, not exceeding 1 month, by the police in urgent situations.
Article 19 (Supply of Private Telecommunications Facilities and Equipment)
  (1)   A person who has installed private telecommunications facilities and equipment may supply them to a key communications business operator if there are unused telecommunications facilities and equipment in excess of the capacity necessary for the person’s use of telecommunication among the private telecommunications facilities and equipment installed, where the key communications business operator asked to install such private telecommunications facilities and equipment under Article 21(2) of the Act.
 
  (2)   The consideration for any supply of private telecommunications facilities and equipment to key communications business operators under paragraph (1) shall be determined in accordance with the criteria publicly notified by the Korea Communications Commission within the limit of the amount which adds the amount of investment and repair to the expenses required for the network and operation of the private telecommunications facilities and equipment concerned.
Article 20 (Criteria for Order to Suspend Use)
     The criteria for issuing an order to suspend use under Article 23(2) of the Act are as provided in Table 2 attached hereto. <Amended by Enforcement Decree No. 21224 of Dec. 31, 2008>
Article 21 (Types of Offenses Subject to Imposition of Penalties and Amount of Penalties, etc.)

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  (1)   The types of offenses subject to imposition of penalties under Article 24 of the Act and the amount of such penalties shall be as provided in Table 3 attached hereto. <Amended by Enforcement Decree No. 21224 of Dec. 31, 2008>
 
  (2)   In deciding the amount of penalties under paragraph (1), the Korea Communications Commission shall consider each of the following:
 
  1.   substance and severity of the offense;
 
  2.   period and frequency of the offense; and
 
  3.   scale of any profits acquired through the offense.
Article 22 (Imposition and Payment of Penalties)
  (1)   The Korea Communications Commission shall, where it intends to impose a penalty pursuant to Article 24(2) of the Act, notify, in writing, the person subject to such penalty of the type of the offense, the amount of penalty imposed, etc.
 
  (2)   A person receiving a notification under paragraph (1) shall pay the penalty imposed to a receiving agency designated by the Korea Communications Commission within 20 days from the date of receiving such notification; provided that, where the person is unable to pay the penalty imposed within such period due to a natural disaster or other unavoidable circumstances, the person shall pay the penalty imposed within 7 days from the date on which said reason ceases to exist.
 
  (3)   A receiving agency in receipt of a payment of penalty under paragraph (2) shall issue a receipt thereof to the person who paid the penalty.
 
  (4)   A receiving agency in receipt of a payment of penalty shall notify the Korea Communications Commission thereof without delay.
 
  (5)   Penalties may not be paid in installments.
Article 23 (Preparing Design Drawings)

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  (1)   Design drawings under Article 25(3) of the Act shall be prepared by persons falling under any of the following:
 
  1.   a proprietor of engineering activities in the field of communications or information processing pursuant to the Engineering Technology Promotion Act, or a proprietor of engineering activities or professional engineer in the field of communications or information processing whose office is registered pursuant to the Professional Engineers Act; or
 
  2.   an information or communications technician engaged in technical activities pursuant to subparagraph 1 of Table 2 attached to the Enforcement Decree of the Information and Communication Work Business Act.
 
  (2)   The Korea Communications Commission may separately determine, and issue public notification concerning, the scope of construction work for telecommunications facilities and equipment installation that may only be designed by persons falling under subparagraph 1 of paragraph (1).
Article 24 (Certificate)
     Details concerning the certificate referred to in Article 25(7) of the Act shall be prescribed under the Korea Communications Commission Rule.
Article 25 (Management Rules)
     Matters to be determined under the management rules for telecommunications facilities and equipment pursuant to Article 26 of the Act are as follows:
  1.   composition, duties and limited liabilities of telecommunications facilities and equipment management structure;
 
  2.   installation, testing, operation, inspection, maintenance and repair of telecommunications facilities and equipment;
 
  3.   procedures and countermeasures in the event telecommunications facilities and

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      equipment are experiencing trouble;
 
  4.   measures for protecting communication secrets of users of telecommunications facilities and equipment; and
 
  5.   other matters necessary for secure and reliable provision of telecommunications facilities and equipment.
Article 26 (Facilities Entitled to Securing Pipeline Ways)
     The term “other facilities or housing sites as determined by the Enforcement Decree” in Article 30-2(1)8 of the Act means any of the following facilities, etc.:
  1.   passenger transport terminals under the Passenger Transport Service Act;
 
  2.   freight terminals under the Goods Distribution Promotion Act;
 
  3.   complexes for the cooperating business of small and medium enterprises created under the Promotion of Small and Medium Enterprises and Encouragement of Purchase of Their Products Act;
 
  4.   distribution complexes developed under the Promotion of Distribution Complex Development Act;
 
  5.   tourist resorts or sightseeing complexes created under the Tourism Promotion Act; and
 
  6.   sewage culverts under the Sewerage Act.
Article 27 (Conciliation on Securing Pipeline Ways)
  (1)   When asked for conciliation pursuant to Article 30-2(5) of the Act and preparing a draft conciliation thereafter, the Korea Communications Commission shall be advised by the head of the related administrative agency and the parties concerned.
 
  (2)   In the event the Korea Communications Commission prepares a draft conciliation under paragraph (1), it shall notify the parties concerned and may recommend acceptance thereof

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      by specifying a period of not less than 30 days.
 
  (3)   Where the draft conciliation under paragraph (2) is accepted by the parties concerned, the Korea Communications Commission shall prepare a draft conciliation indicating each of the following and have the parties concerned sign and affix their seal to it:
 
  1.   case reference;
 
  2.   names and addresses of the parties concerned, appointed parties or agents;
 
  3.   purpose of the request for conciliation;
 
  4.   conciliation provisions; and
 
  5.   date of preparation.
Article 28 (Integrated Operation of Telecommunications Facilities and Equipment, etc.)
     “Where it is necessary for an efficient management and operation of telecommunications facilities and equipment” in Article 31(1) of the Act shall mean where it is necessary to prevent overlapping investment of telecommunications facilities and equipment through an efficient management and operation of such telecommunications facilities and equipment.
Article 29 (Selection of Integrated Operation Communications Business Operators)
  (1)   In selecting, under Article 31(1) of the Act, key communications business operators who are capable of operating telecommunication facilities and equipment, etc. in an integrated manner, the Korea Communications Commission shall examine matters falling under each of the following and select such operators from among key communications business operators who render telecommunications service in areas or their adjacent areas where telecommunications facilities and equipment subject to the integrated operation are installed:
 
  1.   manpower and organizations of the key communication business operators;
 
  2.   facilities and equipment in possession of the key communication business operators;

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  3.   technical levels of the key communication business operators; and
 
  4.   financial structure of the key communication business operators.
 
  (2)   The Korea Communications Commission shall, where it intends to select operators of integrated operation communications business under Article 31 (1) of the Act, go through in advance deliberation of the Information and Communications Policy Deliberation Council (the “Council”) pursuant to Article 44-2(1) of the Act.
Article 30 (Matters to be Included in Integrated Operation Plan)
     “Other matters prescribed under the Enforcement Decree of the Act” in Article 31(3)3 of the Act means each of the following:
  1.   matters concerning charges for integrated telecommunications facilities and equipment; and
 
  2.   matters concerning workers who operate integrated telecommunications facilities and equipment.
Article 31 (Purchase of Telecommunications Facilities and Equipment, etc.)
  (1)   Sales price of telecommunications facilities and equipment, etc. under Article 32(2) of the Act shall be calculated based on the appraised value of certified public appraisers under the Public Notice of Values and Appraisal of Real Estate Act; provided that, if it is not easy to obtain a certified public appraiser’s appraisal, sales price may be calculated through consultation among the parties concerned.
 
  (2)   Matters concerning the sales procedure of telecommunications facilities and equipment, etc. and the payment method of the sales price under Article 32(2) of the Act shall be determined through consultation among the parties concerned.
Article 32 (Disposal and Collection of Telecommunications Machinery and Materials)
     Any order by the Korea Communications Commission for the disposal or collection of

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telecommunications machinery and materials under Article 36(3) of the Act shall be made in writing, and the reason and period for the disposal or collection shall be specified.
CHAPTER IV RULING IN DISPUTES, ETC.
Article 33 (Application for Ruling)
  (1)   Any person who wishes to apply for a ruling pursuant to Article 40-2(1) of the Act shall submit to the Korea Communications Commission an application for ruling with each of the following documentation attached thereto; provided that, the documentation set forth in subparagraphs 3-5 shall be applicable only to applications for ruling pursuant to Article 40-2(1)3.
 
  1.   documentation relating to the summary of the application for ruling;
 
  2.   documentation relating to the results of consultation among the parties concerned;
 
  3.   copy of the Accord;
 
  4.   documentation relating to the amounts due or payable and the computation method thereof; and
 
  5.   drawings indicating provision, common use or interconnection of telecommunications facilities and equipment, or a summary of information provided.
 
  (2)   In the event any of the following is discovered as a result of examination of the documentation under paragraph (2), the Korea Communications Commission may request supplementation thereto within a period reasonably fixed:
 
  1.   where any of the attachments is incomplete; or
 
  2.   where the contents of the application or attachments are unclear.
 
  (3)   In the event an applicant fails to comply, within the time period prescribed in paragraph (2), with a supplementation request made by the Korea Communications Commission, the

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      Korea Communications Commission shall return all the relevant application materials to such applicant, clearly indicating the reason for the return.
Article 34 (Period for Ruling)
  (1)   The Korea Communications Commission shall make a ruling within 60 days after it receives an application for a ruling under Article 40-2 of the Act.
 
  (2)   In the event the Korea Communications Commission fails to make a ruling within the fixed period under paragraph (1) due to an unavoidable circumstance, a period for the ruling may be extended, only once, for not more than 30 days by the resolution of the Korea Communications Commission.
Article 35 (Ruling)
  (1)   Rulings of the Korea Communications Commission shall be in writing.
 
  (2)   Rulings provided under paragraph (1) shall specify an order, the reason of order, and date of decision, and the chairman, and officials presented in the meeting shall sign or seal the ruling and send it to parties concerned.
Article 36 (Composition of Information and Communications Policy Deliberation Council, etc.)
  (1)   The Council prescribed under Article 44-2 of the Act shall be composed of not more than 20 members including one chairman.
 
  (2)   The chairman and members of the Council shall be appointed or commissioned by the Commissioner of the Korea Communications Commission among those falling under any of the following:
 
  1.   public officials of Grade III or higher, or equivalent to Grade III or higher of related administrative agencies( including public officials of high ranking or Grade);
 
  2.   persons in charge of lecture and research on the information and communications-related fields at universities or research institutes under the Higher Education Act;

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  3.   representatives of information and communications-related organizations or agencies, or persons who have been or were in office as executive officers of information and communications-related enterprises for not less than 5 years;
 
  4.   persons with a significant amount of knowledge and experience in information and communications; or
 
  5.   persons recommended by civil organizations (referring to nonprofit non-governmental organizations under Article 2 of the Assistance for Nonprofit Non-Governmental Organizations Act).
 
  (3)   The terms of office for members shall be two years after which time they may be reappointed; provided that, the term of office for any member who is appointed or commissioned after the decision of his position shall be the period for which he holds such position.
Article 37 (Duties of Chairman)
  (1)   The chairman shall exercise overall control over the affairs and represent the Council.
 
  (2)   Where the chairman is unable to discharge his duties due to compelling reasons, a member appointed in advance by the chairman shall act as chairman on his behalf.
Article 38 (Meetings of the Council)
  (1)   The chairman shall convene a meeting of the Council and shall preside over it.
 
  (2)   Decisions of a meeting of the Council shall be taken by a majority of all the members attending and by affirmative vote of a majority of members present.
 
  (3)   Where deemed necessary, the Council may be advised by the related public officials or related experts.
Article 39 (Secretary of Information and Communications Policy Deliberation Council)

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     The Council shall have a secretary to handle the affairs of the Council, and the secretary shall be appointed by the Commissioner of Korea Communications Commission from among the public officials belonging to the Korea Communications Commission.
Article 40 (Subcommissions)
     The Council may have subcommissions where the matters which the Korea Communications Commission submits for deliberation need a technical review.
Article 41 (Allowance)
     The members who attend the Council or subcommissions shall be paid an allowance within the limits of the budget; provided that, such allowance shall not be applicable where the members who are public officials attend it in direct connection with their duties as public officials.
Article 42 (Detailed Operational Regulations)
     Except those prescribed under this Enforcement Decree, any matter necessary for operation of the Council and composition and operation etc. of subcommissions shall be determined by the chairman through a resolution of the Council.
CHAPTER V CONTROL OF COMMUNICATIONS DISASTERS
Article 43 (Major Key Communications Business Operators)
     Major key communications business operators under Article 44-3(1) of the Act (the “Major Key Communications Business Operators”) shall be (i) key communications business operators providing any of the following services and (ii) either key communications business operators deemed and publicly notified by the Korea Communications Commission to have a great impact on the public interest and national industries, or key communications business operators whose stable provision of services is deemed and publicly notified by the Korea Communications Commission to be especially necessary:
  1.   local telephone service;

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  2.   long distance telephone service;
 
  3.   international telephone service;
 
  4.   high speed internet service; or
 
  5.   among services provided upon being assigned frequencies, a mobile telephone service or a trunked radio system service with at least 100,000 users.
Article 44 (Formulation Procedures for Basic Plan for Communications Disaster Control)
  (1)   Pursuant to Article 44-3(3) of the Act, the Korea Communications Commission shall prepare guidelines on formulation of basic plans for communications disaster control for the next fiscal year not later than the end of April each year and notify major key communications business operators thereof.
 
  (2)   Major key communications business operator shall formulate a plan for communications disaster control for the next fiscal year in accordance with the guidelines on formulation under paragraph (1), and submit it to the Korea Communications Commission not later than the end of May each year.
 
  (3)   Pursuant to Article 44-3(5) of the Act, the Korea Communications Commission shall fix the basic plans for communications disaster control for the next fiscal year not later than the end of July each year.
Article 45 (Integrated Management of Telecommunications Facilities and Equipment)
  (1)   For the purpose of integrated management of telecommunications facilities and equipment pursuant to Article 44-4(1) of the Act, the Korea Communications Commission may order key communications business operators and holders of private telecommunications facilities and equipment to exchange with each other information on the facilities and equipment they operate or own, or order a professional institution designated by the Korea Communications Commission to establish a database of such information and share the database with the Korea Communications Commission.

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  (2)   A key communications business operator may, where integrated management of telecommunications facilities and equipment pursuant to Article 44-4(1) of the Act is needed, make a request for such integrated management to another key communications business operator or a holder of private telecommunications facilities and equipment, and the entity or person so requested shall oblige such request barring any particular circumstances.
 
  (3)   A key communications business operator may request conciliation by the Korea Communications Commission in the event another key communications business operator or a holder of private telecommunications facilities and equipment does not oblige its request under paragraph (2) for integrated management.
 
  (4)   The Korea Communications Commission may, either upon receiving request for conciliation or by its authority, order integrated management of telecommunications facilities and equipment against a key communications business operator or a holder of private telecommunications facilities and equipment.
Article 46 (Organization and Operation of Communications Disaster Control Committee)
  (1)   Vice Ministers of related central administrative agencies who are to become the members of the Communications Disaster Control Committee (hereinafter referred to as the “Committee”) under Article 44-5 (3) of the Act, shall be the Administrator of the National Emergency Management Agency, Vice Minister of National Defense, Deputy Director of the National Intelligence Service, and Vice Ministers of related administrative agencies which are deemed necessary by the Chairman.
 
  (2)   The Chairman shall convene a meeting of the Committee and preside over it.
 
  (3)   If the Chairman is unable to perform his duties due to any inevitable reasons, a member shall act on behalf of the Chairman in the order of members nominated by the Chairman.
 
  (4)   Where the Chairman intends to convene a meeting of the Committee, he shall notify each member, in writing or by an electronic document, of the date and time, venue and agenda of the meeting not later than 7 days before an opening of the meeting: Provided, That the same shall not apply to the case where it is a matter of urgency or there exist inevitable causes.

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  (5)   The Committee shall resolve by the attendance of a majority of all incumbent members, and by the consent of a majority of those present.
 
  (6)   The Committee may hear the opinions of the related public officials or the related specialists in case where it is deemed necessary.
 
  (7)   The Committee shall have an executive secretary to deal with its affairs, and he shall be nominated by the Chairman from among the public officials belonging to the Korea Communications Commission.
Article 47 (Organization and Operation of Working Committees)
  (1)   Working committees established within the Committee under Article 44-5(4) of the Act shall consist of 15 working members or less, including one chairman of working committee.
 
  (2)   The chairman of working committee shall be the emergency strategist of the Korea Communications Commission, and the working members shall be the persons falling under each of the following:
 
  1.   each one of persons designated by the head of relevant institution, from among the public officials of Grade IV or those corresponding thereto, who belong to the central administrative agencies whereto the members under Article 46(1) hereof belong, and to the related administrative agencies deemed necessary by the chairman of working committee; and
 
  2.   person who is commissioned by the chairman of working committee among the persons falling under any of the following items:
  (a)   person in charge of the duties concerning communications disaster, from among the employees of a major key communications business operator and of the electric communications business operators’ organization; and
 
  (b)   person who has much knowledge of, and experiences in, communications disaster control.
  (3)   The chairman of working committee shall convene a meeting of the said committee, and preside over it.

23

 

  (4)   The working committee shall have an executive secretary to deal with its affairs, and the executive secretary shall be appointed by the Commissioner of the Korea Communications Commission among the public officials belonging to the Korea Communications Commission.
 
  (5)   The working committee shall examine and deliberate on the cases referred to the Committee, and on the items delegated by the Committee or directed by the Chairman of the Committee.
Article 48 (Allowances)
     Allowances may be paid within the limit of budgets to the members or the working members who have attended a meeting of the Committee or the working committees; provided that, the same shall not apply to the case where the members or the working members who are the public officials attend in direct relations with their competent duties.
Article 49 (Detailed Operational Rules)
     Except as prescribed under this Enforcement Decree, matters necessary for an organization and operation, etc. of the Committee shall be determined by the Chairman after going through a resolution by the Committee, and matters necessary for an organization and operation, etc. of the working committee shall be determined by the chairman of working committee after going through a resolution by the working committee, respectively.
Article 50 (Report on Communications Disasters)
     Pursuant to Articles 44-7 and 44-8(4) of the Act, the Major Key Communications Business Operators shall, upon occurrence of a communications disaster and until such disaster has been fully contained, report, from time to time, on any damages incurred, present recovery status, countermeasures, etc. to the Korea Communications Commission or the communications disaster countermeasure headquarters under Article 44-8 of the Act (the “Countermeasure Headquarters”)
Article 51 (Organization and Operation of Countermeasure Headquarters)
  (1)   The Countermeasure Headquarters shall consist of public officials belonging to the central

24

 

      administrative agency and the employees belonging to the major key communications business operator, who are directly related with a restoration of communications disaster.
 
  (2)   The Korea Communications Commission shall determine in advance an organizing method of the countermeasure headquarters, so as to enable to swiftly cope with the communications disaster, and to notify it to the head of central administrative agency and the major key communications business operator whereto belong the constituent members of the countermeasure headquarters under paragraph (1).
 
  (3)   The head of countermeasure headquarters shall represent the said headquarters and exercise overall control of the affairs falling under any of the following:
 
  1.   direction and control of the mobilization of materials for an urgent restoration and the restoration activities by the major key communications business operator;
 
  2.   establishment of the countermeasures for efficient urgent restoration activities, such as a setting-up of the urgent restoration systems and a sharing of roles between the major key communications business operators, etc.;
 
  3.   support to the communications in the communications disaster areas; and
 
  4.   other matters deemed necessary by the head of countermeasure headquarters.
 
  (4)   The head of countermeasure headquarters may request the major key communications business operators to dispatch their employees, in order to efficiently operate the countermeasure headquarters. In this case, any major key communications business operator in receipt of a request for dispatching his employees shall comply with it unless there exist any special grounds.
 
  (5)   Except as otherwise prescribed in this Enforcement Decree, the matters necessary for organization and operation of the countermeasure headquarters shall be determined by the head of countermeasure headquarters.
CHAPTER VI SUPPLEMENTARY PROVISIONS

25

 

Article 52 (Procedures for Stating Opinions)
  (1)   If the Korea Communications Commission intends to give an opportunity to state opinion under Article 40-2(2) of the Act, it shall notify the person concerned or the person’s representative not later than ten days before the fixed date for stating opinion.
 
  (2)   The person or the person’s representative notified under paragraph (1) may present oneself on the date fixed, and state or submit in writing one’s opinion.
 
  (3)   When the person concerned or the person’s representative present oneself and state one’s opinion under paragraph (2), public officials concerned shall prepare a written abstract thereof and have the subject person confirm it and affix signature and seal thereto.
 
  (4)   Notification under paragraph (1) shall specify that the subject person will be deemed to have no opinion in the absence of an oral or a written statement of opinion without a compelling reason.
Article 53 (Report on, and Inspection of, Telecommunications Facilities and Equipment)
     “As prescribed under the Enforcement Decree of the Act” in Article 45(1) of the Act means any of the following:
  1.   where necessary for the establishment or enforcement of policies relating to telecommunications;
 
  2.   where necessary in order to verify the propriety of installation or management of telecommunications facilities and equipment; or
 
  3.   where necessary for securing stable communication during a state emergency or disaster.
Article 54 (Delegation and Commission of Powers)
  (1)   Pursuant to Article 46(1) of the Act, the Korea Communications Commission shall delegate each of the following authorities to the director general of the Radio Research Laboratory:

26

 

  1.   form approval of telecommunications machinery and materials under Article 33(1) of the Act;
 
  2.   designation, inspection, cancellation, suspension of business and supervision of designated testing institutions under Article 33-2 of the Act;
 
  3.   termination of form approval under Article 34-2 of the Act;
 
  4.   revocation of form approval, suspension of product manufacturing or taking other necessary measures under Article 35(1) of the Act;
 
  5.   affairs concerning investigation and testing of telecommunications machinery and materials under Article 36(2) of the Act (applicable only to telecommunications machinery and materials for which form approval has been granted under the text of Article 33(1) of the Act);
 
  6.   order for destruction or removal of telecommunications machinery and materials under Article 36(3) of the Act (applicable only to telecommunications machinery and materials for which a sign of form approval has not been marked in contravention of the provisions of Article 33(4) of the Act, or which have been judged inferior in quality after investigation and testing under Article 36(2) of the Act);
 
  7.   hearing under Article 45-2 of the Act; and
 
  8.   imposition or collection of a fine for negligence, pursuant to Article 53(2) of the Act, on and from any person who falls under Article 53(1) 6, 7 or 8 of the Act (applicable only to any person who has rejected, hindered or dodged investigation or testing of telecommunications machinery and materials to which form approval has been granted under the text of Article 33(1) of the Act).
 
  (2)   The Korea Communications Commission shall delegate the following authorities to the Director General of the Central Radio Management Office under Article 46(1) of the Act: <Amended July 3, 2008>
 
  1.   acceptance of reports on the installation of private telecommunications facilities and

27

 

      equipment, and reports on any alteration to the telecommunications facilities and equipment installed, under Article 20(1) of the Act;
 
  2.   verification under Article 20(3) of the Act;
 
  3.   issuance of orders, under Article 22(1) of the Act, against persons who installed private telecommunications facilities and equipment to either engage in a telecommunications business or to connect such private telecommunications facilities and equipment with other telecommunications facilities and equipment;
 
  4.   issuance of correction orders, under Article 23(1) of the Act, against persons who installed private telecommunications facilities and equipment;
 
  5.   issuance of orders, under Article 23(2) and (3) of the Act, to suspend the use of private telecommunications facilities and equipment or to remodel or repair private telecommunications facilities and equipment;
 
  6.   imposition or collection of penalties under Article 24 of the Act;
 
  7.   examination or testing of telecommunications facilities and equipment, under Article 25(5) of the Act, in order to verify whether they conform to the technical standards;
 
  8.   measures necessary, under Article 27 of the Act, to correct persons who installed telecommunications facilities and equipment or for other purposes;
 
  9.   investigation of telecommunications machinery and materials under Article 36(2) of the Act (applicable only to telecommunications machinery and materials for which form approval has not been granted in contravention of the text of Article 33(1) of the Act); and
 
  10.   issuance of orders to destruct or remove telecommunications machinery and materials under Article 36(3) of the Act (applicable only to telecommunications machinery and materials for which form approval has not been granted in contravention of the text of Article 33(1) of the Act).
 
  11.   acceptance and inspection of reports with respect to persons who install

28

 

      telecommunications facilities and equipment under Article 45(1) of the Act;
 
  12.   issuance of orders to eliminate illegal telecommunication facilities and equipment and taking other measures necessary therefor under Article 45(2) of the Act; and
 
  13.   imposition or collection of a fine for negligence, pursuant to Article 53(2) of the Act, on and from any person who falls under Article 53(1)1-5, 8, 9 or 10 of the Act (applicable only to any person who has rejected, hindered or dodged investigation of telecommunications machinery and materials to which form approval has not been granted in contravention of the text of Article 33(1) of the Act).
Article 55 (Fines for Negligence)
  (1)   When the Korea Communications Commission imposes a fine for negligence under Article 53(2) of the Act, it shall, upon investigation and verification of the subject offense, notify, in writing, the person subject to such fine to pay it, specifying the details of the subject offense and methods of, and period for, raising objection .
 
  (2)   When the Korea Communications Commission intends to impose a fine for negligence under paragraph (1), it shall specify a period of not less than 10 days and give the person subject to such fine an opportunity to state her or his opinion. In such case, it shall be deemed that there is no opinion in the absence of any oral or written opinion presented within the period specified.
 
  (3)   In determining the amount of a fine for negligence, the Korea Communications Commission shall take into account the motive and consequences of the subject offense.
 
  (4)   Fines for negligence shall be collected in accordance with the collection procedures for any income prescribed under the laws relating to the management of national funds, and any payment notice shall include methods of, and period for, objection.
ADDENDA <Enforcement Decree No. 21224, Dec. 31, 2008>
The Act shall be effective as of January 1, 2009.

29

EX-15.3 9 h03459exv15w3.htm EX-15.3 EX-15.3
Exhibit 15.3
TELECOMMUNICATIONS BUSINESS ACT
As amended by Act No. 9481 of Mar. 13, 2009, effective Mar. 13, 2009
CHAPTER I. GENERAL PROVISIONS
Article 1 (Purpose)
     The purpose of this Act is to contribute to the promotion of public welfare by encouraging sound development of telecommunications business and ensuring convenience to the users of telecommunications service through proper management of such business.
Article 2 (Definitions)
     (1) For the purpose of this Act, <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998>
     1. the term “telecommunications business operator” means a person who provides telecommunications service with holding a license or making a registration or report under this Act;
     2. the term “user” means a person who has made a contract for the use of any telecommunications service with the telecommunications business operator in order to receive a provision of telecommunications service; and
     3. the term “universal service” means the basic telecommunications service which any user may receive at reasonable fees anytime and anywhere.
     (2) The terms used in this Act shall be the same as defined in the Framework Act on Telecommunications, except for those defined in paragraph (1) above. <Amended by Act No. 8198, Jan. 3, 2007>

1

 

Article 3 (Duty of Providing Services, etc.)
     (1) A telecommunications business operator shall not refuse to provide any telecommunications service, without justifiable reasons.
     (2) A telecommunications business operator shall guarantee the fairness, speediness and accuracy in performing his business.
     (3) A fee for telecommunications service shall be reasonably fixed so as to ensure a smooth development of telecommunications business and to provide the users with convenient and diverse telecommunications services in the fair and inexpensive manner.
Article 3-2 (Universal Service)
     (1) All telecommunications business operators shall have the obligation to provide universal service or to replenish the losses incurred by such provisions. <Amended by Act No. 6346, Jan. 8, 2001>
     (2) The Communications Commission may, notwithstanding the provisions of paragraph (1), exempt the telecommunications business operator determined by the Enforcement Decree as a telecommunications business operator for whom an imposition of obligation under paragraph (1) is deemed inadequate in view of the peculiarity of telecommunications service, or the telecommunications business operator whose turnover of telecommunications service is less than the amount as determined by the Enforcement Decree within the limit of 1/100 of total turnover of the telecommunications services, from the relevant obligations. <Newly Inserted by Act No. 6346, Jan. 8, 2001, Act No. 8867, Feb. 29, 2008>
     (3) The details of universal service shall be determined by the Enforcement Decree in consideration of the following matters: <Amended by Act No. 8425, May 11, 2007>
     1. Level of the development of information and communications technology;
     2. Level of the dissemination of telecommunications service;
     3. Public interest and safety;
     4. Promotion of social welfare; and

2

 

     5. Acceleration of informatization.
     (4) In order to provide effective, stable universal service, the Korea Communications Commission may, in consideration of size and quality of universal service, level of price and the technical capability of a telecommunications business operator, designate a telecommunications business operator through the method and procedure prescribed by the Enforcement Decree. <Amended by Act No.8425, May 11, 2007; No. 8867, Feb. 29, 2008>
     (5) Under the method and procedure prescribed by the Enforcement Decree, the Korea Communications Commission may have a telecommunications business operator bear compensation for losses incurred in the course of providing universal service based on the total sales. <Newly inserted by Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5564, Sep. 17, 1998]
CHAPTER II. TELECOMMUNICATIONS BUSINESS
SECTION 1 General Provisions
Article 4 (Classification, etc. of Telecommunications Business)
     (1) The telecommunications businesses shall be classified into a key communications business, a specific communications business and a value-added communications business. <Amended by Act No. 5385, Aug. 28, 1997>
     (2) The key communications business shall be the business to install telecommunications line facilities, and thereby provide telecommunications services such as telegraph and telephone service (hereinafter referred to as the “key telecommunications services”), whose types and contents are determined by the Enforcement Decree, in consideration of impacts on the public interest and national industries and the necessity for stable provision of services. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>

3

 

     (3) The specific communications business shall correspond to one of the following subparagraphs: <Newly Inserted by Act No. 5385, Aug. 28, 1997; Act No. 8867, Feb. 29, 2008>
     1. Business which provides a key telecommunications service by making use of telecommunications line facilities, etc. of a person who has obtained a license for key communications business under Article 5 (hereinafter referred to as a “key communications business operator”); and
     2. Business which installs the telecommunications facilities in the premises as determined by the Enforcement Decree, and provides a telecommunications service therein by making use of the said facilities.
     (4) The value-added communications business shall be the business which leases telecommunications line facilities from a key communications business operator, and provides a telecommunications business service other than the key telecommunications services under paragraph (2) (hereinafter referred to as the “value-added communications service”). <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997>
     [This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]
SECTION 2 Key Communications Business
Article 5 (License etc. of Key Communications Business Operator)
     (1) A person who intends to run a key communications business shall obtain a license from the Korea Communications Commission. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) Deleted. <by Act No. 9481, Mar. 13, 2009>
     (3) The Korea Communications Commission shall, in granting a license under paragraph (1), comprehensively examine the matters falling under each of the following subparagraphs: <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     1. Propriety of the plans for providing the key telecommunications services;

4

 

     2. Appropriateness of the size of telecommunications facilities;
     3. Financial and technical capability;
     4. Actual results of technical developments related to key telecommunications services to be provided;
     5. Technical development plans related to key telecommunications services;
     6. Support plans for technical developments for promoting telecommunications; and
     7. Other necessary matters for the performance of business.
     (4) The Communications Commission shall set forth the detailed examination criteria by examining item under paragraph (3), period for license and outline of application for license, and make a public announcement thereof. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (5) The Korea Communications Commission may, in case where it grants a license for key communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
     (6) A person subject to a license under paragraph (1) shall be limited to a juristic person.
     (7) Procedures for a license under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     [This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]
Article 5-2 (Reasons for Disqualification for License)
     Persons falling under each of the following subparagraphs shall not be entitled to obtain the

5

 

license for a key communications business as referred to in Article 5:
     1. The State or local governments;
     2. Foreign governments or foreign corporations; and
     3. Corporations whose stocks are owned by foreign governments or foreigners in excess of the restrictions on stock possessions as referred to in Article 6 (1).
     [This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]
Article 6 (Restrictions on Stock Possessions of Foreign Governments or Foreigners)
     (1) The stocks of a key communications business operator (limited to the voting stocks, and including the stock equivalents with voting rights, such as stock depositary receipts, etc. and investment equities; hereinafter the same shall apply) shall not be owned in excess of 49/100 of the gross number of issued stocks, when adding up all of those owned by the foreign governments or foreigners.
     (2) A corporation whose largest stockholder is a foreign government or a foreigner (including, throughout this Act, a specially-related person under Article 9(1)1 of the Capital Markets and Financial Investment Business Act) and not less than 15/100 of the gross number of its issued stocks is owned by said foreign government or foreigner (hereinafter referred to as the “fictitious corporation of foreigners”) shall be regarded as a foreigner. <Amended, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
     (3) A corporation that owns less than 1/100 of the gross number of stocks issued by a key communications business operator shall not be regarded as a foreigner, even if it is equipped with the requirements as referred to in paragraph (2).
     [This Article Wholly Amended by Act No. 7165, Feb. 9, 2004]
Article 6-2 (Grounds for Disqualifying Officers)
     (1) Any person falling under each of the following subparagraphs shall be disqualified to serve as an officer of any key communications business operator <Amended by Act No. 7445, Mar. 31,

6

 

2005; Act No. 8198, Jan. 3, 2007>:
     1. A minor, an incompetent or a quasi-incompetent;
     2. A person who has yet to be reinstated after having been declared bankrupt;
     3. A person who has been sentenced to imprisonment without prison labor or a heavier punishment on charges of violating this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. and for whom three years have yet to pass from the date on which the execution of the sentence is terminated (including a case where the execution of the sentence is deemed to be terminated) or the execution of the sentence is exempted;
     4. A person who is in a stay period after having been sentenced to a stay of the execution of the imprisonment without prison labor or a heavier punishment on charges of violating this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc.;
     5. A person who has been sentenced to a fine on charges of violating this Act, the Framework Act on Telecommunications, the Radio Waves Act or the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc. and for whom three years have yet to pass from the date of such sentence; and
     6. A person who has been subject to a disposition taken to revoke his permission in accordance with Article 15 (1), a disposition taken to revoke his registration in accordance with Article 28 (1) or an order given in accordance with paragraph (2) of the same Article to discontinue his business and for whom three years have yet to pass from the date of such disposition or order. In the case of a corporation, the person refers to the person who commits the act of causing the disposition to revoke permission, the disposition to revoke registration or the order to discontinue business, and its representative.
     (2) In the event that any officer is found to fall under each subparagraph of paragraph (1) or is found to fall under each subparagraph of paragraph (1) at the time that he is selected and appointed as an officer, he shall rightly resign from the office.
     (3) Any act in which any officer has been involved prior to his resignation under paragraph (2)

7

 

shall not lose its legal efficacy.
     [This Article Wholly Amended by Act No. 6822, Dec. 26, 2002]
Article 6-3 (Examination of Public Interest Nature of Stock Acquisition, etc. by Key Communications Business Operator)
     (1) The Public Interest Nature Examination Committee (hereinafter referred to as the “Committee”) shall be established in the Korea Communications Commission in order to make an examination regarding whether or not what falls under each of the following subparagraphs impedes the public interests as prescribed by the Enforcement Decree (hereinafter referred to as the “examination of public interest nature”), such as the national safety guarantee and maintenance of public peace and order, etc.<Amended, Jan. 3, 2007; Act No.8635, Aug. 3, 2007; Act No. 8867, Feb. 29, 2008>:
     1. Where the principal comes to own not less than 15/100 of the gross number of stocks issued by a key communications business operator, when adding up those owned by the specially-related person as referred to in Article 9 paragraph (1) subparagraph 1 of the Capital Market Integration Act(hereinafter referred to as the “specially-related person”);
     2. Where the largest stockholder of a key communications business operator is altered;
     3. Where a key communications business operator or any stockholder of a key communications business operator concludes a contract for important management matters as prescribed by the Enforcement Decree, such as the appointment and dismissal of executives and the transfer or takeover, etc. of business of the relevant key communications business operator, with a foreign government or a foreigner; and
     4. Other cases as prescribed by the Enforcement Decree, where there exists a change in the stockholders who have de facto management rights of a key communications business operator.
     (2) Where a key communications business operator or any stockholder of a key communications business operator comes to fall under each of subparagraphs of paragraph (1), he shall file a report thereon with the Korea Communications Commission within seven days from the time when such a fact took place. <Amended by Act No. 8867, Feb. 29, 2008>

8

 

     (3) Where a key communications business operator or any stockholder of a key communications business operator is to come to fall under each of subparagraphs of paragraph (1), he may, prior to the said situation, request the Korea Communications Commission to make an examination as referred to in paragraph (1). <Amended by Act No. 8867, Feb. 29, 2008>
     (4) Where the Korea Communications Commission has received a report as referred to in paragraph (2) or a request for examination as referred to in paragraph (3), it shall refer it to the Committee. <Amended by Act No. 8867, Feb. 29, 2008>
     (5) Where the Korea Communications Commission judges that there exists a danger of impeding the public interests by the cases falling under each of subparagraphs of paragraph (1) in view of the result of examination as referred to in paragraph (1), it may order the alteration of contract detail and suspension of its implementation, the suspension of exercise of voting rights, or the sale of relevant stocks. <Amended by Act No. 8867, Feb. 29, 2008>
     (6) The report as referred to in paragraph (2) or (3), or the scope of key communications business operators to be examined, the procedures for reports and examinations and other necessary matters shall be stipulated by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>.
     [This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]
Article 6-4 (Composition and Operation, etc. of Public Interest Nature Examination Committee)
     (1) The Committee shall consist of not less than five but not more than ten members including one Chairman.
     (2) The Chairman shall be the Vice Chairman of the Korea Communications Commission, and the members shall be the persons commissioned by the Chairman from among the public officials ranking Grade III or higher grade of related central administrative agencies or public officials who belong to senior executive service as prescribed by the Enforcement Decree, and those falling under each of the following subparagraphs <Amended, by Act No. 7796 ,Dec. 29, 2005; Act No. 8198,Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>:
     1. Persons having profound knowledge and experiences in the information and communications;

9

 

     2. Persons recommended by the Government-contributed research institutes relating to the national safety guarantee and maintenance of public peace and order;
     3. Persons recommended by the nonprofit non-governmental organizations as referred to in Article 2 of the Assistance for Nonprofit Non-Governmental Organizations Act; and
     4. Other persons deemed necessary by the Chairman.
     (3) The Committee may conduct necessary investigations for the examination of public interest nature, or request the interested parties or the reference witnesses to provide the data. In such case, the relevant interested parties or the reference witnesses shall comply with it unless they have any justifiable reasons.
     (4) Where the Committee deems it necessary, it may have the interested parties or the reference witnesses attend the Committee, and hear their opinions.
     (5) Matters necessary for the organization or operation, etc. of the Committee shall be prescribed by the Enforcement Decree.
     [This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]
Article 7 (Restrictions, etc. on Stockholders of Excessive Possession)
     (1) Where a foreign government or a foreigner has acquired the stocks in contravention of the provisions of Article 6 (1), no voting rights shall be exercised for the stocks under the said excessive possession.
     (2) The Korea Communications Commission may order the stockholder who has acquired stocks in contravention of the provisions of Article 6 (1), a key communications business operator wherein exists the said stockholder, or the stock-holder of the fictitious corporation of foreigners, to make corrections in the relevant matters, with specifying the period within the limit of six months.<Amended by Act No. 8867, Feb. 29, 2008>
     (3) Persons subjected to the order for corrections as referred to in paragraph (2) shall make corrections in the relevant matters within the specified period.

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     (4) With regard to the stockholder in contravention of the provisions of Article 6 (1), a key communications business operator may refuse any renewals for the excessive portion in the register of stockholders or of members.
     [This Article Wholly Amended by Act No. 7165, Feb. 9, 2004]
Article 7-2 (Charge for Compelling Execution)
     (1) Against the persons who were subjected to the orders as referred to in Articles 6-3 (5) or 7 (2) (hereinafter referred to as the “corrective orders”) and has failed to comply with them within the specified period, the Communications Commission may levy the charge for compelling the execution. In such case, the charge for compelling the execution leviable per day shall be not more than 3/1,000 of purchase prices of relevant possessed stocks, but in the case not related with the stock possession, it shall be the amount not exceeding 100 million won. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) The period subject to a levy of the charge for compelling the execution as referred to in paragraph (1) shall be from the day next to the date of expiration of the period set in the corrective orders to the date of implementing the corrective orders. In such case, a levy of the charge for compelling the execution shall be made within 30 days from the day next to the expiration date of the period set in the corrective orders, except for the case where there exists a special reason.
     (3) Provisions of Article 37-2 (4) shall apply mutatis mutandis to the collection of the charge for compelling the execution.
     (4) Matters necessary for the levy, payment, refund, etc. of the charge for compelling the execution shall be prescribed by the Enforcement Decree.
     [This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]
Article 8 (Issuance of Stocks)
     A key communications business operator shall, in a case of an issuance of stocks, issue the registered ones. <Amended by Act No. 4903, Jan. 5, 1995>

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Article 9 (Obligation of Commencing Business)
     (1) A key communications business operator shall install telecommunications facilities and commence business within the period as fixed by the Korea Communications Commission<Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission may, in case where the said business operator is unable to commence business within the period under paragraph (1) due to force majeure and other unavoidable reasons, extend the relevant period only once, upon an application of the key communications business operator. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) Deleted. <by Act No. 5564, Sep. 17, 1998>
Article 10 (Addition of Service and Modification of License)
     (1) A key communications business operator shall, in case where he intends to additionally provide a key communications service other than that already licensed under Article 5, obtain a modified license for such change from the Korea Communications Commission under the conditions as prescribed by the Enforcement Decree: Provided, That where a key communications business operator who provides a telephone service intends to additionally provide a key communications service prescribed by the Enforcement Decree within the limit of not hampering a key communications service which is provided by making use of existing facilities, he shall make a report thereon to the Minister of Information and Communication. <Amended by Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
     (2) Where a key communications business operator intends to modify the important matters prescribed by the Enforcement Decree from among the matters licensed under Article 5, he shall obtain a modified license from the Korea Communications Commission, under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     (3) The provisions of Articles 5 (5) and Article 9 shall be applicable mutatis mutandis to a modified license for change under paragraph (1).
     [This Article Wholly Amended by Act No. 5564, Sep. 17, 1998]

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Article 11 (Concurrent Operation of Business)
     (1) A key communications business operator shall, in case where he intends to run any of the businesses set forth in the following subparagraphs, obtain approval from the Korea Communications Commission: Provided that, this provision shall not apply to any key communications business operator with less than 30,000,000,000 Korean Won in turnover of services. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 8324, Mar. 29, 2007; Act No. 8867, Feb. 29, 2008>
  1.   manufacturing of telecommunications [tools]
 
  2.   information and communications work pursuant to paragraph 3 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation work for electronic telecommunications network)
 
  3.   services pursuant to subparagraph 6 of Article 2 of the Information and Communications Work Business Act (excluding renovation and consolidation of electronic telecommunications network).
     (2) The Korea Communications Commission shall grant approval under paragraph (1), in case where deemed that a key communications business operator is not likely to cause any impediments to the operation of telecommunications service by running a business under paragraph (1), and that it is required for the development of telecommunications. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 12 Deleted. <by Act No. 5986, May 24, 1999>
Article 13 (Takeover of Business and Merger of Juristic Persons etc.)
  (1)   A person who belongs to any one of the categories set forth in the following paragraphs shall obtain an authorization from the Korea Communications Commission under the conditions as prescribed by the Enforcement Decree: Provided, that in case that person sells telecommunications circuit installations except the ones prescribed by the Enforcement Decree, he shall report it to the Korea Communications Commission under the conditions as determined by the Enforcement Decree <Amended by Act No. 8198, Jan. 3, 2007; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
  1.   a person who takes or intends to take over the whole or part of a business of a key communications business operator
 
  2.   a person who intends to merge with a juristic person which is a key communications business operator

13

 

  3.   a key communications business operator intending to sell the telecommunications circuit installations necessary for provision of key communications service
 
  4.   a person who, along with a certain related person intends to become the [largest shareholder of a key communications business operator or own 15% of more of the issued shares of the key communications business operator.
     (2) Where a key communications business operator intends to establish a juristic person in order to provide a part of key communications services from among the plural key communications services licensed, he shall obtain approval from the Korea Communications Commission, under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     (3) The Korea Communications Commission shall, in case where it intends to grant authorization or approval under paragraph (1) or (2), comprehensively examine the matters falling under each of the following subparagraphs: <Newly Inserted by Act No. 6230, Jan. 28, 2000; Act No. 8425, May 11. 2007; Act No. 8867, Feb. 29, 2008>
     1. Appropriateness of financial and technical capability and business operational capability;
     2. Appropriateness of management of resources for information and communications, such as frequencies and telecommunications numbers, etc.;
     3. Impact on the competition of key communications business; and
     4. Impact on the protection of users and the public interests.
     5. Impact on public interests, such as the use of telecommunications facilities and communication networks, efficiency of research and development and international competitive power of the communications industry, etc.
     (4) Matters necessary for the detailed examination standards by examination items and the examination procedures, etc. under paragraph (3) shall be fixed and publicly announced by the the Korea Communications Commission<Newly Inserted by Act No. 6230, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     (5) A person who has taken over the business of a key communications business operator by obtaining an authorization under paragraph (1), or a juristic person surviving a merger or that

14

 

established by a merger, or that established by obtaining an authorization under paragraph (2),
     shall succeed to the status which is related to a license of the relevant key communications business.
     (6) The Korea Communications Commission may, in case where it grants authorization or approval under paragraph (1) or (2), attach conditions required for fair competition and protection of users, etc. <Newly Inserted by Act No. 6230, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
     (7) The Korea Communications Commission shall, in case where it intends to grant an authorization under paragraph (1), go through a consultation with the Fair Trade Commission. <Amended by Act No. 6230, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008; Act No. 9481, March 13, 2009>
     (8) The provisions of Article 5-2 shall apply mutatis mutandis to an authorization under paragraph (1) and approval under paragraph (2). <Amended by Act No. 7165, Feb. 9, 2004>
     (9) In the event any person/entity subject to Article 1(4) fails to acquire the permit pursuant thereto, the Korea Communications Commission may order suspension of its voting right or sale of the applicable shares. <Newly inserted, Jan.3, 2007; Act No. 8867, Feb. 29, 2008>
     (10) A person who wishes to obtain authorization under paragraph (1) or approval under paragraph (2) shall not unify communications networks, appoint officers, execute other activities such as transferring, consolidating, entering into contract concerning disposing of facilities or take follow-up measures regarding establishment of a company prior to obtaining such authorization or approval. <Newly inserted by Act No. 8425, May 11, 2007>
     [This Article Wholly Amended by Act No. 5564, Sep. 17, 1998]
Article 14 (Suspension, Closedown of Business or Dissolution of Juristic Persons, etc.)
     (1) A key communications business operator shall, in case where he intends to suspend or discontinue the whole or part of a key communications business run by him, notify the users at least 60 days prior to the date of termination and obtain approval of such suspension or discontinuation from the Korea Communications Commission. <Amended by Act No. 5220, Dec. 30, 1996; Act No.8324, Mar. 29, 2007; Act No. 8867, Feb. 29, 2008>

15

 

     (2) In the event separate measures of protection is deemed to be necessary for the protection of users upon suspension or discontinuance of the relevant key communications business, the Korea Communications Commission may order such measures (including assistance for membership change, bearing expenses, termination of membership) to be taken. Amended by Act No. 8324 Mar. 29, 2007; Act No. 8867, Feb. 29, 2008>
     (3) The Korea Communications Commission shall, in case where an application for approval or authorization under paragraph (1) is made, and where deemed that suspension, discontinuance of relevant business or a dissolution of a juristic person is likely to hamper the public interests, not grant the relevant approval or authorization. <Amended by Act No. 5220, Dec. 30, 1996. Amended by Act No. 8324, Mar. 29, 2007; Act No. 8867, Feb. 29, 2008>
     [This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]
Article 15 (Cancellation of License, etc.)
     (1) The Korea Communications Commission may, in case where a key communications business operator falls under any one of the following subparagraphs, cancel the relevant license or give an order to suspend the whole or part of business with fixing a period of no more than one year: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5564, Sep. 17, 1998; Act No. 5835, Feb. 8, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6360, Jan. 16, 2001; Act No. 7916,March 24, 2006,;Act No. 8198, Jan. 3, 2007; Act No. 8425, May 11, 2007; Act No., 8867, Feb. 29, 2008>
     1. Where he has obtained a license by deceit and other illegal means;
     2. Where he has failed to implement the conditions under Articles 5 (5) and 13 (6);
     3. Where he has failed to observe the orders under Article 7 (2);
     4. Where he has failed to commence business within the period under Article 9 (1) (in case of obtaining an extension of the period under Article 9 (2), the extended period);
     5. Where he has failed to comply with the standardized use contract, that is authorized or reported under Article 29 (1); and

16

 

     6. Where he fails to comply with an order for correction under Article 37 (1) or Article 65 (1) without any justifiable reasons.
     (2) Criteria and procedures for the dispositions under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree. <Amended by Act No. 5220, Dec. 30, 1996,: Act No. 8324, Mar. 29, 2007>
Article 16 Deleted. <by Act No. 5564, Sep. 17, 1998>
SECTION 3 Deleted.
Articles 17 and 18 Deleted. <by Act No. 4903, Jan. 5, 1995>
SECTION 4 Specific Communications Business and Value-Added Communications Business
Article 19 (Registration of Specific Communications Business Operator)
     (1) A person who intends to operate a specific communications service shall register the following matters with the Korea Communications Commission (including registration through information network) under the conditions as determined by the Enforcement Decree <Amended by Act No. 8198 Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>:
     1. Financial and technical capability;
     2. Plans for a user protection; and
     3. Business plans, etc. and other matters as determined by the Enforcement Decree.
     (2) The Korea Communications Commission may, upon receipt of the registration of a specific communications business under paragraph (1), attach the conditions necessary for the promotion of fair competition, protection of users, improvement of service quality and efficient employment of resources for information and communication. <Amended by Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>

17

 

     (3) A person subject to the registration of specific communications business under paragraph (1) shall be limited to a juristic person.
     (4) Procedures and requirements for the registration under paragraph (1) and other necessary matters shall be determined by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5385, Aug. 28, 1997]
Article 20 Deleted. <by Act No. 5986, May 24, 1999>
Article 21 (Report, etc. of Value-Added Communications Business Operator)
     A person who intends to run a value-added communications business shall report to the Korea Communications Commission (including reports via information network), according to the requirements and procedures as prescribed by the Enforcement Decree: Provided, That this shall not apply to a case where a key communications business operator intends to run a value-added communications business or where the size of the operating telecommunications facilities is a small value-added communication business matching the criteria prescribed by the Enforcement Decree. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 7445, Mar. 31, 2005; Act No. 8198, Jan. 3, 2007; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
     [This Article Wholly Amended by Act No. 4903, Jan. 5, 1995]
Article 22 (Modification of Registered or Reported Matters)
     A person who has registered as a specific communications business operator under Article 19 (hereinafter referred to as a “specific communications business operator”) or who has made a report of a value-added communications business operator under Article 21 (hereinafter referred to as a “value-added communications business operator”) shall, when he intends to modify the matters as determined by the Enforcement Decree from among the relevant registered or reported matters, make in advance a modified registration or modified report (including modified registration or modified report through information network) to the Korea Communications Commission under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 8198, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>

18

 

     [This Article Wholly Amended by Act No. 5385, Aug. 28, 1997]
Article 23 Deleted. <by Act No. 4903, Jan. 5, 1995>
Articles 24 and 24-2 Deleted. <by Act No. 5986, May 24, 1999>
Article 25 (Transfer or Takeover, etc. of Business)
     In case where there exists a transfer or takeover of the whole or part of a specific communications business or a value-added communications business, or a merger or succession of a juristic person which is a specific communications business operator or a value-added communications business operator, a person who has taken over the relevant business, the juristic person surviving the merger, the juristic person founded by the merger, or the successor shall make the report thereon (including reports through information network) to the Korea Communications Commission, according to the requirements and procedures as prescribed by the Enforcement Decree. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, , Sep. 17, 1998; Act No. 8198, Jan. 3, 2007; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
Article 26 (Succession of Business)
     In case where there have existed a transfer or takeover of a specific communications business or a value-added communications business, a merger of a juristic person which is a value-added communications business operator, or a succession of a value-added communications business, under Article 25, a person who has taken over the business, a juristic person surviving a merger, a juristic person founded by a merger or a successor shall succeed to the status of a former specific communications business operator or a value-added communications business operator. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5385, Aug. 28, 1997>
Article 27 (Suspension or Closedown, etc. of Business)
     (1) A specific communications business operator or a value-added communications business operator shall, in case where he intends to suspend or close down the whole or part of his business, notify the relevant contents to the users of relevant services, and report thereon to the Korea Communications Commission (including reports through information network) not later than thirty days prior to the slated date of the relevant suspension or closedown. <Amended by Act No. 5220,

19

 

Dec. 30, 1996; Act No. 5385, Aug. 28, 1998; Act No. 8198, Jan. 3, 2007, Act No. 8867, Feb. 29, 2008>
     (2) Where a juristic person which is a specific communications business operator or a value-added communications business operator is dissolved for reasons other than a merger, a relevant liquidator (referred to a trustee in a bankruptcy, when it is dissolved by bankruptcy) shall report thereon without delay to the Korea Communications Commission. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997, Act No. 8198, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
Article 28 (Cancellation of Registration and Order for Closedown of Business)
     (1) The Korea Communications Commission may, when a specific communications business operator falls under any of the following subparagraphs, cancel his registration, or suspend his business by specifying the period of not more than one year: Provided, That when he falls under the subparagraph 1, the Korea Communications Commission shall cancel his registration: <Newly Inserted by Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 5835, Feb. 8, 1999; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6360, , Jan. 16, 2001, Act No. 7916, Mar. 24, 2006; Act No. 8198, Jan. 3, 2007; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
     1. Where he makes a registration by deceit and other illegal means;
     2. Where he fails to commence business within one year from the date on which a registration was made under Article 19 (1), or continually suspends business operation for not less than one year;
     3. Where he fails to implement the conditions under Article 19 (2);
     4. Deleted; <by Act No. 5986, May 24, 1999>
     5. Where he fails to comply with an order for correction under Article 37 (1) or Article 65 (1) without any justifiable reasons;
     6. Deleted; <Act No. 8425, May 11, 2007>
     7. Deleted <Act No. 8425, May 11, 2007>

20

 

     (2) The Minister of Information and Communication may, when a value added communications business operator falls under any of the following subparagraphs, issue an order to him for a closedown of business or for a suspension of business by specifying a period of not more than one year: Provided, That where he falls under any one of the following subparagraphs, the said Minister shall issue an order to him for a closedown of business: <Amended by Act No. 4903, Jan 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5564, Sep. 17, 1998; Act No. 5835, Feb. 8, 1999; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6360, Jan. 16, 2001; Act No. 7916, Mar. 24, 2006; Act No. 8198, Jan. 3, 2007; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
     1. Where he makes a report by deceit and other illegal means;
     2. Where he fails to commence the business within one year from the reporting date under Article 21, or suspend the business operation for not less than one year;
     3. Deleted; <by Act No. 5986, May 24, 1999>
     4. Where he fails to comply with a correction order under Article 37 (1) or Article 65 (1) without any justifiable reasons; and
     5. Deleted; <May 11, 2007>
     (3) Criteria and procedures for dispositions taken under paragraph (1) or (2) and other necessary matters shall be determined by the Ordinance of the Ministry of Information and Communication. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 8324, Mar. 29, 2007>
CHAPTER III. TELECOMMUNICATIONS SERVICE
Article 29 (Report, etc. of Standardized Use Contract)
     (1) A key communications business operator shall set forth the fees and other terms for use by service with respect to the telecommunications service which he intends to provide (hereinafter referred to as the “standardized use contract”), and report thereon (including a modified report) to the Korea Communications Commission: Provided, That in a case of a key communications service

21

 

whose size of business and market share correspond to the standards as determined by the Enforcement Decree, it shall obtain an authorization of the Korea Communications Commission (including a modified authorization). <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) Deleted. <by Act No. 5385, Aug. 28, 1997>
     (3) The Korea Communications Commission shall authorize the standardized use contract under the proviso of paragraph (1), if it falls under the criteria of every following subparagraph: <Amended by Act No. 5220, Dec. 30, 1996, May 11, 2007, Feb. 29, 2008>
     1. Fees for telecommunications service shall be reasonably calculated considering but not limited to costs of supply, profits, classification of costs/ profits by labor, cost savings achieved by methods of provision of labor, and effects on fair competitive environments;
     2. Deleted; <May 11, 2007>
     3. Matters concerning the responsibility of key communications business operators and relevant users, cost-sharing methods concerning the installation work of telecommunications facilities and other works shall not be unreasonably disadvantageous to users.
     4. Forms of use of telecommunications line facilities by other telecommunications business operators or users shall not be unduly restricted;
     5. Undue discriminatory treatments shall not be made to specific persons; and
     6. Matters on securing the important communications under Article 55 shall take into consideration matters such as achieving efficient performance of State’s function.
     (4) Deleted; May 11, 2007
     (5) The standardized use contract under paragraph (1) shall be applicable with respect to use of telecommunications line facilities, in case where a specific communications business operator or a value-added communications business operator makes use of telecommunications line facilities of a key communications business operator. <Amended by Act No. 5385, Aug. 28, 1997>

22

 

     (6) A person intending to acquire the approval (including approval for change of business) or file a report with respect to the telecommunications services shall submit the supporting data for calculation of fee (including subscription fee, basic fee, usage fee, value-added service fee, and actual expense). In case of business change, a table comparing the old (before change) and new (after change) supporting data should be submitted to the Korea Communications Commission for comparison. <Newly inserted, Act No. 8198, Jan. 3 2007; Amended by Act No. 8867, Feb. 29, 2008>
Article 30 Deleted. <Jan. 3, 2007>
Article 31 Deleted. <by Act No. 5986, May 24, 1999>
Article 32 (Reduction or Exemption of Fees)
     A key communications business operator may reduce or exempt the fees for telecommunications service under the conditions prescribed by the Enforcement Decree, such as national security guarantee, disaster relief, social welfare and public interest. <Amended Act No. 8425, May 11, 2007>
Article 32-2 (Restriction on Use by Others)
     No person shall intermediate other’s communications or provide for other’s communications by making use of telecommunications services provided by a telecommunications business operator: Provided, That the same shall not apply to the case falling under any of the following subparagraphs: <Amended by Act No. 6822, Dec. 26, 2002>
     1. Where it is needed to ensure the prevention and rescue from disaster, traffic and communication, and the supply of electricity, and to maintain order in a national emergency situation;
     2. Where telecommunications services are incidentally rendered to clients while running a business other than the telecommunications business;
     3. Where it is allowed to use on a trial basis for the purpose of developing and marketing telecommunications facilities, such as terminal devices, etc. which enable to use the

23

 

telecommunications services;
     4. Where any user permits any third party to use to the extent that the latter does not use repeatedly; and
     5. Where it is necessary for the public interests or where the business run by any telecommunications business operator is not impeded, which is prescribed by the Enforcement Decree.
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
     <This Article was amended by Act No. 6822 on December 26, 2002 following the decision of unconstitutionality by the Constitutional Court which had been made on May 30, 2002>
Article 32-3 Deleted. <by Act No. 6602, Jan. 14, 2002>
Article 32-4 (Use of Transmission or Line Equipment, etc.)
     (1) The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act may provide the transmission or line equipment or the cable broadcasting equipment possessed under the methods prescribed by the Enforcement Decree to the key communications business operators. <Amended by Act No. 6346, Jan 8, 2001, Jan. 3, 2007, Amended by Act No. 8425 May 11, 2007>
  (2)   The composite cable TV business operator, transmission network business operator, or relay cable broadcasting business operator under the Broadcasting Act shall, when he intends to provide value-added communications services by making use of the transmission or line equipments or cable broadcasting equipments, make a report thereon to the Korea Communications Commission pursuant to Article 21. <Amended Jan. 18, 2001, Jan. 3, 2007, Amended by Act No. 8867 Feb. 29, 2008>
     (3) The provisions of Articles 33-5 through 37 and 38 shall be applicable mutatis mutandis to the transmission or line equipment or cable broadcasting facilities under paragraph (1). <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6346, Jan. 8, 2001>

24

 

     (4) The provisions of Article 25 (2) through (6) of the Framework Act on Telecommunications shall be applicable mutatis mutandis to the offer of services under paragraph (2). <Amended, Jan. 3, 2007>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 33 (Protection of Users)
     (1) Deleted. <by Act No. 5986, May 24, 1999>
     (2) A telecommunications business operator shall take a prompt measure on the reasonable opinions or dissatisfactions raised by the users with respect to the telecommunications service. In this case, if it is difficult to take a prompt measure, he shall notify the users of the reasons thereof and the schedule for measures.
     (3) Compensations for the damages incurred by the occurrence of reasons causing the opinions or dissatisfactions under paragraph (2) and by the delay of relevant measures shall be made pursuant to Article 33-2. <Amended by Act No. 5220, Dec. 30, 1996>
Article 33-2 (Compensation for Damages)
     A telecommunications business operator shall make compensations when he inflicts any damages on the users in the course of providing telecommunications services: Provided, That if such damages are the results of force majeure, or of intent or negligence of the users, the relevant liability for compensations shall be reduced or exempted.
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 33-3 (Procedure for Compensating Damages and Filing Application for Ruling)
     (1) In compensating any damage under Article 33-2, consultations shall be made with the recipient of the compensation for such damage. <Amended by Act No. 6822, Dec. 26, 2002>
     (2) If the consultations on the compensation for damages under paragraph (1) have not been made or are unable to be made, the parties concerned may file an application with the Korea Communications Commission for a ruling thereon. <Amended by Act No. 6822, Dec. 26, 2002,

25

 

Amended, Jan. 3, 2007, Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
CHAPTER IV. PROMOTION OF COMPETITION AMONG THE TELECOMMUNICATIONS BUSINESS
Article 33-4 (Promotion of Competition)
  (1)   The Korea Communications Commission shall exert efforts to construct an efficient competition system and to promote fair competitive environments, in the telecommunications services. <Amended by Act No. 8867, Feb. 29, 2008>
 
  (2)   The Korea Communications Commission shall conduct annual evaluation of competition system with respect to key communications business in order to construct an efficient competition system and to promote fair competition in the telecommunication services industry pursuant to paragraph 1 above. <Amended by Act No. 8867, Feb. 29, 2008>
 
  (3)   The specific evaluation standards, procedure and method for evaluating competition system under paragraph 2 above shall be prescribed by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 33-5 (Provision of Telecommunications Facilities)
     (1) A key communications business operator may, upon receipt of a request for the provision of telecommunications facilities from other key communications business operator, provide the telecommunications facilities by concluding an agreement with him.
     (2) A key communications business operator falling under any of the following subparagraphs shall, upon receipt of a request under paragraph (1), provide the telecommunications facilities by concluding an agreement, notwithstanding the provisions of paragraph (1): <Newly Inserted by Act No. 6346, Jan. 8, 2001; Act No. 8867, Feb. 29, 20008>
     1. A key communications business operator who possesses the equipments which are indispensable for other telecommunications business operators in providing the telecommunications

26

 

services; and
     2. A key communications business operator whose business scale and market shares, etc. of key telecommunications services are equivalent to the criteria as determined by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     (3) The Korean Communications Commission shall set forth and publicly notify the scope of telecommunications facilities, the conditions, procedures and methods for the provision of facilities, and the standards for calculation of prices under paragraphs (1) and (2). In this case, the scope of telecommunications facilities to be provided under paragraph (2) shall be determined in view of the demand for telecommunications facilities by the key communications business operators falling under each subparagraph of the same paragraph. <Amended by Act No. 6346, Jan. 8, 2001, Amended by Act No. 8867, Feb. 29, 2008>
     (4) A key communications business operator in receipt of provisions of the telecommunications facilities may install the apparatus enhancing the efficiency of the relevant facilities, within the limit necessary for the provision of the licensed telecommunications services.
     (5) <Deleted by Act No. 8867 Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 33-6 (Joint Utilization of Subscriber’s Lines)
     (1) A key communications business operator shall, in case where other telecommunications business operators as determined and publicly noticed by the Korea Communications Commission have made a request for a joint utilization with respect to the lines installed in the section from the exchange facilities directly connected with the users to the users (hereafter in this Article, referred to as the “subscriber’s lines”), allow it. <Amended By Act No. 8867, Feb 29, 2008>
     (2) The Korea Communications Commission shall set forth and publicly notify the scope of joint utilization of the subscriber’s lines under paragraph (1), its conditions, procedures and methods, and the standards for calculation of prices. <Amended By Act No. 8867, Feb. 29, 2008>
     (3) <Deleted By Act No. 8867, Feb. 29, 2008>

27

 

     [This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]
Article 33-7 (Joint Utilization of Radio Communications Facilities)
     (1) A key communications business operator may, upon receipt of a request for the joint utilization of radio communications facilities (hereinafter referred to as the “joint utilization”) from other key communications business operators, allow it by concluding an agreement. In this case, the prices for the joint utilization among the key communications business operators as set forth and publicly notified by Korea Communications Commission shall be computed and settled accounts by a fair and reasonable means. <Amended By Act No. 8867, Feb 29, 2008>
     (2) The key communications business operators as determined and publicly notified by the Korea Communications Commission shall, upon receipt of a request for the joint utilization from other key communications business operators as determined and publicly notified by the Korea Communications Commission, allow it by concluding an agreement, notwithstanding the provisions of paragraph (1), in order to enhance the efficiency of the telecommunications business and to protect the users. <Amended By Act No. 8867, Feb 29, 2008>
     (3) The Korea Communications Commission shall set forth and publicly notify the standard for computing the prices for joint utilization under the latter part of paragraph (1) and its procedures and payment methods, etc., and the scope of joint utilization under paragraph (2), its conditions, procedures and methods, and the computation of prices, etc. <May 11, 2007, Amended By Act No. 8867, Feb 29, 2008>
     (4) <Deleted by Act No. 8425, May 11, 2007>
     [This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]
Article 34 (Interconnection)
     (1) A telecommunications business operator may allow the interconnection by concluding an agreement, upon a request from other telecommunications business operators for an interconnection of telecommunications facilities.
     (2) The Korea Communications Commission shall set forth and publicly notify the scope of interconnections of telecommunications facilities, the conditions, procedures and methods, and the

28

 

standards for calculation of prices under paragraph (1). <Amended by Act No. 8867, Feb. 29, 2008>
     (3) Notwithstanding the provisions of paragraphs (1) and (2), the key communication business operators falling under any of the following subparagraphs shall allow the interconnection by concluding an agreement, upon receipt of a request under paragraph (1): <Amended by Act No. 8867, Feb. 29, 2008>
     1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and
     2. A key telecommunications business operator whose business size of key communications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.
     (4) <Deleted by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 34-2 (Prices of Interconnection)
     (1) Prices for using the interconnection shall be calculated by a fair and proper means and deducted from each other’s accounts. The detailed standards for such calculation, their procedures and methods shall be governed by the standards of Article 34 (2).
     (2) A key communications business operator may deduct the prices for interconnection from each other’s accounts under the conditions as prescribed by the standards under Article 34 (2), if he suffers any disadvantages due to the causes of no liability on his part, in the method of interconnection, the quality of connected conversations, or the provision of information required for interconnection, etc.
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 34-3 (Joint Use, etc. of Telecommunications Facilities)
     (1) A key communications business operator may allow an access to or a joint use of the

29

 

telecommunications equipment or facilities by concluding an agreement, upon receipt of a request from other telecommunications business operators for an access to or a joint use of the telecommunications equipment or facilities such as pipes, cables, poles, or stations of the relevant key communications business operator, for the establishment or operation of facilities required for interconnection of telecommunications facilities.
     (2) The Korean Communications Commission shall set forth, and make a public notice of, the scope, conditions, procedures and methods for an access to or a joint use of telecommunications equipment or facilities, and the standards for computation of prices under paragraph (1). <Amended by Act No. 8867, Feb. 29, 2008>
     (3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall allow an access to or a joint use of the telecommunications equipment or facilities under paragraph (1) by concluding an agreement, upon a receipt of request under paragraph (1): <Amended by Act No. 8867, Feb. 29, 2008>
     1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and
     2. A key telecommunications business operator whose business size of key telecommunications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.
     (4) <Deleted by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 34-4 (Provision of Information)
     (1) A key communications business operator may provide requested information by concluding an agreement, upon a receipt of request from other telecommunications business operators for a provision of information related to technological information or the user’s personal matters which are required for a provision of telecommunications facilities, interconnection, or joint use, etc. and imposition and collection of fees and a guide to the telecommunications number. <Amended by Act No. 5385, Aug. 28, 1997>

30

 

     (2) The Korean Communications Commission shall set forth, and make a public notice of, the scope, conditions, procedures and methods for a provision of information, and the standards for computation of prices under paragraph (1). <Amended by Act No. 8867, Feb. 29, 2008>
     (3) Notwithstanding the provisions of paragraph (1), a key communications business operator falling under any of the following subparagraphs shall provide the requested information by concluding an agreement, upon a receipt of request under paragraph (1): <Amended by Act No. 8867, Feb. 29, 2008>
     1. A key communications business operator who possesses such facilities as are indispensable for a provision of telecommunications services by other telecommunications business operators; and
     2. A key communications business operator whose business size of key telecommunications services and the ratio of market shares are compatible with the standards as determined by the Enforcement Decree.
     (4) A key communications business operator under paragraph (3) shall set forth the technical standards required for a use by other telecommunications business operators or users by means of a connection of a monitor and other telecommunications equipment on the relevant telecommunications facilities, the standards for use and provision, and other standards required for a creation of fair competitive environments, and make a public notice thereof by obtaining approval from the Korea Communications Commission. <Amended by Act No. 8867, Feb. 29, 2008>
     (5) <Deleted by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 34-5 (Prohibition of Information Diversion)
     (1) A telecommunications business operator shall not divulge any information concerning an individual user which has been obtained due to a provision of his own service, a provision of telecommunications facilities, or an interconnection: Provided, That the same shall not apply, when there exists the consent of the principal or the case under a lawful procedure pursuant to the provisions of the Acts.

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     (2) A telecommunications business operator shall use the information obtained under Article 34-4 within the context of purposes thereof, and may not use it unjustly, or provide it to the third parties.
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 34-6 (Report, etc. of Agreement on Interconnection, etc.)
     (1) A key communications business operator shall conclude an agreement under Article 33-5 (1) and (2), the former part of 33-7 (1), 34 (1), 34-3 (1) or 34-4 (1) and report it to the Korea Communications Commission within ninety days unless there exist any special reasons, upon receipt of a request from other telecommunications business operators for a provision, a joint utilization, an interconnection or a joint use, etc. of telecommunications facilities, or a provision of information. The same applies in the case of a change or abolition of the agreement. <Amended by Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002; Act No. 8867, Feb. 29, 2008>
     (2) Notwithstanding the provision of paragraph (1), in case of an agreement in which a key communications business operator under the latter part of Article 33-7 (1), Articles 33-7 (2), 34 (3), 34-3 (3) and 34-4 (3) is a party concerned, an authorization of the Korea Communications Commission shall be obtained. <Amended by Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002; Act No. 8867, Feb. 29, 2008>
     (3) The agreement under paragraphs (1) and (2) shall meet the standards which are publicly notified by the Korea Communications Commission under Articles 33-5 (3), 33-7 (3), 34 (2), 34-3 (2), or 34-4 (2). <Amended by Act No. 6346, Jan. 8, 2001; Act No. 8867, Feb. 29, 2008>
     (4) The Korea Communications Commission may, if any application for authorization referred to in paragraph (2) needs supplemented, order such application for authorization supplemented for a fixed period. <Amended by Act No. 6822, Dec. 26, 2002, Amended by Act No. 8867, Feb. 29, 2008>
     (5) The agreement under Articles 34-3 (1) and 34-4 (1) may be concluded by an inclusion in the agreement under Article 34 (1).
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]

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Article 35 (Application for Ruling, etc.)
     (1) A telecommunications business operator may make an application to the Korea Communications Commission for a ruling under Article 40-2 of the Framework Act on Telecommunications, when the agreement between the telecommunications business operators on a provision and joint utilization of telecommunications facilities, an interconnection, or a joint use, etc. or a furnishing of information is not concluded within the period specified by Article 34-6 (1) or is unable to be concluded. <Amended by Act No. 6346, Jan. 8, 2001, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
     (2) A telecommunications business operator may make an application to the Korea Communications Commission for a ruling with the contents of an implementation of the agreement or a compensation for damages, when the damages occur due to the non-performance of the agreement concerning a provision and joint utilization of telecommunications facilities, an interconnection, a joint use, etc. or a furnishing of information, on the part of other telecommunications business operators. <Amended by Act No. 6346, Jan. 8, 2001; Act No. 8867, Feb. 29, 2008>
(3) through (5) Deleted. <by Act No. 5564, Sep. 17, 1998>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 36 (Telecommunications Number, etc.)
     (1) The Korea Communications Commission shall formulate and enforce the management plan for telecommunications number, in order to make an efficient provision of telecommunications service, and the promotion of user’s convenience and of the environments of fair competition among telecommunications business operators. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission shall, when he has formulated the plans under paragraph (1), make a public notice thereof. This shall also apply to any alterations in the established plan. <Amended by Act No. 8867, Feb. 29, 2008>
     (3) A telecommunications business operator shall observe the matters publicly noticed under paragraph (2).

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     (4) <Deleted by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 36-2 (Accounting Adjustment)
     (1) A key communications business operator shall adjust the accounting, prepare a business report for the preceding year by the end of within 3 months after the end of each fiscal year, and submit it to the Korea Communications Commission, under the conditions as determined by the Enforcement Decree, and keep the related books and authoritative documents. <Amended by Act No. 6822, Dec. 26, 2002, Jan. 3, 2007; No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission shall, when it intends to determine the matters of accounting adjustments under paragraph (1), go in advance through a consultation with the Minister of Strategy and Finance. <Amended by Act No. 5564, Sep. 17, 1998; Act No. 8867, Feb. 29, 2008>
     (3) The Korea Communications Commission may verify contents of any business report submitted by any key communications business operator in accordance with paragraph (1). <Amended by Act No. 6822, Dec. 26, 2002; Act No. 8867, Feb. 29, 2008>
     (4) The Korea Communications Commission may, if it is necessary to conduct the verification referred to in paragraph (3), order the relevant key communications business operator to submit related material or launch inspection necessary to ascertain the facts. <Amended by Act No. 6822, Dec. 26, 2002, Act No. 8867, Feb. 29, 2008>
(5)The Korea Communications Commission shall, when it intends to launch inspection in accordance with paragraph (4), notify the relevant key communications business operator of the plans of such inspection including inspection period, reasons, and contents of the inspection within seven (7) days prior to the scheduled date of inspection. <Newly Inserted by Act No. Jan. 3, 2007; Amended by Act No. 8867, Feb. 29, 2008>
  (6)   A person verifying the contents pursuant to paragraph (4) shall present the proof of the authorization therefor and give documents indicating his name, stay period and purpose of entrance to related party at the time of his first entrance. <Newly Inserted Jan. 3, 2007>

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     (7) <Deleted by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 36-3 (Prohibited Act)
     (1) A telecommunications business operator shall not commit any of the following acts (hereinafter referred to as “prohibited act”) which undermines or is feared to undermine fair competition or users’ interests, or have other telecommunications business operators or the third parties commit such act: <Amended by Act No. 5986, May 24, 1999; Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002, Act No. 7916, March 24, 2006; Act No. 8425, May 11, 2007>
     1. Act of unfair discriminations in a provision, a joint utilization, a joint using, an interconnection or a joint use, etc. of telecommunications facilities, or a provision of information, etc. or act of unfairly refusing a conclusion of agreement, or act of non-performance of the concluded agreement without any justifiable reasons;
     2. Act of unfairly diverting the information of other telecommunications business operators to his own business activities, which have been known to him in the course of a provision, a joint utilization, a joint using, an interconnection or a joint use, etc. of telecommunications facilities, or a provision of information, etc.;
     3. Act of computing the fees, etc. for a use of telecommunications services, or the prices for a provision, a joint utilization, a joint using, an interconnection or a joint use, etc. of telecommunications facilities, or a provision of information, by unfairly itemizing the expenses or revenues;
     4. Act of rendering the telecommunications services in a manner different from the standardized use contract (the standardized use contract refers to only those of which was reported or approved as pursuant to the Article 29 (1)) or act of rendering the telecommunications services in a manner which significantly undermines the profits of users; and
     <Article 5 Deleted, Mar. 24, 2006>
     (2) When any person acting on behalf of any telecommunications business operator under a contract therewith in executing contracts between such telecommunications business operator and its

35

 

users (including making any amendment to such contracts) commits any act falling under paragraph (1)4 or any act in violation of paragraph 1 or 6 of Article 36-4 hereof, his act shall be deemed the act committed by such telecommunications business operator and only the provisions of Articles 37 and 37-2 shall apply to such act: Provided, That the same shall not apply to a case where the relevant telecommunications business operator has paid reasonable attention to the prevention of such act. <Amended by Act No. Dec. 26, 2002 and Mar. 24, 2006>
     (3) Necessary matters concerning categories of and standards for the prohibited act referred to in paragraph (1) shall be prescribed by the Enforcement Decree. <Amended by Act No. 6822, Dec. 26, 2002>
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 36-4 (Prohibition on the supplemented purchase of telecommunications terminal equipment)
  (1)   In the event the business operator to whom radio waves are allocated under Article 11 or 12 of Radio Waves Act provides key communications services, no aid (together with selling at a price lower than the purchase price, payment of cash, supplementing membership fee or provision other financial benefits, the “Support”) shall be provided for the purchase of telecommunications terminal equipment necessary for provision of such services. Provided, exceptions apply in any of the following events: 1.providing Support to users who use the key communications services from a same telecommunications business operator for consecutive terms (each of which lasts for more than18 months) starting from the date of the Support. Provided, the Support shall be allowed no more than once within 2 years after the date of the Support.

2. Support from telecommunications business operator to the user of the relevant key communications services in the event less than 6 years have passed form the commencement date of the key communications services.
(2) The telecommunications business operator who intends to provide Support for the purchase of telecommunications terminal facilities pursuant to paragraph (1) shall set forth the limits to and standards for the Support (hereinafter the “Support Standards”) and report them to the Korea Communications Commission within 30 days after the Support Standards are put into effect and specify the standards in the user’s agreement. The telecommunications terminal facilities shall not

36

 

provide any support other than the Support as reported. The Support Standards shall not enter into force unless 30 days have passed form the date of reporting. <Amended by Act No. 8867, Feb. 29, 2008>
(3) .The telecommunications business operator shall put up a notice of the Supporting Standards in its place of business and its agent (who acts on its behalf in executing the contracts between the telecommunications business operator and the users)’s place of business. In the event the standards are changed to the disadvantage of the users, the users shall be notified of such change 30 days prior to the execution date of such changes. Upon a user’ request, the user shall be informed of the usage period, record, and the amount of Support it may receive under the Support Standards.
(4) The telecommunications business operator shall not, without any justifiable grounds, discriminate between newly subscribed members and existing members in providing Support.
(5) The specific telecommunications business operator, who provides key communications services by using the key communications business operator’s telecommunications line facilities, shall comply with the Support Standards. The amount of Support to the operator shall not exceed the amount allowed under the applicable Support Standards.
(6) The telecommunications business operator shall manage, for a certain period of time, data/documents related to users’ subscription period and the applicable Support for the purchase price of the telecommunications terminal equipment. In the event the Korea Communications Commission upon the users’ consent requests whether a person/entity is qualified to receive Support pursuant to paragraph (1) and requests confirmation thereof, the telecommunications business operator shall provide the requested information and shall not provide erroneous information or delay the provision of information without any justifiable grounds. <Amended by Act No. 8867, Feb. 29, 2008>
(7) The Korea Communications Commission shall set forth and publicly announce or display the following: the method of determining the usage period contemplated under Article 1 (1) and the Support Standards pursuant to Article 3; any disadvantageous changes made thereto; specific scope of information management with respect to Article 6; and information management period and the method of provision thereof. <Amended by Act No. 8867, Feb. 29, 2008>
     <Newly Inserted Mar. 24, 2006> <Article 36-4 in the previous version of the Act now inserted as Article 36-5. March 24, 2006>

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36-5 (Investigation of Fact) (1) In the event the Korea Communications Commission believes that activities in violation of Article 36-3 and of subparagraphs 1 and 6 of Article 36-4 have been committed, it may order the relevant public official belonging to the Korea Communications Commission to conduct investigation thereof. <Amended Dec. 26, 2002, Mar.24, 2006; Act No. 8867, Feb. 29, 2008>.
(2) The Korea Communications Commission may order public officials belonging to the Korea Communications Commission to enter into the offices or workplaces of the telecommunications business operators or the workplaces of the persons entrusted with handling of the business of telecommunications business operators (limited, throughout this Article, to telecommunications business operators entrusted with work related to Article 36-3 or 36-4) and inspect books, documents and other data and objects. <Amended by Act No. Sept. 17, 1998; Act No. 6822 Dec. 26, 2002; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
(3) In the event any investigation is to be conducted pursuant to paragraph (1), the Korea Communications Commission shall notify the relevant telecommunications business operator at least seven (7) days prior to the expected date of investigation with information on the duration, purpose and content of the investigation. Provided, this provision may not apply in the event of emergency or if there is risk that the evidence will be destroyed. <Newly inserted. Jan. 3, 2007; Amended by Act No. 8867, Feb. 29, 2008>
(4) A person who investigates by visiting the offices or workplaces of the telecommunications business operators, or the workplaces of the persons handling, under an entrustment, the business of telecommunications business operators, under paragraph (2) shall carry a certificate indicating the authority, and present it to the persons concerned. He also should be accompanied by the person of the corresponding offices or workplaces. <Amended by Act No. 5564, Sep. 17, 1998; Act No. 8198, Jan. 3, 2007, Act No. 8425, May 11, 2007>.
(5) A public official who investigates pursuant to paragraph (2) may order telecommunications business operators or persons entrusted with handling of the business of telecommunications business operators to submit any necessary information or object. In the event there is a possibility

38

 

of abandonment, concealment, or replacement of the information or object so submitted, the public official may temporarily take them into custody. <Newly created by Act No. 8425, May 11, 2007>
(6) The Korea Communications Commission shall immediately return the information or object under its custody if it falls under any one of the following:
     1. It is deemed, after an examination of the information or object under the custody, that it has no relevance to the current investigation.
     2. The purpose of investigation is fully accomplished so that keeping the information or object under its custody is no longer necessary.
[This Article is newly inserted. Dec. 30, 1996] [Removed from Article 36-4 <March 24, 2006>]
Article 37 (Measures on Prohibited Acts)
     (1) The Korea Communications Commission may order any telecommunication business operator to take the measures falling under each of the following subparagraphs when it is recognized that the act under paragraph 1 of Article 36-3 or any act in violation of paragraph 1 or 6 of Article 36-4 has been committed: <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6346, Jan. 8, 2001; Act No. 6822, Dec. 26, 2002; Act No. 7445, Mar. 31, 2005, Mar. 24, 2006; Amended by Act No. 8867, Feb. 29, 2008>
     1. Separation of the supply system of telecommunications service;
     2. Change of internal accounting regulations, etc. concerning telecommunications service;
     3. Disclosure of information concerning telecommunications service;
     4. Conclusion, performance or change of contents of the agreement between the telecommunications business operators;
     5. Change of the standardized use contract and the articles of incorporation of the telecommunications business operators;
     6. Suspension of prohibited acts;
     7. Public announcement of a fact of receiving a correction order due to committing the prohibited acts;

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     8. Measures necessary for restoring the violated matters due to the prohibited acts to their original status, such as the removal of telecommunications facilities which have caused the prohibited acts;
     9. Improvement of business conduct procedures regarding telecommunications service; and
     10. Such other matters prescribed by the Enforcement Decree as may be necessary for the measures referred to in subparagraphs 1 through 9.
     (2) The telecommunications business operators shall execute any order issued by the Korea Communications Commission under paragraph (1) within the period specified by the Enforcement Decree: Provided, That the Korea Communications Commission may extend the relevant period only once, if it is deemed that the telecommunications business operators are unable to carry out the order within the specified period due to natural disasters and other unavoidable causes. <Amended by Act No. 6822, Dec. 26, 2002; Amended by Act No. 8867, Feb. 29, 2008>
     (3) The Korea Communications Commission shall, before ordering the measures under paragraph (1), notify the parties concerned of the content of relevant measures, and provide them with an opportunity to make a statement within a specified period, and may hear, where deemed necessary, the opinions of the interested parties: Provided, That this shall not apply when the parties concerned fail to respond without any justifiable reasons. <Amended by Act No. 6822, Dec. 26, 2002; Amended by Act No. 8867, Feb. 29, 2008>
     (4) In the event five (5) years have passed from the date on which the acts contemplated under paragraph 1 of Article 36-3 or any acts committed in violation of paragraph 1 or 6 of Article 36-4 have been terminated, the Korea Communications Commission shall not order any measures pursuant to paragraph 1 or impose a penalty surcharge pursuant to Article 37-2. Provided, this provision under this paragraph 4 of Article 37-1 shall not apply if any measure or imposition of penalty surcharge is cancelled by court order and a new measure is to be taken pursuant to that court order.<Newly inserted. Jan. 3, 2007; Amended by Act No. 8867, Feb. 29, 2008>.
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996]
Article 37-2 (Imposition, etc. of Penalty Surcharge on Prohibited Acts)
  (1)   The Korea Communications Commission may, in case where there exists an act

40

 

      under paragraph 1 of Article 36-3 or any act in violation of paragraph 1 or 6 of Article 36-4, impose a penalty surcharge not exceeding 3/100 of the turnover as prescribed by the Enforcement Decree on the relevant telecommunications business operator. If the telecommunications business operator refuses to submit the data used for calculation of the amount of turnover or submits erroneous data, an estimate of the amount can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status): Provided, That where there is no turnover or it is difficult to calculate the turnover as prescribed by the Enforcement Decree, it may impose the penalty surcharge not exceeding one billion won. <Amended by Act No. 6822, Dec. 25, 2002, Mar. 24, 2006, Jan.3, 2007; Amended by Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission shall, in the event of imposing a penalty surcharge under paragraph (1), take each of the following into consideration. <Newly inserted. Mar. 29, 2007; Amended by Act No. 8867, Feb. 29, 2008>
  1.   details of violation and the extent thereof
 
  2.   duration and frequency of violation
 
  3.   amount of profit obtained in connection with the violation
 
  4.   the amount of turnover obtained as a result of the prohibited activities of the telecommunications business operator.
     (3) A penalty surcharge under paragraph (1) shall be calculated taking paragraph (2) into consideration, provided specific calculation standard and procedure shall be set forth by the Enforcement Decree. <Newly Inserted by Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002, Mar. 29, 2007; Amended by Act No. 8198, Jan.3, 2007; Act No. 8324, March 29, 2007 >
  (4)   The Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) fails to do so by the payment deadline, collect an additional due equivalent to 6/100 per year, with respect to the penalty surcharge in arrears, from the day following the expiry of such payment deadline. <Newly inserted. Jan. 28, 2000, Dec. 26, 2002, Mar. 29, 2007; Amended by Act No. 8867, Feb. 29, 2008>
 
  (5)   The Korea Communications Commission shall, where a person liable to pay a penalty surcharge under paragraph (1) fails to do so by the payment deadline, demand him to pay it with fixing a period, and if he fails to pay the penalty surcharge and an additional due under paragraph (4) within the fixed period, collect them according to the example of a disposition

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      taken to collect the national taxes in arrears. <Amended by Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002, Mar. 29, 2007; Amended by Act No. 8867, Feb. 29, 2008>
 
  (6)   In the event the penalty surcharge imposed under paragraph (1) is to be returned pursuant to the court order, an additional due equivalent to 6/100 per year with respect to the penalty surcharge in arrears(accrued from the day of payment to the day of payment) shall be paid. <Newly inserted. Act No. 8198, Jan. 3, 2007, Mar. 29, 2007>
[This Article is newly inserted. Sept. 17, 1998] [Article 27-2 from the previous version of the Act is moved to Article 28 < Act No. 5564, Sep. 17, 1998>]
Article 37-3 (Relations with Other Acts)
     In case where a measure is taken under Article 37 or a penalty surcharge is imposed under Article 37-2 against the acts of a telecommunications business operator under any subparagraph of Article 36-3 (1) or the acts in violation of paragraph (1) or (6) of Article 36-4, a corrective measure or an imposition of penalty surcharge under the Monopoly Regulation and Fair Trade Act shall not be made under the same grounds against the same acts of the relevant business operator. <Amended. Jan. 28, 2000, Mar. 24, 2006, Jan. 3, 2007>
     [This Article Newly Inserted by Act No. 5564, Sep. 17, 1998]
Article 38 (Compensation for Damages)
     In case where a correction measure has been taken under Article 37 (1), a person who is damaged by the prohibited act may claim for compensation against the telecommunications business operator who conducted the prohibited act, and the relevant telecommunications business operator may not shirk liability unless he can prove that there was no malicious intention or negligence.
     [This Article Newly Inserted by Act No. 5220, Dec. 30, 1996 and moved from Article 37-2, Act No. 5564, Sept. 17, 1998]
Article 38-2 (Quality Improvement of Telecommunications Services)

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     (1) A telecommunications business operator shall endeavor to make a quality improvement of the telecommunications services he provides.
     (2) The Korea Communications Commission shall devise the required policy measures, such as an evaluation of quality of the telecommunications services, in order to improve a quality of telecommunications services and to enhance the conveniences of users. <Amended by Act No. 8867, Feb. 29, 2008>
     (3) The Korea Communications Commission may order the telecommunications business operator to furnish data necessary for an evaluation of quality of the telecommunications services, etc. under paragraph (2). <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 6230, Jan. 28, 2000]
Article 38-3 (Prior Selection Systems)
     (1) The Korea Communications Commission shall perform the systems in which the users may select in advance the telecommunications business operator from whom they desire to receive the telecommunications service (hereinafter referred to as the “prior selection systems”). In this case, the telecommunications service shall refer to the telecommunications service as determined by the Enforcement Decree from among the same telecommunications service provided by the plural number of telecommunications business operators. <Amended by Act No. 8867, Feb. 29, 2008>
     (2) The telecommunications business operator shall not force the users to select in advance a specified telecommunications business operator, or commit the acts to recommend or induce by unlawful means.
     (3) The Korea Communications Commission may, for the purpose of performing the prior selection systems efficiently and neutrally, designate the specialized institutes performing the registration or alteration affairs of the prior selection (hereinafter referred to as the “prior selection registration center”). <Amended by Act No. 8867, Feb. 29, 2008>
     (4) The Korea Communications Commission shall determine and publicly notify the matters necessary for performing the prior selection systems and for the designation of the prior selection registration center and the method of dealing with its affairs, etc. <Amended by Act No. 8867, Feb. 29, 2008>

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     [This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]
Article 38-4 (Mobility of Numbers)
     (1) The Korea Communications Commission may, in order that the users are able to maintain their previous telecommunications numbers despite of the changes of the telecommunications business operators, etc., devise and perform the plans for mobility of telecommunications numbers (hereafter in this Article, referred to as the “plans for mobility of numbers”). <Amended by Act No. 8867, Feb. 29, 2008>
     (2) The plans for mobility of numbers shall contain the contents falling under any of the following subparagraphs:
     1. Kinds of services subject to the mobility of telecommunications numbers;
     2. Time for introduction by service subject to the mobility of telecommunications numbers; and
     3. Matters on sharing the expenses required for the performance of mobility of telecommunications numbers by telecommunications business operator.
     (3) The Korea Communications Commission may, in order to perform the plans for mobility of numbers, order the relevant telecommunications business operators to take the necessary measures. <Amended by Act No. 8867, Feb. 29, 2008>
     (4) Deleted <Act No. 8867, Feb. 29, 2008>
     (5) The Korea Communication Commission may designate an institution specializing in the work of registration and alteration of the mobility of numbers (hereinafter referred to as the “mobility of numbers management institution”) to efficiently and neutrally implement the mobility of numbers of the telecommunications. <Newly Inserted by Act No. 6822, Dec. 26, 2002; Amended by Act No. 8867, Feb. 29, 2008>
     (6) The Korea Communication Commission shall prescribe and publish necessary matters concerning the implementation of the mobility of numbers of the telecommunications, the designation of any mobility of numbers management institution and its work, etc. <Newly Inserted

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by Act No. 6822, Dec. 26, 2002; Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]
Article 38-5 (Restrictions, etc. on Mutual Possession of Stocks)
     (1) Where a key communications business operator falling under Article 34 (3) 1 or 2 (including the specially-related persons) possesses in excess of 5/100 of the gross number of voting stocks issued by the mutually different key communications business operators, shall not be allowed to exercise any voting rights with regard to the stocks in excess of the relevant ceiling.
     (2) Provisions of paragraph (1) shall not apply to the relation of possessions between a key communications business operator falling under Article 34 (3) 1 or 2 and the key communications business operator established by the said key communications business operator by becoming the largest stockholder.
     [This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]
Article 38-6 (Provision of Number Guidance Service)
     (1) The telecommunications business operator shall provide an information service of guiding the general public to the telecommunications numbers of the users by means of voice, booklets or Internet, etc. (hereinafter referred to as the “number guidance service”) by obtaining a consent of the users: Provided, That the same shall not apply to the minor business determined and publicly announced by the Korea Communications Commission by taking account of the numbers of the users and the turnovers, etc. <Amended by Act No. 8867, Feb. 29, 2008>
  (2)   If necessary for the protection of private personal information, the Korea Communications Commission may limit the provision of the number guidance service as referred to in paragraph (1). < Newly inserted. Jan. 3, 2007; Amended by Act No. 8867, Feb. 29, 2008>
 
  (3)   Matters necessary for a provision of the number guidance service as referred to in paragraph (1) may be stipulated by the Enforcement Decree. <Amended, Jan. 3, 2007; Amended by Act No. 8867, Feb. 29, 2008>

45

 

     [This Article Newly Inserted by Act No. 7165, Feb. 9, 2004]
CHAPTER V. INSTALLATION AND PRESERVATION OF TELECOMUNICATIONS FACILITIES
Article 39 (Use of Land, etc.)
     (1) A key communications business operator may, when necessary for the installation of line tracks, aerial lines and the appurtenant facilities to be available for telecommunications service (hereinafter referred to as the “line tracks, etc.”), make use of others’ land, or buildings and structures appurtenant thereto, and surface and bottom of the water (hereinafter referred to as the “land, etc.”). In this case, a key communications business operator shall make a consultation with owners or possessors of the relevant land, etc. in advance.
     (2) Where a consultation under paragraph (1) is not or cannot be made, a key communications business operator may use the land, etc. owned by others, pursuant to the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor. <Amended, Feb. 4, 2002, Jan. 3, 2007>
     (3) Deleted. <by Act No. 5986, May 24, 1999>
Article 40 (Temporary Use of Land, etc.)
     (1) A key communications business operator may, when necessary for the measurement of line tracks, etc. and the installation or preservation works of the telecommunications facilities, temporarily use the private, national or public telecommunications facilities, and the land, etc., within the limit of not substantially impeding a current use.
     (2) A key communications business operator shall, when intending to temporarily use the private, national or public property under paragraph (1), notify the possessors, in advance, of the purposes and period of such use: Provided, That in case where it is difficult to make a prior notification, a prompt notification shall be made during or after its use, and in case where such notification may not be made due to an obscurity of address and whereabouts of possessors, a public notice thereof shall be made.
     (3) The temporary period of use of the land, etc. under paragraph (1) shall not exceed six months.

46

 

     (4) A person who temporarily uses the private, national or public telecommunication facilities or the land, etc. under paragraph (1) shall carry the certificate indicating the authority, and present it to the persons related.
Article 41 (Entry to Land, etc.)
     (1) A key communications business operator may enter others’ land, etc., when necessary for a measurement, examination, etc., for the installation and preservation of his telecommunications facilities: Provided, That in case where the place intended for such entry is a residential building, a consent from residents shall be obtained.
     (2) The provisions of Article 40 (2) and (4) shall be applied mutatis mutandis to the entry into the private, national or public land, etc., by those engaged in a measurement or examination, etc. under paragraph (1).
Article 42 (Request for Elimination of Obstacles, etc.)
     (1) A key communications business operator may request the owners or possessors of gas pipes, water pipes, drain pipes, electric lamp lines, electricity lines or private telecommunications facilities, which impede or are likely to impede the installation of line tracks, etc. or telecommunications facilities themselves (hereinafter referred to as the “obstacles, etc.”), for the removal, remodeling, repair and other measures with respect to the relevant obstacles, etc.
     (2) A key communications business operator may request the owners or possessors to remove the plants, when they may impede or are likely to impede the installation or maintenance of line tracks, etc. or telecommunications themselves.
     (3) A key communications business operator may, when the owners or possessors of the plants do not comply with the request under paragraph (2) or there exist any other unavoidable reasons, fell or transplant the relevant plants by obtaining permission from the Korea Communications Commission. In this case, a prompt notification shall be made to the owners or possessors of the relevant plants. <Amended by Act No. 5220, Dec. 30, 1996; Amended by Act No. 8867, Feb. 29, 2008>
     (4) The owners or possessors of the obstacles, etc., which impede or are likely to impede the

47

 

telecommunications facilities of a key communications business operator, shall make a consultation in advance with the key communications business operator, when they are in need of a new construction, enlargement, improvement, removal or alteration of the relevant obstacles, etc.
Article 43 Deleted; by Act No. 8425, May 11, 2007
Article 44 (Obligation for Restoration to Original State)
     A key communications business operator shall restore the relevant land, etc. to its original state, when a use of the land, etc. under Articles 39 and 40 is finished or a need of providing the land, etc. for telecommunications service is gone, and in case where a restoration to the original state becomes impossible, make a proper compensation for damages suffered by the owners or possessors.
Article 45 (Compensation for Damages)
     A key communications business operator shall, in case of incurring damages on others in case of Article 40 (1), 41 (1) or 42, make a proper compensation to the suffered person.
Article 46 Deleted by Act No. 8425, May 11, 2007
Article 47 (Procedures for Compensation for Damages on Land, etc.)
     (1) A consultation with the suffered party shall be made, in case where a compensation under Article 44 or 45 is made due to a use of or an entry into the land, etc., a removal of the obstacles, etc., or an impossibility of restoration to the original state under Article 40 (1), 41 (1), 42 or 44.
(2) When a consultation under paragraph (1) is not or cannot be made, an application for adjudications shall be filed with the competent Land Expropriation Commission under the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor. <Amended, Feb. 4, 2002, Jan. 3, 2007>
(3) Except for those as otherwise prescribed by this Act, the provisions of the Act on the Acquisition of Land, etc. for Public Works and the Compensation therefor shall be applied mutatis mutandis to the criteria, methods and procedures regarding a compensation for damages, etc. to the land, etc. under paragraph (1), and an application for adjudications under paragraph (2). <Amended, Feb. 4,

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2002, Jan. 3, 2007>
Articles 48 and 49 Deleted. <by Act No. 5986, May 24, 1999>
Article 50 (Protection of Telecommunications Facilities)
     (1) No person shall destruct the telecommunications facilities, and obstruct the flow of telecommunications by impeding the function of telecommunications facilities by means of having other objects contact them or by any other devices.
     (2) No person shall stain the telecommunications facilities or damage the measurement marks of the telecommunications facilities by means of throwing objects to the telecommunications facilities or fastening an animal, vessel or a log raft thereto.
     (3) A key communications business operator may, if necessary for the protection of submarine communications cable and their peripheral equipment (the “Submarine Cable”), file an application to the Korea Communications Commission for the designation of alert areas for the Submarine Cable. <Newly inserted by Act No. 8425, May 11, Amended by Act No. 8867, Feb. 29, 2008>
     (4) Upon receiving an application pursuant to paragraph (3), the Korea Communications Commission may consider the necessity of such designation and may designate and publicly notify the alert areas for the Submarine Cable through consultation with the relevant state administrative agency. <Newly inserted by Act No. 8425, May 11, Amended by Act No. 8867, Feb. 29, 2008>
     (5) Designation applications, methods and procedures of such designation and its public notification, and methods of alert area indication shall be determined by the Enforcement Decree . <Newly inserted by Act No. 8425, May 11, Amended by Act No. 8867, Feb. 29, 2008>
Article 51 (Moving of Facilities, etc.)
     (1) The owners or possessors of the land, etc. may, in case where the telecommunications facilities of a key communications business operator have become an obstacle to a use of the land, etc. due to changes in the purpose of use or in the methods of using the land, etc. where such facilities are located, or the land adjacent to it, request a key communications business operator to move the telecommunications facilities, and take other measures necessary for removing the obstacles.

49

 

     (2) A key communications business operator shall, upon receipt of a request under paragraph (1), take necessary measures, except for the cases where such measures are difficult to be taken for a business performance or technologies.
     (3) Expenses necessary for taking the measures under paragraph (2) shall be borne by the person who provided the cause for the move or taking other measures necessary for removing the obstacles after the installation of the subject telecommunication facilities: Provided, That in the event the person who bears the expenses is the owner or possessor of the land and falls under any one of the following subparagraphs, the key communication business operator may reduce or exempt the person’s expenses, considering the indemnification amount paid at the time of installation of the telecommunication facilities and the amount of time it took to build the telecommunication facilities:
     1. where the key communication business operator establishes and implements a plan to move the telecommunication facilities or remove other obstacles;
     2. where the moving the telecommunication facilities or removal of other obstacles is beneficial to other telecommunication facilities;
     3. where the state or a local autonomous entity demands such moving of telecommunication facilities or removal of other obstacles; or
     4. where the telecommunication facilities within private land are being removed because they greatly obstruct the use of such land.
Article 52 (Cooperation of Other Organizations, etc.)
     A key communications business operator may ask the related public agencies for a cooperation, in case where the operation of vehicles, vessels, airplanes and other carriers for the installation and preservation of his telecommunications facilities is necessary. In this case, the public agency in receipt of a request for cooperation shall comply with it, unless there exist any justifiable reasons.
CHAPTER VI. SUPPLEMENTARY PROVISIONS
Article 53 Deleted <Jan. 26, 2007>
Article 53-2 (<Deleted. Jan. 26, 2007>
Article 54 (Protection of Communication Secrecy)

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     (1) No person shall infringe on or divulge the secrecy of communication dealt with by telecommunications business operator.
     (2) A person who is or has been engaged in the telecommunications service shall not divulge others’ secrecy obtained with respect to communication while in office.
     (3) A telecommunications business operator may comply with a request for the perusal or the provision of the data falling under each of the following subparagraphs (hereinafter referred to as the “supply of communication data”) from a court, a prosecutor, the head of an investigation agency (including the head of any military investigation agency, the commissioner of the National Tax Service and the commissioners of regional Tax Offices); hereinafter the same shall apply) and the head of an intelligence and investigation agency, who intends to collect information or intelligence for the purpose of the prevention of any threat to a trial, an investigation, the execution of a sentence or the guarantee of the national security: <Amended, Dec. 26, 2002, Jan. 3, 2007>
     1. Names of users;
     2. Resident registration numbers of users;
     3. Addresses of users;
     4. Phone numbers of users;
     5. IDs (referring to the identification codes of users that are used to identify the rightful users of computer systems or communications networks); and
     6. Dates on which users subscribe or terminate their subscriptions.
     (4) The request for supply of communication data under paragraph (3) shall be made in writing (hereinafter referred to as a “written request for data supply”), which states a reason for such request, relation with the relevant user and the scope of necessary data: Provided, That where an urgent reason exists that makes a request in writing impossible, such request may be made without resorting to writing, and when such reason disappears, a written request for data supply shall be promptly filed with the telecommunications business operator. <Newly Inserted by Act No. 6230, Jan. 28, 2000>

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     (5) A telecommunications business operator shall, where he has supplied the communication data pursuant to the procedures of paragraphs (3) and (4), keep the ledgers as prescribed by the Enforcement Decree, which contain necessary matters such as the facts of supplies of communication data, and the related data such as the written requests for data supply, etc. <Newly Inserted by Act No. 6230, Jan. 28, 2000; Amended by Act No. 8867, Feb. 29, 2008>
     (6) A telecommunications business operator shall report, to the Korea Communications Commission, twice a year the current status, etc. of supplying the communication data, by the methods prescribed by the Enforcement Decree, and the Korea Communications Commission may check whether the content of a report made by a telecommunications business operator is authentic and the management status of related data according to paragraph (5). < Newly Inserted by Act No. 6230, Jan. 28, 2000; Amended by Act No. 8425, May 11, 2007; Amended by Act No. 8867, Feb. 29, 2008>
     (7) A telecommunications business operator shall, by the methods prescribed by the Enforcement Decree, notify the contents entered in the ledgers according to paragraph (5) to the head of a central administrative agency whereto a person requesting supply of communications data according to paragraph (3) belongs: Provided, That in the event that a person who asks for providing the communications data is a court, the relevant telecommunications business operator shall notify the Minister of the Court Administration thereof. <Newly Inserted by Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002; Amended by Act No. 8425, May 11, 2007; Amended by Act No. 8867, Feb. 29, 2008>
     (8) A telecommunications business operator shall establish and operate a setup in full charge of the affairs related to the users’ communication secrets; and the matters concerning the function and composition, etc. of the relevant setup shall be prescribed by the Enforcement Decree. <Newly Inserted by Act No. 6230, Jan. 28, 2000; Amended by Act No. 8867, Feb. 29, 2008>
     (9) Matters necessary for the scope of persons holding the decisive power on the written requests filed with the telecommunications business operators under paragraph (4) shall be prescribed by the Enforcement Decree. <Newly Inserted by Act No. 6230, Jan. 28, 2000>
Article 54-2 (Notice of Transmitter’s Telephone Number)
     (1) The telecommunications business operator may, upon request from the recipient, notify him of the transmitter’s telephone number, etc.: Provided, That this shall not apply to the case where the

52

 

transmitter expresses his content to refuse the transmission of his telephone number.
<Amended. Mar. 29, 2007>
     (2) The telecommunications business operator may, in case where the recipient requests according to the requisites and procedures set by the Enforcement Decree for national security, crime prevention, disaster relief and etc. and for the telephone services with the special numbers, when the Enforcement Decree for national security, crime prevention, disaster relief and etc. so requires, notify the recipient of the transmitter’s telephone number, etc. in order to protect the recipients from the violent language, intimidations, harassments, etc., notwithstanding the proviso of paragraph (1). <Amended by Act No. 8425, May 11, 2007; Act no. 8867, Feb. 29, 2008>
     (3) No person shall alter the caller’s telephone number or display an erroneous telephone number for profit or for the purpose of inflicting harm on others violent language, intimidations, harassments, etc.. <Newly inserted. Mar. 29, 2007>
     (4) No person shall provide services that enable another to alter the caller’s telephone number or display an erroneous telephone number for profit. Provided, this provision under paragraph (4) shall not apply in the event any justifiable grounds for exception exist (e.g., for public interest or recipient’s convenience).
     [This Article Newly Inserted by Act No. 6346, Jan. 8, 2001]
Article 55 (Restriction and Suspension of Business)
     The Korea Communications Commission may order the telecommunications business operators to restrict or suspend the whole or part of telecommunications service under the conditions as prescribed by the Enforcement Decree, when there occurs or is likely to occur a national emergency of war, incident, natural calamity, or that corresponding to them, or when other unavoidable causes exist, and when necessary for securing important communications. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 56 Deleted. <by Act No. 5220, Dec. 30, 1996>
Articles 57 and 58 Deleted. <by Act No. 5986, May 24, 1999>
Article 59 (Approval for International Telecommunications Services)
     (1) When there exist special provisions in the treaties or agreements on international telecommunications business joined by the Government, those provisions shall govern.

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     (2) A telecommunications business operator shall, where he intends to conclude an agreement or a contract with a foreign government or a foreigner with respect to the adjustments of fees following the handling of international telecommunications services (excluding the case of a value-added communications business operator) and other international telecommunications business as prescribed by the Enforcement Decree, obtain approval from the Korea Communications Commission fulfilling the requisites prescribed by the Enforcement Decree. The same shall apply to the case where he intends to alter or abolish such agreement or contract. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 8425, May 11, 2007; Act No. 8867, Feb. 29, 2008>
     (3) Standards for approving an agreement or a contract with respect to fees on the handling of international telecommunications services shall be determined and publicly announced by the Korea Communications Commission. <Newly Inserted by Act No. 6230, Jan. 28, 2000; Act No. 8867, Feb. 29, 2008>
Article 59-2 (Transboundary Provision of Key Telecommunications Services)
     (1) A person, who intends to provide key telecommunications service from abroad into the homeland without establishing a domestic business place (hereinafter referred to as the “transboundary provision of key telecommunications services”), shall conclude a contract on transboundary provision of key telecommunications services with a domestic key communications business operator or a specific communications business operator who provides the same key telecommunications service.
     (2) The provisions of Articles 29, 30, 33 through 33-3, 36-3 through 37, 38, 53 through 55, 62 and 65 shall apply mutatis mutandis to the provision of services as determined in a contract by a key communications business operator or a specific communications business operator who has concluded the contract under paragraph (1). <Amended by Act No. 5564, Sep. 17, 1998; Act No. 5986, May 24, 1999>
     (3) Where a person, who intends to provide a transboundary key telecommunications service under paragraph (1), or a key communications business operator or a specific communications business operator, who has concluded a contract with him, violates the relevant provisions which applies mutatis mutandis under paragraph (2), the Korea Communications Commission may cancel approval under Article 59 (2), or issue an order to suspend a transboundary provision of the whole or

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part of key telecommunications services as determined in the relevant contract, with fixing a period of not more than one year. <Amended by Act No. 8867, Feb. 29, 2008>
     (4) Criteria and procedures for dispositions under paragraph (3) and other necessary matters shall be determined by the Enforcement Decree. <Amended by Act No. 8867, Feb. 29, 2008>
     [This Article Newly Inserted by Act No. 5385, Aug. 28, 1997]
Article 60 Deleted. <by Act No. 5220, Dec. 30, 1996>
Article 61 Deleted. <by Act No. 6822, Dec. 26, 2002>
Article 62 (Report, etc. on Statistics)
     (1) A telecommunications business operator shall report the statistics on a provision of telecommunications service as prescribed by the Enforcement Decree, such as a current status of facilities by telecommunications service, subscription record, current status of users, and the data related to telephone traffic required for the imposition and collection of fees, to the Korea Communications Commission under the conditions as determined by the Enforcement Decree, and keep the related data available. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) A key communications business operator and stockholders thereof, or the specific communications business operator and stockholders thereof shall submit the related data necessary for a verification of the facts of Article 6, pursuant to the provisions of the Enforcement Decree. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5986, May 24, 1999; Act No. 7165, Feb. 9, 2004; Act No. 8867, Feb. 29, 2008>
     (3) The Korea Communications Commission may, in order to verify the facts under paragraph (2), or to examine the genuineness of the data submitted, request the administrative agencies and other related agencies to examine the data submitted or to submit the related data. In this case, the agencies in receipt of such request shall accede thereto unless there exist any justifiable reasons. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
Article 63 (Hearing)

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     The Korea Communications Commission shall, in case where he intends to make a disposition falling under any of the following subparagraphs, hold a hearing: <Amended by Act No. 8867, Feb. 29, 2008>
     1. Cancellation of license for a key communications business operator under Article 15 (1);
     2. Cancellation of registration of a specific communications business or closedown of a value-added communications business under Article 28 (1) and (2); and
     3. Cancellation of approval under Article 59-2 (3).
     [This Article Wholly Amended by Act No. 5385, Aug. 28, 1997]
Article 64 (Imposition, etc. of Penalty Surcharge)
     (1) The Korea Communications Commission may impose a penalty surcharge equivalent to the amount of not more than 3/100 of the sales amount that is calculated under the conditions as prescribed by the Enforcement Decree in lieu of the relevant business suspension, in case where he has to order a business suspension to a telecommunications business operator who falls under subparagraphs of Article 15 (1) or subparagraphs of Article 28 (1) and (2), or a suspension of relevant business is likely to cause substantial inconveniences to the users, etc. of relevant business or to harm other public interests. If the telecommunications business operator refuses to submit the data used for calculation of turnover or submits erroneous data, an estimate of the turnover can be assessed based on the financial statement of those who provide similar services in the same industry (accounting documents, number of subscribers, usage fee and business operation status): Provided, That in the event that the sales amount is nonexistent or difficult to calculate the sales amount, as prescribed by the Enforcement Decree, the Minister of Information and Communication may impose a penalty surcharge not exceeding 1 billion won. <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 6822,, Dec. 26, 2002, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
     (2) Specific standards for the imposition of penalty surcharge under paragraph (1) shall be determined by the Enforcement Decree. <Jan. 3, 2007, Mar. 29, 2007>
     (3) The provisions of Article 37-2 (3) and (4) or (6) shall apply mutatis mutandis to the penalty surcharge under paragraph (1). <Amended by Act No. 5564, Sep. 17, 1998; Act No. 6230, Jan. 28,

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2000, Jan. 28, 2007, Mar. 29, 2007>
     (4) Deleted. <by Act No. 5385, Aug. 28, 1997>
Article 64-2 (Extension of Time Limit of Payment of Penalty Surcharge and Payment in Installments)
     (1) Where a penalty surcharge to be paid by a telecommunications business operator under Articles 37-2 and Article 64 exceeds the amount as prescribed by the Enforcement Decree, and where deemed that a person liable for a payment of penalty surcharge finds it difficult to pay it in a lump sum due to the reasons falling under any one of the following subparagraphs, the Korea Communications Commission may either extend the time limit of payment, or have him pay it in installments. In this case, the Korea Communications Commission may, if deemed necessary, have him put up a security therefor : ,<Amended, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
     1. Where he suffers a severe loss of property due to natural disasters or fire;
     2. Where his business faces a serious crisis due to an aggravation of his business environments; and
     3. Where it is expected that he will be in great financial difficulty if he pays the penalty surcharge in a lump sum.
     (2) Matters necessary for an extension of the deadline for payment of a penalty surcharge, the payment in installments and the laying of a security shall be prescribed by the Enforcement Decree.
     [This Article Newly Inserted by Act No. 5564, Sep. 17, 1998]
Article 65 (Correction Orders, etc.)
     (1) The Korea Communications Commission shall issue correction orders in case where a telecommunications business operator falls under any of the following subparagraphs: <Amended by Act No. 4441, Dec. 14, 1991; Act No. 5220, Dec. 30, 1996; Act No. 5835, Feb. 8, 1999; Act No. 6360, Jan. 16, 2001, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
     1. Where he violates this Act, the Framework Act on Telecommunications, the Radio Waves

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Act, the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc., the Framework Act on Informatization Promotion, or the orders issued under these Acts;
     2. Where the procedures for business performances of telecommunications business operator are deemed to inflict significant harms on the users’ interests; and
     3. Where he fails to take swift measures necessary for removing obstructions such as repairs, etc. when impediments have occurred to the supply of telecommunications services.
     (2) The Korea Communications Commission may order a telecommunications business operator to conduct the matters of the following subparagraphs, when necessary for development of telecommunications: <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     1. Integrated operation and management of telecommunications facilities, etc.;
     2. Expansion of communications facilities for the enhancement of social welfare;
     3. Construction and management of communications networks for important communications to achieve efficient performance of State’s functions; and
     4. Other matters as prescribed by the Enforcement Decree.
     (3) The Korea Communications Commission may order the persons falling under any of the following subparagraphs to take measures, such as the suspension of acts to provide telecommunications service or the removal of telecommunications facilities, etc.: <Newly Inserted by Act No. 6346, Jan. 8, 2001>
     1. Persons who operate a key communications business without obtaining a permit under Article 5 (1);
     2. Persons who operate a specific communications business without making a registration under Article 19 (1); and
     3. Persons who operate a value-added communications business without making a report under Article 21 (1).

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Articles 66 and 67 Deleted. <by Act No. 5220, Dec. 30, 1996>
Article 68 (Delegation and Entrustment of Authority)
     (1) The authority of the Korea Communications Commission under this Act may be delegated and entrusted in part to the head of the affiliated agencies or of the Korea Post, under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (2) The Korea Communications Commission may entrust a part of affairs related to reports under Article 21(1) to a telecommunications business operator or to the Korea Information Communication Promotion Association under the Act on Promotion of Information and Communications Network Utilization and Information Protection, etc., under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 4439, Dec. 14, 1991; Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5835, Feb. 8, 1999; Act No. 6360, Jan. 16. 2001, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
CHAPTER VII. PENAL PROVISIONS
Article 69 (Penal Provisions)
     A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than five years or by a fine not exceeding 200 million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002>
     1. A person who runs a key communications business without obtaining a license under Article 5 (1);
     2. A person who obstructs the flow of telecommunications by impeding a function of telecommunications facilities by means of damaging telecommunications facilities, or having the objects contacted thereon and other methods, in violation of Article 50 (1);
     3. A person who divulges other’s secrets with respect to communications which have been

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known to him while in office, in violation of Article 54 (2); and
     4. A person who supplies communication data, and person who receives such supply, in violation of Article 54 (3).
Article 70 (Penal Provisions)
     A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding 150 million won: <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 6822, Dec. 26, 2002; Act No. 8425, May 11, 2007>
     1. A person who refuses a provision of telecommunications service without any justifiable reasons, in violation of Article 3 (1);
     2. A person who violates a disposition taken to suspend his business under Article 15 (1);
     3. A person who operates a specific communications business without making a registration under Article 19 (1);
     4. A person who commits any of the prohibited acts under Article 36-3 (1) 1-4 (excluding the act of providing telecommunications services in a manner different from the terms of use);
     5. A person who fails to implement an order under Article 37 (2);
     6. A person who obstructs the measurement of line tracks, etc. and the installation and preservation activities of telecommunications facilities under Article 40 (1); and
     7. A person who encroaches upon or divulges a secret of communications handled by telecommunications business operator, in violation of Article 54 (1).
Article 71 (Penal Provisions)
     A person falling under any of the following subparagraphs shall be punished by imprisonment for not more than two years or by a fine not exceeding 100 million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep.

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17, 1998; Act No. 5986, May 24, 1999; Act No. 6822, Dec. 26, 2002, Jan. 26, 2007, Act No. 8324, Mar. 29, 2007; Act No. 8425, May 11, 2007>
     1. A person who fails to obtain a modified license or to make a report thereon under Article 10;
     2. A person who fails to obtain approval under Articles 11 (1) and 34-4 (4);
     3. A person who fails to obtain an authorization under the text of Article 13 (1) or approval according to Article 13 (2) or 14 (1);
     4. A person who violates Article 13 (10) by unifying communication networks, appointing officers, executing any other activities such as transferring, consolidating, enforcing a facilities sales contract or taking follow-up measures relating to establishment of a company;
     5. A person who violates user protection measures ordered under Article 14-2;
     6. A person who runs the value-added communications business without making a report under Article 21;
     7. A person who violates a disposition taken to suspend his business under Article 28 (1);
     8. A person who fails to execute the order given to discontinue his business under Article 28 (2);
     9. A person who discloses, uses or provides the information, in violation of the text of Article 34-5 (1) or paragraph (2) of the same Article;
     10. A person who fails to implement the measure ordered pursuant to Article 55; and
     11. A person who fails to obtain approval, approval for alteration, or approval for abolition, under Article 59 (2).
Article 72 (Penal Provisions)
     A person falling under any of the following subparagraphs shall be punished by imprisonment

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for not more than one year or by a fine not exceeding 50 million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002; Act No. 7165, Feb. 9, 2004, Jan. 3, 2007; Act No. 8425, May 11, 2007>
     1. A person who fails to execute the order given under Articles 6-3 (5) or 7 (2) (including a case where the provisions are applied mutatis muandis under Article 4 (4) of the Addenda of the Telecommunications Business Act amended by Act No. 5385) or Article 13(9);
     2. A person who fails to make a report under provisos of Article 13 (1);
     3. A person who fails to make a modified registration or a modified report under Article 22;
     4. A person who fails to make a report under Article 25;
     5. A person who violates a disposition taken to suspend his business under Article 28 (2);
     6. A person who provides telecommunications service without making a report or receiving an authorization under Article 29 (1); and
     7. A person who intermediates other person’s communication or furnishes for use by other person, by making use of telecommunications services rendered by the telecommunications business operator, in contravention of the provisions of the text of Article 32-2.
     <The provisions of this subparagraph declared unconstitutional by the Constitutional Court on September 19, 2002 were amended in accordance with the amendment of Article 32-2 made by Act No. 6822 on December 26, 2002>
Article 73 (Penal Provisions)
     A person falling under any one of the following subparagraphs shall be punished by a fine not exceeding 50 million won: <Amended by Act No. 5220, Dec. 30, 1996; Act No. 5986, May 24, 1999; Act No. 6822, Dec. 26, 2002, Mar. 24, 2006, Mar. 29, 2007>
     1. A person who violates the provisions under Article 36-4 (1) 36-4 (2) or 36-4(4) or 36-4(6);

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     2. A person who refuses or impedes a temporary use of private telecommunications facilities or lands under Article 40 (1), without justifiable reasons;
     3. A person who refuses or impedes an entry to the land, etc. under Article 41 (1), without justifiable reasons;
     4. A person who refuses the moving, alteration, repair and other measures on the obstacles, etc. under Article 42 (1), or the request for removal of the plants under Article 42 (2), without justifiable reasons;
     5. Deleted; Act No. 8425, May 11, 2007
     6. A person who deceives another for profit or alters his telephone number or displays a fraudulent telephone number for the purpose of inflicting harm through violent language, intimidations, harassment, etc. in contravention of Article 54-2(3) <Newly inserted. Mar. 29, 2007>; and
     7. A person who provides services that enable another to alter the caller’s telephone number or display an erroneous telephone number for profit in violation of Article 54-2(4).
Article 74 Deleted. <by Act No. 6230, Jan. 28, 2000>
Article 75 (Penal Provisions)
     A person who stains the telecommunications facilities or damages the measurement marks of the telecommunications facilities, in violation of Article 50 (2) shall be punished by a fine not exceeding one million won.
     [This Article Wholly Amended by Act No. 5220, Dec. 30, 1996]
Article 76 (Attempted Criminal)
     An attempted criminal under subparagraphs 2 and 3 of Article 69 and subparagraph 7 of Article 70 shall be punished. <Amended by Act No. 5385, Aug. 28, 1997; Act No. 6822, Dec. 26, 2002>

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Article 77 (Joint Penal Provisions)
     When a representative of a juristic person or an agent, an employee or any other employed person of the juristic person or individual commits violation under Articles 69 through 73 in connection with the business of such juristic person or individual, then a fine under the related Article shall be imposed on the juristic person or individual, in addition to the punishment of the violator. <Amended by Act No. 6230, Jan. 28, 2000>
Article 78 (Fine for Negligence)
     (1) A person who falls under any one of the following subparagraphs shall be punished by a fine for negligence not exceeding ten million won: <Amended by Act No. 4903, Jan. 5, 1995; Act No. 5220, Dec. 30, 1996; Act No. 5385, Aug. 28, 1997; Act No. 5564, Sep. 17, 1998; Act No. 5986, May 24, 1999; Act No. 6230, Jan. 28, 2000; Act No. 6822, Dec. 26, 2002; Act No. 7165, Feb. 9, 2004, Act No. 7916, Mar. 24, 2006, Act No. 8324, Mar. 29, 2007; Act No. 8425, May 11, 2007>
     1. A person who fails to make a report as referred to in Article 6-3 (2) or to comply with a request for providing the data or an order to attend as referred to in Article 6-4 (3) or (4);
     2. A person who, in violation of Article 14 (1), fails to notify the user 60 days prior to the expected date of termination;
     3. A person who fails to make a report under Article 27;
     4. A person who fails to implement an order for modification in the standardized use contract under Article 30;
     5. A person who violates the obligation concerning the protection of users under Article 33 (2);
     6. A person who fails to make a public announcement of the technical standards, and the standards for use and provision, or the standards for a creation of fair competitive environments, in violation of Article 34-4 (4);
     7. A person who fails to observe the publicly announced matters, in violation of Article 36 (3);

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     8. A person who fails to adjust the accounting, to submit a business report, or to keep the books or evidential data, in violation of Article 36-2 (1);
     9. A person who fails to implement an order for the submission of related data under Article 36-2 (4);
     10. A person who refuses, avoids or hampers an order for submission, or an investigation, of the data or articles according to Article 36-5 (2);
     10-2. A person who refuses, avoids, or intervenes with the order to submit information or object under Article 26-5 (5), or the order for temporary custody of the information or object submitted under the same Article;
     11. A person who fails to execute orders given to furnish related data under the provisions of Article 38-2 (3);
     12. A person who fails to keep related data or makes false entries in such data, in contravention of the provisions of Article 54 (5);
     13. A person who fails to notify the head of central administrative agency, in contravention of the provisions of Article 54 (7);
     14. A person who fails to make reports or submit the data under Article 62, or falsely do such acts; and
     15. A person who fails to follow correction orders, etc., under Article 65.
     (2) The fine for negligence under paragraph (1) shall be imposed and collected by the Korea Communications Commission, under the conditions as prescribed by the Enforcement Decree. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>
     (3) A person who is dissatisfied with the imposition of the fine for negligence under paragraph (2) may make an objection to the Korea Communication Commission within thirty days from the notification date of such imposition. <Amended by Act No. 5220, Dec. 30, 1996; Act No. 8867, Feb. 29, 2008>

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     (4) When a person subjected to the imposition of the fine for negligence under paragraph (2) makes an objection under paragraph (3), the Korea Communications Commission shall notify a competent court of the fact without delay, and the court so notified shall bring the case of fine for negligence to trial under the Non-Contentious Case Litigation Procedure Act. <Amended by Act No. 5220, Dec. 30, 1996, Jan. 3, 2007; Act No. 8867, Feb. 29, 2008>
     (5) When neither the objection against nor the payment of the fine for negligence is made within the specified period under paragraph (3), it shall be collected in accordance with examples of disposition for the national taxes in arrears.
ADDENDUM
(Framework Act on Telecommunications)
<Act No. 9481, Mar. 13, 2009>
Article 1 (Enforcement Date) This Act shall enter into force on the date of its promulgation.
Article 2 (Amendment of Other Laws)
(1) The Telecommunications Business Act shall be amended as follows:
      Article 5 (2) shall be deleted.
In Article 13 (7), “a deliberation by the Information and Communications Policy Deliberation Council under Article 44-2 of the Framework Act on Telecommunications, and consultation with the Fair Trade Commission” shall be amended to “a consultation with the Fair Trade Commisssion.”
(2) Omitted.

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EX-15.4 10 h03459exv15w4.htm EX-15.4 EX-15.4
Exhibit 15.4
ENFORCEMENT DECREE OF THE TELECOMMUNICATIONS BUSINESS ACT
 
     As amended by Enforcement Decree No. 21060 of Oct. 1, 2008, effective Oct. 1, 2008
CHAPTER I. GENERAL PROVISIONS
Article 1 (Purpose)
     The purpose of this Decree is to provide for matters delegated under the Telecommunications Business Act and matters necessary for its enforcement.
Article 2 (Contents of Universal Service)
     (1) Pursuant to Article 3-2(3) of the Telecommunications Business Act (the “Act”), the contents of universal services shall be as follows:
  1.   Wire telephone services;
 
  2.   Telephone services for emergency communications; and
 
  3.   Telephone services of which fees are reduced or exempted for the disabled and the low income class.
     (2) The detailed contents of universal services under paragraph (1) shall be as follows. <Amended by Enforcement Decree No. 21060, Oct. 1, 2008>
  1.   Wire telephone services are telephone services within an area publicly notified by the Korea Communications Commission based on methods and conditions of use (the “Calling Area”), falling under any one of the following:

1

 

  (a)   a local telephone service which is a telephone service (excluding, throughout this Enforcement Decree, the island communication service referred to in (c) below) enabling communication through subscription telephones;
 
  (b)   a local public telephone service which is a telephone service enabling communication through public telephones; or
 
  (c)   an island communication service which is a telephone service enabling radio communication between shore and an island or between islands.
 
  2.   Telephone services for emergency communications are telephone services necessary for maintaining social order and securing human life, falling under any of the following:
 
  (a)   a special telephone number service, among the key communications services under Articles 7.1 and 7.2 hereof, publicly notified by the Korea Communications Commission; or
 
  (b)   a wireless telephone service for vessels which is a telephone service, among the key communications services under Article 7(2) hereof, enabling communication between shore and a vessel or between vessels.
 
  3.   Telephone services of which fees are reduced or exempted for the disabled and the low income class are telephone services offered to the disabled and the low income class for the purpose of improving social welfare, falling under any of the following:
 
  (a)   a local telephone service and a telephone service between the Calling Areas (the “Long Distance Telephone Service”);
 
  (b)   a directory assistant service which is a service incidental to a local telephone service and the Long Distance Telephone Service;
 
  (c)   a mobile telephone service, a personal communication service, IMT-2000 service or a wireless call service among the key communications services prescribed under Article 7.2 hereof; or
 
  (d)   an Internet subscriber connection service.
     (3) Any of the following shall be entitled to the telephone services of which fees are reduced or exempted pursuant to subparagraph 3 of paragraph (2); provided,

2

 

however, that the telephone services for which fees are reduced or exempt pursuant to subparagraph 8 below shall be limited to the mobile telephone service, the personal communication service and the IMT-2000 service < Amended by Enforcement Decree No. 21060, Oct. 1, 2008>:
  1.   the disabled or welfare institutions or groups for the disabled under the Welfare of Disabled Persons Act;
 
  2.   special schools under the Elementary and Secondary Education Act;
 
  3.   child welfare institutions under the Child Welfare Act;
 
  4.   among the recipients of assistance under the National Basic Livelihood Security Act (the “Recipients of Assistance”), persons falling under any of the following (or households composed of such persons in the event of a local telephone service, the Long Distance Telephone Service or an Internet subscriber connection service):
  (a)   the Recipients of Assistance who are either under 18 or 65 or older; except that for the mobile telephone service and the IMT-2000 service, the Recipients of Assistance including those who are 18 or older and below 65.
 
  (b)   persons with severe disabilities under Article 2.2 of the Employment Promotion and Vocational Rehabilitation of Disabled Persons Act;
 
  (c)   persons in need of a treatment or recuperation lasting 3 months or longer due to a disease, an injury or an aftereffect of a disease or an injury not designated by the Minister for Health, Welfare and Family Affairs under Article 7.2 of the Enforcement Decree of the National Basic Livelihood Security Act; or
 
  (d)   persons deemed unable to work by the Minister for Health, Welfare and Family Affairs under Article 7.5 of the Enforcement Decree of the National Basic Livelihood Security Act.
 
  5.   the Korean Association of Wounded Soldiers and Police Officials or the Association Commemorating the April 19 Democratic Revolution under the Act on Establishment of Organizations for Persons, etc. of Distinguished Services to the State;

3

 

  6.   soldiers or policemen wounded in action, soldiers or policemen wounded on duty, wounded activists of the April 19 Revolution, public officials wounded on duty, wounded special contributor to national and social development or wounded anticommunist captive under the Act on Honorable Treatment and Support of Persons, etc. of Distinguished Services to the State; or
 
  7.   wounded activists of the May 18 Democratization Movement among the persons of distinguished services to the May 18 democratization movement under the Act on Honorable Treatment of Persons of Distinguished Services to the May 18 Democratization Movement.
 
  8.   members of a family having at least one of its members fitting any of the descriptions below qualifying as a member of the next needy class under Article 2(11) of the National Basic Livelihood Security Act; and the number of family members eligible for fee reduction or exemption for such family shall be determined by the Korea Communications Commission:
 
  (a)   a person taking part in the project required for self-support pursuant to Article 9(5) of the National Basic Livelihood Security Act;
 
  (b)   a person having a rare and serious disease as described item (c) of section 4 in Table 2 and is eligible for reduction in his or her share of fees;
 
  (c)   a person receiving medical allowances pursuant to Article 2 of the Medical Allowance Act;
 
  (d)   a person receiving necessary expenses for infant care pursuant to Article 34(1) of the Infant Care Act;
 
  (e)   a person receiving necessary expenses for early childhood education pursuant to Article 26(1) of the Early Childhood Education Act;
 
  (f)   a person receiving disability allowances pursuant to Article 49 of the Welfare of the Disabled Persons Act and a person receiving allowances for raising and protecting disabled children pursuant to Article 50(1) of the same Act; and

4

 

  (g)   a person requiring protection under Article 5 of the Single-Parent Family Assistance Act, including a person who has ratio of recognized income to minimum living expense of 130 or below to 100.
Article 3 (Designation of Telecommunications Business Operator who Provides Universal Services)
     (1) If the Korea Communications Commission intends to designate a telecommunications business operator who provides universal services (the “Business Operator Providing Universal Services”) under Article 3-2(4) of the Act, the Information and Communications Policy Deliberation Council as prescribed in Article 44-2 of the Framework Act on Telecommunications shall deliberate thereon.
     (2) A telecommunications business operator who is designated as a Business Operator Providing Universal Services under paragraph (1) shall submit to the Korea Communications Commission, every year by no later than the last day of the year preceding the provision of the relevant services, a written plan for provision of universal services which includes the method of, and the expenditures for, providing the relevant services.
Article 4 (Compensation for Losses Incurred through Provision of Universal Services)
     (1) The Korea Communications Commission may have the telecommunications business operators who are not Business Operators Providing Universal Services bear part of the expenses for compensating whole or part of the losses incurred through a provision of universal services by Business Operators Providing Universal Services (the “Compensation For Losses Incurred Through Universal Services”) in proportion to their respective sales.
     (2) A Business Operator Providing Universal Services who intends to receive the Compensation For Losses Incurred Through Universal Services shall submit a report on the actual results of a provision of universal services, including expenditures for, and incomes and losses from, the provision thereof, to the Korea Communications

5

 

Commission within three months after the expiration of the relevant fiscal year.
     (3) The Korea Communications Commission may, if deemed necessary for the verification of the report on the actual results of a provision of universal services submitted pursuant to paragraph (2), consult a professional institution to examine it.
Article 5 (Universal Services Entitled To Compensation For Losses Incurred Through Universal Services)
     (1) The scope of universal services entitled to the Compensation For Losses Incurred Through Universal Services shall be any of the following:
  1.   among local telephone services pursuant to Article 2(2)1(a) hereof, a local telephone service offered in areas where, as a result of provision of such service, the expenditures (meaning, here as well as in subparagraph 2 and Article 6(1) hereof, the expenses calculated in accordance with the method publicly notified by the Korea Communications Commission considering such factors as the population density, number of lines and efficiency of managing communication lines) exceed the incomes (including, here as well as in subparagraph 2 and Article 6(1) hereof, any indirect advantages such as improved brand value and user preference as a result of provision of universal services);
 
  2.   among local public telephone services pursuant to Article 2(2)1(b) hereof, a local public telephone service offered in areas where, as a result of provision of such service, the expenditures exceed the incomes;
 
  3.   an island communication service pursuant to Article 2(2)1(c) hereof; or
 
  4.   a wireless telephone service for vessels pursuant to Article 2(2)2(b) hereof.
     (2) In Article 3-2(2) of the Act, “the telecommunications business operators prescribed under the Enforcement Decree” means specific communications business operators, value-added communications business operators or regional wireless call operators, and “the amount prescribed under the Enforcement Decree” means 30 billion won.

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Article 6 (Methods for Computing the Compensation For Losses Incurred Through Universal Services)
     (1) Losses incurred through provision of the universal services prescribed under each of the paragraphs in Article 5(1) hereof shall be the amount of expenses of providing the relevant service less the relevant income.
     (2) The provisional Compensation For Losses Incurred Through Universal Services shall be computed by multiplying the amount obtained under paragraph (1) and the rate of compensation for losses determined and publicly notified by the Korea Communications Commission; provided that, with respect to a wireless telephone service for vessels under Article 5(1)4 hereof, the target amount for efficient management determined and publicly notified by the Korea Communications Commission shall be the provisional Compensation For Losses Incurred Through Universal Services.
     (3) The Compensation For Losses Incurred Through Universal Services shall be the amount of the provisional Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (2) subtracted by each of the amounts described below:
  1.   the amount paid by telecommunications business operators providing any of the universal services prescribed under each of the subparagraphs of Article 5(1) hereof based on their sales from telecommunications services other than the relevant universal service provided (excluding value-added communications services); and
 
  2.   the amount computed by the Korea Communications Commission considering the payment capacity of telecommunications business operators paying for the Compensation For Losses Incurred Through Universal Services (the “Business Operators Paying For Losses”).
     (4) The Business Operators Paying For Losses shall pay for the Compensation For Losses Incurred Through Universal Services computed pursuant to paragraph (3) in proportion to their respective sales relating to telecommunications services (excluding

7

 

value-added communications services).
     (5) The Korea Communications Commission shall determine and announce all other necessary details with respect to the rates by which telephone services fees are reduced or exempted for the disabled and the low income class and the methods for computing the Compensation For Losses Incurred Through Universal Services.
CHAPTER II. TELECOMMUNICATIONS BUSINESS
Article 7 (Types and Contents of Key Communications Services)
The types and contents of key communications services pursuant to Article 4(2) of the Act are as follows; provided that, a telecommunications service which sends or receives electromagnetic signals, such as voices, data or images, using any of the following services without changing the form or content of such electromagnetic signals shall be excluded:
  1.   a transmission service: a telecommunications service sending or receiving electromagnetic signals, such as voices, data or images, i.e. telegraph, telephone or connecting to the Internet, without changing the form or content of such electromagnetic signals;
 
  2.   a service provided upon being assigned frequencies: a telecommunications service sending or receiving electromagnetic signals, such as voices, data or images, without changing the form or content of such electromagnetic signals utilizing the radio stations that use the frequencies assigned pursuant to Article 11 or 12 of the Radio Waves Act; and
 
  3.   a telecommunications line facilities and equipment rental service: a telecommunications service renting out telecommunications line facilities and equipment.
Article 8 (Scope of Premises)
The “premises determined under the Enforcement Decree of the Act” in Article 4(3)2 of

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the Act means any of the following:
  1.   a building;
 
  2.   a site (limited to that owned by one person or owned through common ownership) and any building located on such site;
 
  3.   two or more buildings possessed by one person and the site on which such buildings are located, limited to those buildings the distance between which is not more than 500 meters; or
 
  4.   any buildings or sites adjacent to the buildings or sites prescribed under paragraphs 1-3 and publicly notified by the Korea Communications Commission upon deliberation by the Information and Communications Policy Deliberation Council pursuant to Article 44-2 of the Framework Act on Telecommunications.
Article 9 (Permit Application, etc.)
     (1) A person who wishes to obtain a permit under Article 5(1) of the Act may make an application in the name of the representative of a corporation or the representative, such as a shareholder, etc., of a corporation to be established.
     (2) Prior to any public notification issued by the Korea Communications Commission under Article 5(4) of the Act, the subject matter shall be deliberated by the Information and Communications Policy Deliberation Council, as stipulated in Article 44-2 of the Framework Act on Telecommunications; provided that, such requirement shall not apply to permits for minor businesses as provided for in proviso of Article 5(2) of the Act.
Article 10 (Documents to be Attached to Permit Application)
     (1) A person who wishes to obtain a permit for a key communications business under Article 5(1) of the Act shall submit to the Korea Communications Commission a key communications business permit application with each of the following documentation attached thereto:

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  1.   articles of incorporation of the corporation (including, throughout this Article 10, the corporation to be incorporated);
 
  2.   shareholder register, or documentation relating to ownership of shares, etc. by shareholders, etc., of the corporation; and
 
  3.   a business proposal.
     (2) A public official who receives a permit application pursuant to paragraph (1) shall verify the corporate registry by using the public administrative information made available under Article 21(1) of the E-Government Act; provided that, in the event the applicant does not consent to such verification method, such applicant shall be required to attach the corporate registry to its license application.
Article 11 (Exception to Deliberation by the Information and Communications Policy Deliberation Council)
“Minor businesses prescribed under the Enforcement Decree of the Act” in proviso of Article 5(2) of the Act means businesses providing the services publicly notified by the Korea Communications Commission, among the services prescribed under Article 7.2 hereof.
Article 12 (Issuance of License)
     (1) When permitting a key communications business under Article 5(1) of the Act or an additional key communications service under Article 10(1) of the Act, the Korea Communications Commission shall issue a key communications business operator’s license upon making recordations of each of the following in a license registry of key communications business operators:
  1.   number and date of license;
 
  2.   title or trade name of the business and name of the representative;
 
  3.   type and details of the telecommunications service and the areas where the

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      telecommunications service is offered;
  4.   location of the principal office;
 
  5.   capital or asset valuation amount;
 
  6.   details of major business facilities and equipment and the locations where such facilities and equipment are installed;
 
  7.   details concerning technical personnel; and
 
  8.   any conditions upon which the license is issued.
     (2) A key communications business operator whose license, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the license to the Korea Communications Commission by writing the reason for such loss or damage in its application thereto.
Article 13 (Criteria for Examination of Public Interest Aspect)
     (1) The term “public interests as prescribed under the Enforcement Decree of the Act” in parts other than each subparagraph of Article 6-3(1) of the Act means the maintenance of national security, public peace and social order.
     (2) The term “important management matters prescribed under the Enforcement Decree of the Act” in Article 6-3(1)3 of the Act means the matters falling under each of the following subparagraphs:
     1.     appointment and dismissal of the representative director of a key communications business operator, or appointment and dismissal of one third or more of the officers;
     2.     transfer and takeover of a key communications business; and
     3.     entrance by a key communications business operator into a new key communications business.

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     (3) The term “case prescribed under the Enforcement Decree of the Act” in Article 6-3(1)4 of the Act means the case where a de facto change is made in the management right of a key communications business operator by an agreement of shareholders who are not the largest shareholder of such key communications business operator to jointly exercise voting rights.
Article 14 (Scope of Key Communications Business Operators subject to Examination of Public Interest Aspect)
The scope of key communications business operators who must file a report or who may request a screening pursuant to Article 6-3 of the Act shall be any of the following:
  1.   a key communications business operator managing or supervising a significant communication under Article 64(1) hereof;
 
  2.   a key communications business operator who owns an artificial satellite with a space station under Article 27 Subparagraph 30 of the Enforcement Decree of the Radio Waves Act; or
 
  3.   a key communications business operator determined and publicly notified by the Korea Communications Commission under Article 39(2) hereof.
Article 15 (Procedures for Examination of Public Interest Aspect)
     (1) A person who wishes to file a report or request a screening pursuant to Article 6-3(2) or 6-3(3) of the Act shall submit to the Korea Communications Commission documentation indicating each of the following:
  1.   name and address of the person filing a report or requesting a screening (in the case of a corporation, the name and address of (i) such corporation and (ii) the representative of such corporation);
 
  2.   purpose of, and reason for, the report or screening request; and
 
  3.   details of any of the facts falling under each of the subparagraphs of Article

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      6-3(1) of the Act.
     (2) The Korea Communications Commission may, where it deems necessary, request for the documentation already submitted to it to be supplemented within a period reasonably fixed.
     (3) Except under special circumstances, with respect to any matter the Korea Communications Commission referred to the public interest aspect examination committee, the public interest aspect examination committee shall notify the Korea Communications Commission of the result of its screening within 3 months of the date of such referral.
     (4) The Korea Communications Commission shall notify the person filing a report or requesting a screening of the result of examination of public interest aspect under paragraph (3).
Article 16 (Composition etc. of Public Interest Aspect Examination Committee)
     (1) The term “related central administrative agencies prescribed under the Enforcement Decree of the Act” in parts other than each subparagraph of Article 6-4(2) of the Act means the agencies falling under each of the following:
  1.   the Ministry of Strategy and Finance;
 
  2.   the Ministry of Foreign Affairs and Trade;
 
  3.   the Ministry of Justice;
 
  4.   the Ministry of National Defense;
 
  5.   the Ministry of Public Administration and Security; and
 
  6.   the Ministry of Knowledge Economy.
     (2) The term of office of the members shall be two years and consecutive appointment may be permitted; provided that, the term of office of the members who

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are public officials shall be the period of service in their positions as public officials.
Article 17 (Operation etc. of Public Interest Aspect Examination Committee)
     (1) The chairman of the Public Interest Aspect Examination Committee shall represent the Public Interest Aspect Examination Committee and exercise an overall control of its affairs.
     (2) If the chairman is inevitably unable to perform his duties, a member previously appointed by the chairman shall act on her or his behalf.
     (3) The chairman shall convene and preside over a meeting of the Public Interest Aspect Examination Committee.
     (4) Deliberation of a meeting of the Public Interest Aspect Examination Committee shall start by the attendance of a majority of all incumbent members, and its resolution shall require the consent of a majority of those present.
     (5) The Public Interest Aspect Examination Committee shall have one secretary general in order to deal with its affairs, but the secretary general shall be appointed by the chairman among the public officials belonging to the Korea Communications Commission.
     (6) Any matters necessary for the operation of the Public Interest Aspect Examination Committee shall be determined by the chairman through a resolution of the Public Interest Aspect Examination Committee.
Article 18 (Imposition and Payment etc. of Charges for Compelling Execution)
     (1) When determining the amount of charges for compelling execution pursuant to Article 7-2 of the Act, the Korea Communications Commission shall take into account such factors as the reasons for failure to comply with corrective orders and the scale of benefits to be gained by such failure.
     (2) The date of compliance with corrective orders pursuant to Article 7-2(2) of the Act shall be determined by the classifications falling under each of the following:

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  1.   delivery date of shares in the case of disposal of shares;
 
  2.   date of executing a contract in the case of amending details of a contract; and
 
  3.   date of suspending the relevant acts in the case of suspending the acts impeding public benefits.
     (3) Where the Korea Communications Commission wishes to impose charges for compelling execution pursuant to Article 7-2 of the Act, it shall furnish a notification thereof in writing, indicating such matters as the amount of charges for compelling execution per day, reasons for imposition, payment term and receiving agency, methods of raising objections, and agencies to where such objections must be directed.
     (4) Any person who has been notified under paragraph (3) shall pay the charges for compelling execution within 30 days of the date of receiving such notice; provided that, in the event such person is unable to pay the charges for compelling execution within said period due to a natural disaster or other unavoidable circumstances, such person shall pay the charges for compelling execution within 30 days of the day on which said causes have disappeared.
     (5) In collecting charges for compelling execution and in the event a corrective order has not been complied with after 90 days elapsed from the date of expiration of the period set by the corrective order, the Korea Communications Commission may collect charges for compelling execution based on the dates on which each 90 day period elapses from said expiration date.
     (6) Article 49 hereof shall apply mutatis mutandis to any reminder of charges for compelling execution.
Article 19 (Permit to Change)
     (1) A person who wishes to obtain a permit to change to a key communications business pursuant to Articles 10(1) and 10(2) of the Act shall submit to the Korea Communications Commission an application for a permit to change to a key communications business with each of the following documentation attached thereto:

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  1.   a business proposal — for adding a key communications service; and
 
  2.   documentation demonstrating the plan to change to a key communications business — for changing any material aspect for which a permit was issued.
     (2) The Korea Communications Commission shall issue public notice with respect to the application guidelines for a permit to change under Article 10(1) of the Act, such as the detailed criteria for examination of an application for a permit to add a key communications business, application deadline and relationship with an application for a new permit.
     (3) The “key communications service prescribed under the Enforcement Decree of the Act” in the proviso of Article 10(1) of the Act means the telecommunications line facilities and equipment rental service under Article 7(3) hereof.
     (4) The “material aspects prescribed under the Enforcement Decree of the Act” in Article 10(2) of the Act means the aspects relating to Article 12(1)8 hereof.
Article 20 (Approval Application for Transfer, Merger, etc.)
     (1) A person who wishes to obtain approval of the transfer of the whole or part of a key communications business pursuant to Article 13(1)1 of the Act shall submit to the Korea Communications Commission an approval application for the transfer of a key communications business with each of the following documentation attached thereto:
  1.   a copy of the transfer agreement;
 
  2.   articles of incorporation of the transferor and the transferee, and documentation supporting the transfer;
 
  3.   shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the transferee;
 
  4.   present status of the transferor and the transferee; and

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  5.   post-transfer business proposal.
     (2) A person who wishes to obtain approval of the merger with a corporation that is a key communications business pursuant to Article 13(1)2 of the Act shall submit to the Korea Communications Commission an approval application for the merger with a key communications business with each of the following documentation attached thereto:
  1.   a copy of the merger agreement;
 
  2.   articles of incorporation of the parties to the merger agreement, and documentation supporting the merger;
 
  3.   shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the corporation that shall continue to exist after the merger or be incorporated through the merger;
 
  4.   present status of the parties to the merger agreement; and
 
  5.   post-merger business proposal.
     (3) A key communications business operator who wishes to obtain approval of the sale of telecommunications line facilities and equipment pursuant to Article 13(1)3 of the Act shall submit to the Korea Communications Commission an approval application for the sale of line facilities and equipment with each of the following documentation attached thereto:
  1.   a copy of the sale and purchase agreement concerning telecommunications line facilities and equipment, and other documentation supporting such agreement;
 
  2.   articles of incorporation of the seller and the purchaser, and documentation supporting the sale and purchase;
 
  3.   shareholder register, or documentation related to ownership by shareholders, etc., of the purchaser;

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  4.   present status of the seller and the purchaser; and
 
  5.   post-sale business proposal.
     (4) A person who wishes to own 15% or more of the total outstanding shares of a key communications business operator or become the largest shareholder of a key communications business operator pursuant to Article 13(1)4 of the Act shall submit to the Korea Communications Commission an approval application for the ownership of shares, or for becoming the largest shareholder, of a key communications business with each of the following documentation attached thereto:
  1.   documentation supporting the share purchase, such as a copy of the share purchase agreement;
 
  2.   articles of incorporation of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;
 
  3.   present status of the shareholders of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;
 
  4.   present status of the share purchaser, or the person seeking to be the largest shareholder, and the counterparty to the share purchase agreement;
 
  5.   purpose of, reasons for and an analysis of the effect of acquisition of the shares;
 
  6.   proposal for dual appointment of officers (only when considering dual appointment of an officer of the counterparty); and
 
  7.   post-share acquisition business proposal (only when seeking to become the largest shareholder).
     (5) A public official who receives an approval application for transfer, merger, sale,

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share acquisition or changing the largest shareholder pursuant to paragraphs (1)-(4) shall verify the corporate registry of the party seeking to transfer, merge, sell, acquire shares or become the largest shareholder by using the public administrative information made available under Article 21(1) of the E-Government Act; provided that, in the event the applicant does not consent to such verification method, such applicant shall be required to attach the corporate registry to its approval application.
     (6) The Korea Communications Commission shall issue a key communications business operator’s license upon approving the approval application for transfer or merger pursuant to paragraph (1) or (2).
Article 21 (Criteria for Major Telecommunications Line Facilities and Equipment)
The “major telecommunications line facilities and equipment prescribed under the Enforcement Decree of the Act” in provisos other than each subparagraph of Article 13(1) of the Act means facilities and equipment for exchange, transmission and wire pursuant to Article 3(8)-(10) of the Regulations on Telecommunications Facilities and Equipment of which the sum of the sales prices is not less than 5 billion won.
Article 22 (Report on Sale of Telecommunications Line Facilities and Equipment)
A person who wishes to file a report on sale of telecommunications line facilities and equipment pursuant to provisos other than each subparagraph of Article 13(1) of the Act shall submit to the Korea Communications Commission a report on sale of telecommunications line facilities and equipment with each of the following documentation attached thereto:
  1.   documentation supporting the sale, such as a copy of the sales agreement concerning telecommunications line facilities and equipment;
 
  2.   types, details and prices of the facilities and equipment being sold; and
 
  3.   plans for service provision and user protection subsequent to the sale.
Article 23 (Establishment of Corporation for Providing Key Communications Services)

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     (1) A key communications business operator who wishes to obtain authorization for establishing a corporation for the purpose of providing part of the key communications services such key communications business operator is permitted to provide pursuant to Article 13(2) of the Act shall submit to the Korea Communications Commission an authorization application (including an electronic authorization application) for establishing a corporation for providing key communications services with each of the following documentation (including electronic documentation) attached thereto; provided that, in the event the information contained in any of the following documentation can be verified through the public administrative information available pursuant to Article 21(1) of the E-Government Act, such verification may substitute for the relevant documentation:
  1.   articles of incorporation of the corporation to be established;
 
  2.   shareholder register, or documentation related to ownership of shares, etc. by shareholders, etc., of the corporation to be established;
 
  3.   present status of the services to be provided (only for key communications business operators who are already providing the services they seek to provide by establishing a corporation); and
 
  4.   business proposal prepared by the corporation to be established.
     (2) The Korea Communications Commission shall issue a key communications business operator’s license upon authorizing the authorization application for establishing a corporation pursuant to paragraph (1).
Article 24 (Application for a Permit to Suspend Business, etc.)
     A person who wishes to obtain authorization to suspend or discontinue business pursuant to Article 14(1) of the Act shall submit to the Korea Communications Commission each of the following documentation:
  1.   details of the business to be suspended or discontinued, and drawings of such business’s territories;

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  2.   documentation indicating details of major telecommunications facilities and equipment relating to the business to be suspended or discontinued;
 
  3.   written permission (only where the whole business is discontinued); and
 
  4.   statement of reasons for such suspension or discontinuation.
Article 25 (Criteria, Procedures, etc. for Revocation of Permits)
     (1) The criteria for revocation of permits, cancellation of registration and suspension or discontinuation of business pursuant to Articles 15(2) and 28(3) of the Act are as provided in Table 1 attached hereto.
     (2) In the event a telecommunications business operator commits several violations and:
  1.   the heaviest penalty for those violations is revocation of the permit or discontinuation of business, such heaviest penalty shall be imposed; or
 
  2.   the penalty for each violation is suspension of business, all such suspension periods shall be aggregated; provided that, the aggregated suspension period may not exceed 1 year.
     (3) Upon revocation of permits, cancellation of registration or suspension or discontinuation of business under paragraph (1), the Korea Communications Commission shall issue public notification thereof without delay, and notify the relevant telecommunications business operator in writing.
Article 26 (Application for Registration)
     (1) A person who wishes to register as a specific communications business operator pursuant to Article 19(1) of the Act shall submit to the Korea Communications Commission an application (including an electronic application) to register as a specific communications business operator with each of the following documentation (including electronic documentation) attached thereto:

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  1.   a business proposal relating to a specific communications business;
 
  2.   articles of incorporation of the corporation (including, throughout this Article, the corporation to be established);
 
  3.   details, installment locations and a network map of major business facilities and equipment;
 
  4.   terms of use containing provisions relating to user protection (including a provision for the aggregated issue amount of prepaid calling cards), and details of, and a management proposal for, an office for user protection; and
 
  5.   a copy of surety insurance certificate.
     (2) A public official who receives a registration application pursuant to paragraph (1) shall verify the corporate registry and national technical qualification certificates of the technical personnel by using the public administrative information available pursuant to Article 21(1) of the E-Government Act; provided that, in the event the applicant does not consent to such verification method, such applicant shall be required to attach the relevant documentation (in the case of national technical qualification certificates, copies thereof) to its license application.
Article 27 (Issuance of Certificates of Registration)
     (1) Upon receipt of a registration application under Article 26(1) hereof, the Korea Communications Commission shall verify whether such registration application meets the registration requirements under Article 28 hereof, make recordations of each of the following in a registration registry of specific communications business operators and issue to the applicant a certificate of registration as a specific communications business operator within 30 days of the date of application:
  1.   number and date of registration;
 
  2.   title or trade name of the business and name of the representative;

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  3.   location of the principal office;
 
  4.   capital;
 
  5.   types of services provided;
 
  6.   details of major business facilities and equipment and the locations where such facilities and equipment are installed;
 
  7.   details concerning technical personnel;
 
  8.   any conditions upon which the registration is authorized; and
 
  9.   aggregated issue amount of prepaid calling cards (for specific communications business operators only).
     (2) The Korea Communications Commission may, where it deems necessary, request for a registration application already submitted to it under Article 26 hereof to be supplemented or revised by no later than 7 days thereafter; provided that, such period may be extended upon request of the applicant and may not count towards the processing time referred to in paragraph (1).
     (3) A specific communications business operator whose certificate of registration, issued pursuant to paragraph (1), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of registration to the Korea Communications Commission.
Article 28 (Registration Requirements for Specific Communications Business)
The registration requirements for a specific communications business pursuant to Article 19(4) of the Act are as provided in Table 2 attached hereto.
Article 29 (Reporting Procedures, etc. of Value-Added Communications Business)
     (1) A person who wishes to file a report of a value-added communications business under the text of Article 21 of the Act shall submit to the Korea

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Communications Commission a value-added communications business report (including an electronic report) with a network map diagram (including an electronic diagram, but applicable only where new types of value-added communications services are reported and the Korea Communications Commission deems such diagram to be necessary and requests for it) attached thereto.
     (2) A public official who receives a report pursuant to paragraph (1) shall verify the corporate registry by using the public administrative information available pursuant to Article 21(1) of the E-Government Act; provided that, in the event the person filing the report does not consent to such verification method, such person shall be required to attach the corporate registry to its report.
     (3) When there is an error in a value-added communications business report or the documentation attached to such report is insufficient, the Korea Communications Commission may request for such report to be supplemented by no later than 7 days thereafter; provided that, such period may be extended upon request by the person filing the report.
     (4) Upon receipt of a value-added communications business report under paragraph (1), the Korea Communications Commission shall issue a report certificate to the person filing such report.
     (5) A value-added communications business operator whose report certificate, issued pursuant to paragraph (4), is either lost or worn out to the extent it can no longer be used may apply for reissuance of the certificate of report to the Korea Communications Commission.
Article 30 (Exemption from Value-added Communications Business Operator Report)
     (1) The “small-scale value-added communications business meeting the criteria prescribed under the Enforcement Decree of the Act” in the proviso of Article 21 of the Act means value-added communications business operators who provide value-added communications services using the Internet and who satisfy each of the following criteria:
  1.   where the capital is 100 million won or less; and

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  2.   where the scale of the telecommunications facilities and equipment complies with the standards publicly notified by the Korea Communications Commission.
     (2) In the event a value-added communications business operator who did not file a report under paragraph (1) no longer satisfies all of the criteria set forth in paragraph (1), such value-added communications business operator shall file a report, within 1 month of the date on which it ceased to satisfy such criteria, in accordance with the text of Article 21 of the Act.
Article 31 (Amendment of Registration or Report)
     (1) “As prescribed under the Enforcement Decree of the Act” in Article 22 of the Act means each of the following:
  1.   title or trade name, and address;
 
  2.   representative;
 
  3.   types of services provided;
 
  4.   capital (for specific communications business operators only); and
 
  5.   aggregated issue amount of prepaid calling cards (for specific communications business operators only).
     (2) In order to amend any of the information set forth in paragraph (1), an application to register amendment to the specific communications business, or a report of amendment to the value-added communications business (including an electronic application or report), and documentation (including electronic documentation) supporting the relevant amendment shall be submitted to the Korea Communications Commission.
     (3) Upon receipt and registration, or receipt and processing, of an application to register amendment or a report of amendment, the Korea Communications Commission

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shall issue either a registration certificate on which the relevant amendment is recorded or a report certificate.
     (4) A public official who receives an application to register amendment or a report of amendment pursuant to paragraph (2) shall verify the corporate registry (only if an amendment is made with respect to the trade name, title, address, representative or capital of a corporation) or business registration certificate (only if an amendment is made with respect to the trade name, title or address of an individual) by using the public administrative information available pursuant to Article 21(1) of the E-Government Act; provided that, in the event the applicant or person filing the report does not consent to such verification method, such applicant or person shall be required to attach the corporate registry or business registration certificate to its report.
Article 32 (Report on Transfer of Business)
     (1) A person who wishes to file a report on transfer of a specific communications business or a value-added communications business pursuant to Article 25 of the Act shall submit to the Korea Communications Commission a business transfer application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto:
  1.   a copy of the business transfer agreement;
 
  2.   documentation prescribed under each of the subparagraphs of Article 26(1) hereof, or documents to be attached under Article 29(1) hereof; and
 
  3.   a registration certificate or a report certificate.
     (2) A person who wishes to file a report on merger of a corporation that is either a specific communications business operator or a value-added communications business operator pursuant to Article 25 of the Act shall submit to the Korea Communications Commission a merger application (including an electronic application) with each of the following documentation (including electronic documentation) attached thereto:
  1.   a copy of the merger agreement;

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  2.   documentation prescribed under each of the subparagraphs of Article 26(1) hereof, or documents to be attached under Article 29(1) hereof; and
 
  3.   a registration certificate or a report certificate.
     (3) A person who wishes to file a report on inheritance of a value-added communications business operator pursuant to Article 25 of the Act shall submit to the Korea Communications Commission an inheritance report (including an electronic application) with documentation (including electronic documentation) demonstrating that she or he is the heir attached thereto.
     (4) A public official who receives a report under paragraphs (1)-(3) shall verify the corporate registry of the transferor or party to a merger agreement (meaning the existing or newly established corporation), national technical qualification certificates of the technical personnel or a certificate of the heir’s family register; provided that, in the event the person filing the report does not consent to such verification method, such person shall be required to attach the relevant documentation (in the case of national technical qualification certificates, copies thereof) to its report.
     (5) Upon receipt of a report to register on transfer or merger of a specific communications business or a value-added communications business under paragraph (1) or (2), the Korea Communications Commission shall issue either a specific communications business registration certificate or a value-added communications business report certificate.
Article 33 (Report on Suspension or Discontinuation of Business)
A person who wishes to file a report on either (i) suspension or discontinuation of a specific communications business or a value-added communications business or (ii) dissolution of a corporation that is a specific communications business operator or a value-added communications business operator shall submit to the Korea Communications Commission a report on suspension, discontinuation or dissolution of a specific communications business or a value-added communications business (including an electronic application) with documentation (including electronic documentation) demonstrating that users have been notified of such suspension or discontinuation attached thereto; provided that, in the event the information contained in

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any of such documentation can be verified through the public administrative information available pursuant to Article 21(1) of the E-Government Act, such verification may substitute for the relevant documentation
CHAPTER III. TELECOMMUNICATIONS OPERATION
Article 34 (Approval of Terms of Use)
     (1) The services for which key communications business operators must obtain approval of terms of use pursuant to the proviso of Article 29(1) of the Act shall be any of the following <Amended by Enforcement Decree No. 21060, Oct. 1, 2008>:
  1.   among the services provided by the key communications business operator with the highest market share with respect to the aggregate national sales based on sales from each service in the preceding year, the service from which sales in the preceding year reach or exceed the amount determined and publicly notified by the Korea Communications Commission with respect to each service; or
 
  2.   if a key communications business operator providing the service prescribed under subparagraph 1 completes business consolidation with another key communications business operator pursuant to Article 12(1)1 or 12(1)4 of the Monopoly Regulation and Fair Trade Act, the service prescribed under subparagraph 1 provided by such other key communications business operator.
     (2) By the end of June each year, the Korea Communications Commission shall designate and issue public notification of the key communications business operators and services prescribed under paragraph (1); provided that, the Korea Communications Commission shall designate and issue public notification of the key communications business operators and services falling under subparagraph 2 of paragraph (1) immediately after the date of report on business consolidation thereunder.
     (3) Notwithstanding the provisions under paragraph (1), a key communications business operator who wishes to amend minor aspects of terms of use as prescribed by

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the Korea Communications Commission may file a report with the Korea Communications Commission.
Article 35 (Application for Approval of Terms of Use)
A person who wishes to file a report (including a report on amendment) or obtain an approval (including an approval of amendment) on terms of use with respect to telecommunications services pursuant to Article 29(1) of the Act shall submit to the Korea Communications Commission terms of use containing each of the following with documentation demonstrating the bases for price computation attached thereto:
  1.   types and details of telecommunications services;
 
  2.   areas in which telecommunications services are provided;
 
  3.   prices of telecommunications services, including fees and actual expenses;
 
  4.   details concerning the responsibilities of telecommunications business operators and users of telecommunications services; and
 
  5.   any other information necessary the provision or use of the relevant telecommunications services.
Article 36 (Services Entitled to Reduction or Exemption of Fees)
     Telecommunications services entitled to the reduction or exemption of fees pursuant to Article 32 of the Act shall be as follows:
  1.   Telecommunications services for the communications concerning the rescue of human lives and properties in danger, and the rescue from disasters or for the communications by the victims of disasters;
  2.   Telecommunications services for the whole or part of exclusive line communications used by such agencies, in case where the exclusive line communications of agencies which are fully responsible for military, public order and national security, and a part of self-communications network of the

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      State, local governments or government-invested institutions are integrated into the telecommunications net-work of a key communications business;
  3.   Telecommunications services for the communications required for military operations in wartime;
 
  4.   Telecommunications services for the newspapers under the Registration, etc. of Periodicals Act, and for communication for news reports by the broadcasting stations under the Broadcasting Act;
 
  5.   Telecommunications services for a communication which is required for facilitating the use, and for diffusing the distribution, of information communications;
 
  6.   Telecommunications services for a communication by those who are in need of the protection for the improvement of social welfare;
 
  7.   Telecommunications services for a communication which is required for the promotion of interchange and cooperation between North and South Korea; and
 
  8.   Telecommunications services for a communication which is specially required for the operation of postal and telegraphic services.
Article 37 (Provision of Transmission or Line Facilities and Equipment, etc.)
Pursuant to Article 32-4(1) of the Act, a CATV broadcasting business operator, signal transmission network business operator or CATV relay broadcasting business operator under the Broadcasting Act may provide transmission or line facilities and equipment or the CATV broadcasting facilities and equipment (the “Transmission or Line Facilities and Equipment, etc.”) to key communications business operators in a manner falling under one of the following:
  1.   sale or lease of transmission or line facilities, etc.;
 
  2.   commissioned performance of the communications or exchange operations,

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      etc. by making use of transmission or line facilities, etc.; or
  3.   manners corresponding to subparagraphs 1 and 2, which are determined by a consultation between a CATV broadcasting business operator, a signal transmission network business operator, or a CATV relay broadcasting business operator.
CHAPTER IV. PROMOTING COMPETITION IN TELECOMMUNICATIONS BUSINESS
Article 38 (Criteria and Procedures for, and Methods of, Evaluating Competition Status)
     (1) When making determination concerning unit markets for the purpose of evaluating competition status pursuant to Article 33-4(2) of the Act, all of the following factors shall be considered:
  1.   demand substitutability and supply substitutability of the services;
 
  2.   geographical scope of the services provided;
 
  3.   transaction stages of the services provided such as retail (meaning transactions between telecommunications business operators and ultimate users of the services provided by such telecommunications business operators) and wholesale (meaning transactions through which telecommunications facilities and equipment, etc., installed to provide wholesale services, are offered to other telecommunications business operators); and
 
  4.   special characteristics of users such as differences in purchasing power and negotiating edge or uniqueness of demand.
     (2) Evaluation of competition status with respect to the unit markets determined under paragraph (1) shall be implemented by comprehensively considering each of the following factors:

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  1.   market structure such as market share and entrance barrier;
 
  2.   response capacity of users such as accessibility of information related to service use and ease of switching service providers;
 
  3.   activities of telecommunications business operators such as those relating to price and quality competition and technology innovation; and
 
  4.   market performances such as the level of price and quality and the size of excess profits made by telecommunications business operators.
     (3) Where it deems necessary for evaluating competition status, the Korea Communications Commission may invite opinions from relevant professionals and related parties.
Article 39 (Criteria applicable to Key Communications Business Operators)
     (1) The “key communications business operators satisfying the criteria prescribed under the Enforcement Decree of the Act” in Articles 33-5(2)2, 34(3)2, 34-3(3)2 and 34-4(3)2 of the Act means, where sales of certain key communications business operators in each service from the preceding year exceed the amount determined and publicly notified by the Korea Communications Commission with respect to each service, those business operators whose market share in relation to the national aggregate sales from the relevant service is 50% or higher.
     (2) By the end of June each year, the Korea Communications Commission shall designate and issue public notification of the key communications business operators prescribed under Articles 33-5(2), 34(3), 34-3(3) and 34-4(3) of the Act.
Article 40 (Report on Accord, etc. concerning Interconnections, etc.)
     (1) A person who wishes, under Article 34-6(1) or 34-6(2) of the Act, to file a report on, or obtain an approval of (i) the provision, common use or interconnection of telecommunications facilities and equipment or (ii) the execution or termination of, or an amendment to, an accord on provision of information on shall submit to the Korea Communications Commission each of the following documentation:

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  1.   copy of the accord;
 
  2.   documentation demonstrating the amounts due from, or payable to, the parties to the accord, the computation methods with respect to such amounts and how the accord shall be implemented;
 
  3.   documentation demonstrating provision, common use or interconnection of, or conditions upon which information shall be provided on, telecommunications facilities and equipment, and any other costs related to the accord;
 
  4.   drawings indicating provision, common use or interconnection of, or a summary of the information to be provided on, telecommunications facilities and equipment; and
 
  5.   documentation comparing the new accord against the old (applicable only to filing of a report of amendment or applying for an approval of amendment).
     (2) Upon receipt of documentation under paragraph (1), the Korea Communications Commission shall examine whether such documentation comply with the criteria for provision, common use or interconnection of, or provision of information on, telecommunications facilities and equipment pursuant to Article 33-5(3), 33-7(3), 34(2), 34-3(2) or 34-4(2) of the Act.
     (3) Pursuant to Article 21(3) of the Framework Act on Telecommunications, upon receipt of documentation under paragraph (1), the Korea Communications Commission shall examine whether such documentation complies with the criteria for provision, common use or interconnection of, or provision of information on, telecommunications facilities and equipment pursuant to Article 33-5(3) of the Act, and whether the private telecommunications facilities and equipment provided were installed by an individual to be used for her or his own telecommunications.
Article 41 (Reporting Offenses)
     (1) Any person recognizing any of the offenses prescribed under Article 36-3(1) of

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the Act may report to the Korea Communications Commission of such act and request any measures prescribed under each of the subparagraphs of Article 37(1) of the Act to be taken.
     (2) A person who wishes to make a report under paragraph (1) shall submit to the Korea Communications Commission documentation indicating each of the following:
  1.   name (if a corporation, the name of the corporation and its representative) and address of the person making the report;
 
  2.   trade name, or name (if a corporation, the name of its representative), and address of the person being reported;
 
  3.   details of the offense; and
 
  4.   measures necessary for addressing the offense.
     (3) The Korea Communications Commission may, where it deems necessary, request that the documentation submitted to it under paragraph (2) be supplemented within a period reasonably fixed.
Article 42 (Types of and Criteria for Offenses)
     (1) The types of, and criteria for, the offenses pursuant to Article 36-3(3) of the Act shall be as provided in Table 3 attached hereto.
     (2) The Korea Communications Commission may, where it deems necessary for the purpose of applying to specific telecommunications fields or specific offenses, determine and issue public notification of the details concerning the types of, and criteria for, the offenses under paragraph (1).
Article 43 (Investigation of Facts)
A public official who intends to enter and investigate an office and business place of a telecommunications business operator, or a business place of a person who is entrusted with the affairs of a telecommunications business operator, pursuant to Article 36-5(2)

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of the Act shall have the parties concerned from the relevant office or business place be present at the time of investigation.
Article 44 (Measures Taken, etc. on Offenses)
     The term “other matters necessary for implementation of the provisions under subparagraph 1 or 9 as prescribed under the Enforcement Decree of the Act” in Article 37(1)10 of the Act refers to each of the following:
  1.   submission of a plan for implementing the provisions under Article 37(1)1-9 of the Act; and
 
  2.   report on the results of the implementation of the provisions under Article 37(1)1-9 of the Act.
Article 45 (Implementation Period of Corrective Orders)
The period by the end of which telecommunications business operators shall implement the corrective order issued by the Korea Communications Commission pursuant to Article 37(2) of the Act shall be as provided in Table 4 attached hereto.
Article 46 (Offenses Subject to Imposition of Penalties and Amount of Such Penalties, etc.)
The classifications of offenses subject to imposition of penalties, the upper limit of such penalties and the criteria for imposition of such penalties pursuant to Article 37-2(3) of the Act shall be as provided in Table 5 attached hereto.
Article 47 (Computation Methods of Penalties)
     (1) The term “sales as prescribed under the Enforcement Decree of the Act” in the text of Article 37-2(1) of the Act means the average annual sales for the 3 preceding fiscal years of the telecommunications services related to the offense committed by the relevant telecommunications business operator; provided that, if, as of the first day of the applicable fiscal year, less than 3 years have elapsed since the commencement of the relevant business as of the first day of the relevant fiscal year, such term shall mean the

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sales of the period from the commencement of the relevant business until the last day of the preceding fiscal year, converted into annual average sales, or if the relevant business has been commenced in the applicable fiscal year, such term shall mean sales of the period from the commencement date of the relevant business until the date of commission of the offense, converted into annual sales.
     (2) The term “where there has been no sales or it is difficult to compute sales as prescribed under the Enforcement Decree of the Act” in the proviso of Article 37-2(1) of the Act means any of the following:
  1.   where there has been no sales result due to such reasons as non-commencement or suspension of business; or
 
  2.   where it is difficult to make an objective computation of sales.
Article 48 (Imposition and Payment of Penalties)
     (1) The Korea Communications Commission shall, where it intends to impose penalties pursuant to Article 37-2 of the Act and subsequent to its investigation and verification of the relevant offense, notify, in writing, the person subject to such penalties of the fact of offense, the amount thereof and the method of, and the period for, raising objection thereto.
     (2) A person who receives a notification under paragraph (1) shall pay the relevant penalties to a financial institution designated by the Korea Communications Commission within 20 days from the date of receiving such a notification; provided that, if the person is unable to pay the penalties within such period due to a natural disaster or other unavoidable circumstances, the person shall pay the penalties within 7 days from the date on which said reason ceases to exist.
     (3) A financial institution in receipt of a payment of penalties under paragraph (2) shall deliver a receipt thereof to the person who paid the penalties.
Article 49 (Demand for Penalties)
     (1) A demand for penalties pursuant to Article 37-2(5) of the Act shall be made in

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writing within 7 days from the date on which the payment deadline expires.
     (2) Where a demand note is issued under paragraph (1), a deadline for payment of any penalties in arrear shall be within 10 days from the date on which such demand note is issued.
Article 50 (Services Subject To Prior Selection)
The “telecommunications services prescribed under the Enforcement Decree of the Act” in the latter part of Article 38-3(1) of the Act means the Long Distance Telephone Service.
Article 51 (Provision of Directory Assistant Service)
     (1) Telecommunications business operators providing a directory assistant service pursuant to Article 38-6(1) of the Act may furnish any of the following information:
  1.   name or trade name of the user;
 
  2.   telephone number of the user; or
 
  3.   address of the user up to Eup/Myeon/Dong.
     (2) Telecommunications business operators shall obtain users’ consent to a directory assistant service through a method that can be used to verify as to whether such consent has been indeed given by the user, such as the user’s handwritten or electronic signature, and to prove at a later date that such consent has been given.
     (3) Users may withdraw their consent given under paragraph (2) at any time, and telecommunications business operators shall, without any delay, take the necessary measures so that a directory assistance service shall not be provided with respect to such users who withdrew their consent; provided that, where the pertinent directory assistance service is provided through a written material, a user shall have to withdraw her consent at least 30 days prior to the print date of such written material for the withdrawal to take effect.

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CHAPTER V. PROTECTION OF TELECOMMUNICATIONS FACILITIES AND EQUIPMENT
Article 52 (Designation of Alert Areas for Submarine Cable)
     (1) A key communications business operator who wishes to apply for designation of alert areas for submarine cable under Article 50(3) of the Act shall submit to the Korea Communications Commission documentation demonstrating each of the following:
  1.   need to designate alert areas; and
 
  2.   legs and width of the alert areas indicated by using coordinates of latitude and longitude.
     (2) The Korea Communications Commission may, where necessary for designation of alert areas for submarine cable, request additional information further to the documentation prescribed under paragraph (1) from any key communications business operator who applies for such designation.
     (3) Upon receipt of the documentation submitted to it under paragraphs (1) and (2), the Korea Communications Commission shall send such documentation to the heads of the relevant state administrative organs prescribed under Article 50(4) of the Act for consultation.
     (4) Except under ordinary circumstances, the Korea Communications Commission shall, within 60 days of the date of application for designation of an alert area for submarine cable, notify the key communications business operator making such application, and if such designation is approved, issue, without any delay, public notification of the newly designated alert area.
     (5) Once the Korea Communications Commission designates and issues public notification of a new alert area under paragraph (4), the key communications business operator who applied for such designation shall disclose the location of the new alert area on its website, etc., and may place buoys, etc. in the new alert area for marking purposes.

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CHAPTER VI. SUPPLEMENTARY PROVISIONS
Article 53 (Protection of Communication Secrets)
     (1) Telecommunications business operators shall preserve the ledger of communications data supplied, prescribed under Article 54(5) of the Act, for a period of 1 year.
     (2) Reports on, and notification of, the status of communications data supplied pursuant to Articles 54(6) and 54(7) of the Act respectively, must be provided within 30 days after the expiration of each half-year.
     (3) An office dedicated to protection of communication secrets pursuant to Article 54(8) of the Act (the “Dedicated Office”) shall undertake to perform each of the following:
  1.   oversee tasks related to communication secrets of users;
 
  2.   regulate illegal or undue infringement of communication secrets of users by employees of telecommunications business operators or third parties;
 
  3.   report on the present status of communications information supplied under Article 54(6) of the Act;
 
  4.   furnish notification of the recordations in the ledger of communications data supplied under Article 54(7) of the Act;
 
  5.   address complaints or opinions from users with respect to communication secrets;
 
  6.   train the employees in charge of tasks connected with communication secrets; and
 
  7.   any other matters necessary for protection of communication secrets of users.
     (4) The Dedicated Office shall be based at the headquarters of each

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telecommunications business operator with the officers thereof in charge.
     (5) An authorized signatory for documentation under Article 54(9) of the Act shall be either (i) a judge, a prosecutor or an investigatory entity (including, throughout this Enforcement Decree, a military investigatory body, the National Tax Service and regional tax services) (ii) a public official of Grade 4 or higher who belongs to an intelligence agency (including a public official of Grade 5 who is the head of an investigatory body or intelligence agency) or (iii) a public official who belongs to senior executive service; provided that, (x) with respect to the police or marine police, such authorized signatory shall be a public officer whose position is senior superintendent or higher (including a superintendent who is the head of a district policy agency) and (y) with respect to a military investigatory body, it shall be a military prosecutor or a person whose rank is lieutenant colonel or higher (including a major with respect to a military investigatory body at which a major is the commanding officer).
     (6) The documentation prescribed under Article 54(9) of the Act shall clearly indicate the authorized signatory’s name and rank; provided that, with respect to intelligence agencies prescribed under Article 2(6) of the Regulation on Planning and Coordination of Information Security, only the title of the authorized signatory shall be indicated, and with respect to courts, the title and name of the authorized signatory shall be indicated.
Article 54 (Caller Identification, etc.)
     (1) Telecommunications business operators may not impose charges on users who choose, pursuant to the latter part of Article 54-2(1) of the Act, not to allow their telephone numbers to be identified when making telephone calls.
     (2) A person who wishes to be informed of the telephone number of the caller pursuant to Article 54-2(2) of the Act shall make a written request therefor to the pertinent telecommunications business operator with any of the following documentation demonstrating in detail that the person has been subjected to abusive language, threats or harassment over the telephone attached thereto:
  1.   written records of the date, time and contents of threats, etc. over the telephone;

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  2.   voice records of threats, etc. over the telephone;
  3.   documentation supporting that a crime report has been filed with the police in connection with threats, etc. over the telephone;
 
  4.   documentation supporting that advice has been sought from a clinic with respect to the damages incurred from threats, etc. over the telephone;
 
  5.   any other documentation equivalent or similar to those set forth in subparagraphs 1-4.
     (3) “As prescribed under the Enforcement Decree of the Act” in Article 54-2(2) of the Act means where each of the following telephone services is used:
  1.   to report international terror-related crime (111);
 
  2.   to report crime (112);
 
  3.   to report spies (113);
 
  4.   to report cyber terror and seek advice in relation thereto (118);
 
  5.   to report fire or seek emergency rescue (119);
 
  6.   to report marine accidents or crime (122);
 
  7.   to report smuggling (125); or
 
  8.   to report drug offenders (127).
Article 55 (Restriction on and Suspension of Service)
     (1) Where the Korea Communications Commission issues, under Article 55 of the Act, an order to restrict or suspend the whole or part of the telecommunications business of telecommunications business operators, it may allow communications for

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undertaking the matter falling under each of the following in the order of their priority, in proportion to the scope and severity of the relevant restriction or suspension:
  1.   top priority
  (a)   national security;
 
  (b)   military affairs and public security;
 
  (c)   transmission of the civil defense alarm; and
 
  (d)   electronic wave control;
  2.   second priority
  (a)   disaster relief;
 
  (b)   telecommunications, navigation safety, weather, fire fighting, electricity, gas, water service, transportation and the press;
 
  (c)   affairs of the State and local government, except for those mentioned in items (a) and (b); and
 
  (d)   affairs of the foreign diplomatic missions and the organizations of the United Nations in Korea;
  3.   third priority
  (a)   affairs of the enterprises subject to resources control and the firms of defense industry; and
 
  (b)   affairs of government-invested institutions, and medical institutions; and
  4.   forth priority: matters other than those listed in subparagraphs 1 through 3.
     (2) The restriction or suspension on the telecommunication services under

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paragraph (1) shall be the least of those required for securing the important communications.
     (3) A telecommunications business operator shall, in case where he restricts or suspends the whole or part of telecommunications services under paragraph (1), report the content thereof without delay to the Korea Communications Commission.
Article 56 (Approval, etc. for International Telecommunications Services) <Amended by Enforcement Decree No. 21060, Oct. 1, 2008>
     (1) The term “international telecommunications business as prescribed under the Enforcement Decree of the Act” in Article 59(2) of the Act means the services falling under any of the following:
     1.     installation and lease of a satellite for providing international telecommunications services; or
     2.     transboundary provision of key communications services under Article 59-2 of the Act.
     (2) A person who intends to obtain approval under Article 59(2) of the Act shall submit the following documents to the Korea Communications Commission:
  1.   duplicate copy of written agreement or contract;
 
  2.   comparative table between new and old agreements or contracts (limited to the cases where an application for modified approval is filed); and
 
  3.   document certifying the fact that the agreements or contracts have been abrogated (limited to the cases where an application for approval of abrogation is filed).
Article 57 (Revocation of Approval for Agreement to Provide Transboundary Key Communications Services)
     (1) The criteria for revocation of approval for agreements to provide

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transboundary key communications services and for suspension of provision of transboundary key communications services pursuant to Article 59-2(3) of the Act shall be as follows:
  1.   first violation shall result in suspension of 6 months or less, or suspension of invitation of new users; and
 
  2.   second violation shall result in revocation of approval.
     (2) Upon revoking approval or ordering suspension, the Korea Communications Commission shall issue public notification and notify the relevant telecommunications business operator in writing thereof.
Article 58 (Report on Statistics)
     (1) The types of statistics telecommunications business operators must report to the Korea Communications Commission pursuant to Article 62(1) of the Act are as follows:
  1.   present status of telecommunications facilities, including those for exchange, transmission, wire and power per service;
 
  2.   use records of telecommunications, including sales and times of use per service, period, distance stage, time zone, country (including the use records per foreign telecommunications business operator) and Calling Area and between Calling Areas;
 
  3.   present status of telecommunications users, including the number of subscribers per service, city and province and Calling Area;
 
  4.   information related to call volume, including (i) call volume between Calling Areas and per service, period, distance stage, time zone, city and province, country (including the call volume per foreign telecommunications business operator) and Calling Area and (ii) information on provision of facilities and equipment and on interconnection;

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  5.   information related to accounting, including a sales report prepared for each service and business provided; and
 
  6.   aggregated issue amount of prepaid calling cards and use records of the Calling Areas (applicable only to specific communications business operators).
     (2) The Korea Communications Commission shall determine the format, submission method and reporting deadline of the relevant statistics under paragraph (1) and any other matters related thereto.
Article 59 (Submission of Documentation)
     (1) Pursuant to Article 62(2) of the Act, key communications business operators and their shareholders shall submit to the Korea Communications Commission each of the following:
  1.   present status of the corporation’s outstanding shares (including, throughout this Article, equities);
 
  2.   present shareholding (including, throughout this Article, equity investment ratios) status of shareholders owning the corporation’s outstanding shares (including, throughout this Article, equity investors) and their related parties;
 
  3.   purpose of shareholding and reasons for the change (applicable only to shareholders of key communications business operators);
 
  4.   date of acquiring the shares and details of capital used for such acquisition (applicable only to shareholders of key communications business operators);
 
  5.   form of shareholding (applicable only to shareholders of key communications business operators); and
 
  6.   documentation supporting any of the information set forth in subparagraphs 1-5.

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     (2) Business operators obliged to submit documentation under paragraph (1) shall submit such documentation to the Korea Communications Commission by the following date <Amended July 29, 2008> :
  1.   if the business operator is a key communications business operator whose share certificates are listed on a stock exchange under Article 9(15)3 of the Financial Investment Services and Capital Markets Act, within 30 days from the date its shareholder registry is closed; or
 
  2.   if the key communications business operator does not fall under subparagraph 1, by January 30 of each year.
Article 60 (Methods for Computing Penalties)
     (1) The term “sales calculated under the conditions prescribed under the Enforcement Decree of the Act” in the main sentence of Article 64(1) of the Act means the annual average sales for 3 fiscal years immediately preceding of the telecommunications services by the relevant telecommunications business operator; provided that, where 3 years have not elapsed since the start of business as of the first day of the relevant fiscal year, it shall mean sales from the period from the start of the relevant business until the end of the immediately preceding fiscal year, converted into annual average sales; and where a business was started in the relevant fiscal year, it shall mean sales from the period from the date of starting the business until the date of an offense, converted into annual sales.
     (2) The term “where there exists no sales or the computation of sales is difficult, and where it is prescribed under the Enforcement Decree” in the proviso of Article 64 (1) of the Act means the case falling under any of the following:
  1.   where there exists no business record due to a failure of starting a business or a suspension of business, etc.;
 
  2.   where a telecommunications business operator has refused to submit the data for computing sales or has submitted false data; or
 
  3.   other cases where it is difficult to compute the amount of objective sales.

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Article 61 (Offenses Subject to Imposition of Penalties and Amount of Penalties, etc.)
     (1) Classifications of offenses subject to the imposition of a penalty and the amount of a penalty under Article 64(2) of the Act shall be as provided in Table 6 attached hereto.
     (2) In determining the amount of penalties under paragraph (1), the Korea Communications Commission shall take into account such factors as the peculiarities of providing telecommunications services and the severity and frequency of each offense.
     (3) The provisions under Articles 48 and 49 hereof shall apply mutatis mutandis to the imposition, payment and demand of penalties under Article 64 of the Act.
Article 62 (Extension of Payment Due Date, and Installment Payment, of Penalties)
     (1) A person who intends to extend the payment due date of a penalty or pay it in installments under Article 64-2 of the Act shall make an application to the Korea Communications Commission along with the document certifying grounds of the extension of payment due date or the payment in installments not later than 10 days prior to the relevant due date of payment.
     (2) The term “amount as prescribed under the Enforcement Decree” in Article 64-2(1) of the Act means either the amount equal to the sales under Article 47 multiplied by 1%, or 300 million won.
     (3) The extension of the payment due date of a penalty under Article 64-2 of the Act shall not exceed 1 year from the day immediately following said payment due date.
     (4) When making installment payments under Article 64-2 of the Act, the intervals between the respective installment payment due dates shall not exceed 4 months, and the frequency of installments shall not exceed three times.
     (5) The Korea Communications Commission may, if a person liable for a payment of a penalty for whom the payment due date has been extended or installment payments have been permitted under Article 64-2 of the Act comes to fall under any of the

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following, revoke such extension of payment due date, or the decision to allow such installment payments, and collect it in a lump sum:
  1.   where the person fails to pay a penalty for which the payment in installments has been decided, within the payment due date thereof;
 
  2.   where the person fails to implement an order necessary for a change of security or other security integrity, which is given by the Korea Communications Commission; or
 
  3.   where it is deemed that the whole or remainder of a penalty is uncollectible, such as the compulsory execution, commencement of auction, adjudication of bankruptcy, dissolution of a juristic person or dispositions on national or local taxes in arrears, etc.
Article 63 (Classification and Appraisal, etc. of Securities)
The provisions of Articles 29 through 34 of the Framework Act on National Taxes, and of Articles 13 through 17 of its Enforcement Decree shall apply mutatis mutandis to the provision of security under Article 64-2 of the Act.
Article 64 (Important Communications)
     (1) The term “important communications” in Article 65(2)3 of the Act means:
  1.   business telecommunications related to the national security, military affairs, public peace and order, civil defense alarm transmission and radio wave control; or
 
  2.   other communications publicly notified by the Korea Communications Commission in order to efficiently perform the State affairs.
     (2) The government may grant a subsidy for the expenses required for the construction and management of the important communications in order to secure the important communications under paragraph (1).

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Article 65 (Delegation of Authority) <Amended July 3, 2008>
The Korea Communications Commission shall delegate the authority falling under any of the following to the Director General of the Central Radio Management Office pursuant to Article 68 (1) of the Act <Amended July 3, 2008; amended by Enforcement Decree No. 21060, Oct. 1, 2008>:
  1.   registration of specific communications business under Article 19(1) of the Act;
 
  2.   acceptance of a report on the value-added communications business under the text of Article 21 of the Act;
 
  3.   acceptance of a modified registration for the specific communications business, and of a modified report for value-added communications business, under Article 22 of the Act;
 
  4.   acceptance of a report on the transfer or takeover of a specific communications business or a value-added communications business, and on the merger or succession of a juristic person, under Article 25 of the Act;
 
  5.   acceptance of a report on the suspension or discontinuation of a specific communications business or a value-added communications business, and on the dissolution of a juristic person under Article 27 of the Act;
 
  6.   order to cancel registration of or suspend a specific communications business under Article 28(1) of the Act;
 
  7.   order to closedown or suspend a value added communications business under Article 28(2) of the Act;
 
  8.   permission for a felling or transplanting of the plants under the former part of Article 42 (3) of the Act;
 
  9.   hearing on the order to cancel registration of a specific communications business or to closedown a value-added communications business under

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      Article 63(2) of the Act;
  10.   imposition and collection of surcharge under Article 64 of the Act and permission for extension of time limit for payment of and payment in installment of such surcharge under Article 64-2 of the Act, except against a key communications business operator;
 
  11.   correction order under Article 65(1) of the Act, except against a key communications business operator;
 
  12.   order to suspend the provision of telecommunications service or to remove telecommunications facilities under Article 65(3) of the Act, except against a key communications business operator;
 
  13.   imposition and collection of surcharge under Article 78 of the Act, except against a key communications business operator.
Chapter 7. Deleted. <As amended by Enforcement Decree No. 21060, Oct. 1, 2008>
Article 66 Deleted. < As amended by Enforcement Decree No. 21060, Oct. 1, 2008>
Article 67 Deleted. < As amended by Enforcement Decree No. 21060, Oct. 1, 2008>
ADDENDA
<Enforcement Decree No. 21060, October 1, 2008>
This Enforcement Decree shall become effective as of the date of declaration.

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