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.

TABLE OF CONTENTS

	Page
PART I		1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGERS AND ADVISERS		1
Item 1.A. Directors and Senior Management		1
Item 1.B. Advisers		1
Item 1.C. Auditors		1
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE		1
Item 2.A. Offer Statistics		1
Item 2.B. Method and Expected Timetable		1
ITEM 3. KEY INFORMATION		1
Item 3.A. Selected Financial Data		1
Item 3.B. Capitalization and Indebtedness		5
Item 3.C. Reasons for the Offer and Use of Proceeds		5
Item 3.D. Risk Factors		5
ITEM 4. INFORMATION ON THE COMPANY		14
Item 4.A. History and Development of the Company		14
Item 4.B. Business Overview		15
Item 4.C. Organizational Structure		37
Item 4.D. Property, Plants and Equipment		37
ITEM 4A. UNRESOLVED STAFF COMMENTS		40
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS		40
Item 5.A. Operating Results		40
Item 5.B. Liquidity and Capital Resources		53
Item 5.C. Research and Development, Patents and Licenses, Etc.		61
Item 5.D. Trend Information		62
Item 5.E. Off-balance Sheet Arrangements		62
Item 5.F. Tabular Disclosure of Contractual Obligations		62
Item 5.G. Safe Harbor		62
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		62
Item 6.A. Directors and Senior Management		62
Item 6.B. Compensation		66
Item 6.C. Board Practices		67
Item 6.D. Employees		68
Item 6.E. Share Ownership		70
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		70
Item 7.A. Major Shareholders		70
Item 7.B. Related Party Transactions		70
Item 7.C. Interests of Experts and Counsel		71
ITEM 8. FINANCIAL INFORMATION		71
Item 8.A. Consolidated Statements and Other Financial Information		71
Item 8.B. Significant Changes		72
ITEM 9. THE OFFER AND LISTING		73
Item 9.A. Offer and Listing Details		73
Item 9.B. Plan of Distribution		74

i

TABLE OF CONTENTS

(continued)

	Page
Item 9.C. Markets		74
Item 9.D. Selling Shareholders		78
Item 9.E. Dilution		79
Item 9.F. Expenses of the Issuer		79
ITEM 10. ADDITIONAL INFORMATION		79
Item 10.A. Share Capital		79
Item 10.B. Memorandum and Articles of Association		79
Item 10.C. Material Contracts		84
Item 10.D. Exchange Controls		85
Item 10.E. Taxation		88
Item 10.F. Dividends and Paying Agents		92
Item 10.G. Statements by Experts		92
Item 10.H. Documents on Display		92
Item 10.I. Subsidiary Information		92
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		93
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		94
Item 12.A. Debt Securities		94
Item 12.B. Warrants and Rights		94
Item 12.C. Other Securities		94
Item 12.D. American Depositary Shares		94
PART II		94
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		94
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		94
ITEM 15. CONTROLS AND PROCEDURES		95
ITEM 16. [Reserved]		96
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT		96
ITEM 16B. CODE OF ETHICS		96
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES		96
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		96
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		97
ITEM 16G. CORPORATE GOVERNANCE		97
PART III		99
ITEM 17. FINANCIAL STATEMENTS		99
ITEM 18. FINANCIAL STATEMENTS		99
ITEM 19. EXHIBITS		99
EX-1
EX-8.1
EX-12.1
EX-12.2
EX-13.1
EX-15.1
EX-15.2
EX-15.3
EX-15.4

ii

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.

1

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

2

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

3

	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.

4

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.

5

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.

6

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

98

PART III

Item 17.   Financial Statements

Not applicable.

Item 18.   Financial Statements

AUDITED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS OF KT CORPORATION

	Page
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting		F-1
Report of Independent Registered Public Accounting Firm		F-2
Report of Independent Registered Public Accounting Firm		F-3
Consolidated Balance Sheets as of December 31, 2007 and 2008		F-4
Consolidated Statements of Income for the Years Ended December 31, 2006, 2007 and 2008		F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2007 and 2008		F-8
Notes to Consolidated Financial Statements		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.

99

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

F-1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F-19

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.

F-20

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

F-21

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.

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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

F-33

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

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		—

F-35

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F-55

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

%

F-56

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F-78

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.

F-79

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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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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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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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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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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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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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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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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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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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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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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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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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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(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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(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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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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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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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

F-110

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

F-111

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

F-112

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

F-113

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

F-114

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.

F-115

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.

F-116

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

F-118

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

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.